-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AJGpswbkveF5jtj/BKjUEQp3MoAILQIaBI8n4acSiD6FqPi4xfcJtra/5N0p8IHn Q7noF1+IcKCLaeW/SnmYCg== 0001047469-04-009988.txt : 20040330 0001047469-04-009988.hdr.sgml : 20040330 20040330140327 ACCESSION NUMBER: 0001047469-04-009988 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SONESTA INTERNATIONAL HOTELS CORP CENTRAL INDEX KEY: 0000091741 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 135648107 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-09032 FILM NUMBER: 04699812 BUSINESS ADDRESS: STREET 1: 116 HUNTINGTON AVENUE, FLOOR 9 CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 6174215400 MAIL ADDRESS: STREET 1: 116 HUNTINGTON AVENUE, FLOOR 9 CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: HOTEL CORP OF AMERICA DATE OF NAME CHANGE: 19700622 FORMER COMPANY: FORMER CONFORMED NAME: CHILDS CO DATE OF NAME CHANGE: 19681121 10-K 1 a2132289z10-k.txt 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to _____________________ Commission file number 0-9032 SONESTA INTERNATIONAL HOTELS CORPORATION ---------------------------------------- (Exact name of registrant as specified in its charter) NEW YORK 13-5648107 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 116 Huntington Avenue, Boston, Massachusetts 02116 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 421-5400 Securities to be registered pursuant to Section 12(b) of the Act: NONE (Title of Class) Securities to be registered pursuant to Section 12(g) of the Act: Title of each class Name of each exchange on which registered Class A Common Stock $ .80 par value per share NASDAQ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2) Yes / / No /X/ The aggregate market value of the common stock held by non-affiliates of the registrant as of the close of business on June 30, 2003 was $4,981,597. The number of shares outstanding of the registrant's common stock as of the close of business on March 15, 2004 was 3,698,230. Documents incorporated by reference 1. Portions of the annual report to shareholders for the year ended December 31, 2003 are incorporated by reference into Parts I and II. 2. Portions of the proxy statement for the 2003 annual meeting of stockholders are incorporated by reference into Part III. An Index to Exhibits appears on pages 14 through 19 of this Form 10-K. 1 PART I ITEM 1. BUSINESS (a) GENERAL DEVELOPMENT OF BUSINESS. The Company is engaged in the operation of hotels that it owns or leases in Boston (Cambridge), Massachusetts; Key Biscayne, Florida; and New Orleans, Louisiana. It also operates, under management agreements, hotels in Southampton, Bermuda; New Orleans, Louisiana; Coconut Grove, Florida; Sunny Isles Beach, Florida; and Cairo, Luxor, Port Said and Sharm el Sheikh (2), Egypt; and three Nile River cruise vessels. The Company has also entered into management agreements to operate new hotels being created in Ras Sudr and Hurghada, Egypt. In addition, the Company has master franchise agreements for hotels in Brazil, Peru and Italy, and currently licenses seven (7) hotels in Peru, and four (4) hotels, including a 10th century castle, in Tuscany, Italy. A licensed property in Sao Paulo, Brazil, is expected to open in 2004. The Company's business in 2003 continues to be negatively affected by lower demand and reduced business travel, in particular. Intense competition for available business has resulted in decreased revenues, in particular at the Company's Royal Sonesta Hotel Boston (Cambridge) and Royal Sonesta Hotel New Orleans. (b) FINANCIAL INFORMATION ABOUT SEGMENTS. This information is incorporated by reference from Note 8 to the Company's consolidated financial statements (pages 21 and 22 of the 2003 Annual Report to Shareholders) for information concerning the segment(s) in which the Company operates. (c) NARRATIVE DESCRIPTION OF BUSINESS. The Company's business is to a great extent dependent upon a high level of economic activity. The hotel business is highly competitive. The facilities of competitors are often affiliated with national or regional chains having more room accommodations and greater financial resources than the Company. The Company follows the practice of refurnishing and redecorating the hotels which it operates in order to keep the properties attractive and competitive with new hotel properties, and this requires the Company to make substantial capital expenditures. During the two years ended December 31, 2003, the Company made such capital expenditures totaling approximately $14,607,000. The Company endeavors to create individual and distinctive features for each hotel property while utilizing common corporate identification in order to obtain the benefits of chain operation. The Company is using the name "Sonesta" for all of its hotels. The Company has approximately 1,460 employees. The Company considers its relations with its employees to be satisfactory. 2 Item 1 (c) (Cont'd) While the business of the Company's individual hotels is seasonal, the diverse locations of the Company's three owned or leased properties tend to mitigate the impact of this factor. Traditionally, only the third quarter has produced significantly less revenues and operating income than the first, second and fourth quarters, although these seasonal fluctuations do not materially affect the Company's business activities. The following table reflects total revenues, annual occupancy percentages, average room rates and revenues per available room ("REVPAR") for the Company's owned and leased properties for the years 2003, 2002, and 2001. REVPAR is calculated by dividing annual room revenue by the total number of rooms available during the year.
TOTAL REVENUES (IN THOUSANDS) NUMBER OF YEAR BUILT -------------------------------- HOTEL ROOMS OR ACQUIRED 2003 2002 2001 - ----- --------- ----------- --------- --------- --------- Sonesta Beach Resort Key Biscayne Owned 300 1998 $ 26,587 $ 25,477 $ 26,144 Royal Sonesta Hotel Boston (Cambridge) Owned 400 1963/1984 21,622 25,500 26,831 Royal Sonesta Hotel New Orleans Leased 500 1969 33,210 34,954 36,299
AVERAGE AVERAGE OCCUPANCY DAILY PERCENTAGE RATE -------------------------- -------------------------------- HOTEL 2003 2002 2001 2003 2002 2001 - ----- ---- ---- ---- ------- ------- ------- Sonesta Beach Resort Key Biscayne 66.8% 64.0% 63.2% $ 194 $ 194 $ 211 Royal Sonesta Hotel Boston (Cambridge) 62.0% 68.7% 66.3% 141 160 173 Royal Sonesta Hotel New Orleans 79.2% 78.8% 83.0% 155 167 167
"REVPAR" -------------------------------- HOTEL 2003 2002 2001 - ---- ------- ------- ------- Sonesta Beach Resort Key Biscayne $ 130 $ 124 $ 134 Royal Sonesta Hotel Boston (Cambridge) 87 110 115 Royal Sonesta Hotel New Orleans 123 132 139
The Company has established and maintains trademark protection for certain service marks it uses in conducting its business, including the service marks "Sonesta", "Sonesta Beach", "Just Us Kids", and the Company's stylized "S" logo. Trademarks are maintained in numerous countries, besides the United States. Each mark is generally protected for several years, subject to periodic renewal. 3 For revenues by types of services provided for the three years ended December 31, 2003, reference is made to the Consolidated Statements of Operations which appear on page 11 of the 2003 Annual Report to Shareholders. (d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS. This information is incorporated by reference from Note 8 on pages 21 and 22 of the 2003 Annual Report to Shareholders. (e) EXECUTIVE OFFICERS OF THE COMPANY.
EMPLOYMENT HISTORY NAME PRESENT POSITION AGE 1999 TO PRESENT ---- ---------------- --- ------------------ Roger P. Sonnabend Executive Chairman of the 78 Chairman and Chief Executive Officer until Board December 2003 Peter J. Sonnabend Chief Executive Officer and 50 Vice Chairman and Vice President until Vice Chairman December 2003, Secretary until May 2003 Stephanie Sonnabend Chief Executive Officer and 51 President until December 2003 President Paul Sonnabend Chairman of the Executive 76 Chairman of the Executive Committee and Committee and Executive Vice Chief Financial Officer until December 2003 President Stephen Sonnabend Senior Vice President 72 Senior Vice President Boy van Riel Vice President and Treasurer 45 Vice President and Treasurer Carol Beggs Vice President, Technology 43 Director of Information Systems until November 1999 Felix Madera Vice President, International 55 Vice President, International Kathy Rowe Senior Vice President 45 Vice President, Food and Beverage until December 2003 Jacqueline Sonnabend Executive Vice President 49 Executive Vice President Hans U. Wandfluh Vice President 69 Vice President; also President and General Manager, Royal Sonesta Hotel, New Orleans, Louisiana
4 ITEM 2. PROPERTIES The Company's hotels are primarily metropolitan and resort hotels in popular vacation areas which emphasize luxury accommodations and personal service. The Company has fee ownership in two hotels: Royal Sonesta Hotel, Boston (Cambridge), Massachusetts and Sonesta Beach Resort, Key Biscayne, Florida. Reference is made to Note 4 of the Notes to the Consolidated Financial Statements of the registrant which appears on pages 18 and 19 of the Company's 2003 Annual Report to Shareholders, for details of the mortgage liens on the Boston (Cambridge), Massachusetts property and the Key Biscayne, Florida property. The Company operates the Royal Sonesta Hotel, New Orleans, Louisiana under a long-term lease which expires on September 30, 2024, provided the Company exercises its third remaining ten-year extension option. As of March 12, 2004, The Company has exercised options through September 30, 2014. The Company also operates under management agreements hotels in Southampton, Bermuda; Coconut Grove (Miami), Florida; Sunny Isles Beach, Florida ; New Orleans, Louisiana; and Cairo, Luxor, Port Said and Sharm el Sheikh (2), Egypt; and three Nile River cruise vessels. The Company has granted licenses for the use of its name to seven (7) hotels in Peru, and four (4) hotels, including a 10th century castle, in Tuscany, Italy. A licensed property is scheduled to open in Sao Paulo, Brazil, in 2004. In addition to the properties listed above, the Company leases space for its executive offices at 116 Huntington Avenue, Boston, Massachusetts 02116. That lease commenced May 1, 2002, and has a 10-year term. ITEM 3. LEGAL PROCEEDINGS In November 2003, the Company's subsidiary, Sonesta Louisiana Hotels Corporation ("SLHC"), which operates Chateau Sonesta Hotel, in New Orleans (the "Hotel"), received notice from the owner of the Hotel ("Owner"), that it was initiating an arbitration pursuant to the terms of the Amended and Restated Management Agreement between Owner and SLHC (the "Management Agreement"). In its arbitration demand, Owner alleges that SLHC has failed to perform certain obligations under the Management Agreement, specifically its obligations to (A) "use all reasonable efforts to operate the Hotel...in a manner that achieves a high level of guest satisfaction and profitability", and (B) exercise all reasonable efforts to assure that Sonesta Hotels' corporate services "are billed to the Hotel and to the Royal Sonesta Hotel, New Orleans on a fair and equitable basis". This arbitration will take place in New Orleans. Consistent with the provisions of the Management Agreement, the parties have designated their respective arbiters, who failed to resolve the parties' dispute. Therefore, pursuant to the Management Agreement, they have engaged a third arbiter who will decide the dispute by selecting the position of one arbiter or the other, without compromise. The position established by Owner's arbiter claims damages of $2,952,000, whereas SLHC's arbiter has established that no more than $268,000 in damages should be awarded. Pending the completion of the arbitration, and based on the Company's confidence that it will prevail in the arbitration, the Company has provided for damages to be paid of $268,000 in its statement of financial position, in addition to an estimated $475,000 for legal and consulting fees related to the arbitration. This is in addition to $104,000 of expenses already incurred and paid in 2003. 5 In addition, the Company is from time to time subject to routine litigation incidental to its business, and generally covered by insurance. The Company believes that the results of such litigation will not have a materially adverse effect on the Company's financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of shareholders of the Company in the fourth quarter of 2003. 6 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Common stock market prices and dividends and the number of shareholders of record are incorporated by reference from page 2 of the 2003 Annual Report to Shareholders. A dividend of $ .10 per share was paid in July 2002, and a dividend of $ .10 per share was declared on the Company's stock in December 2002, but was paid in January 2003. A dividend of $ .05 was paid in July 2003; no dividend has been declared or paid on the Company's stock since July 2003. Other information required by this item is incorporated by reference from the Consolidated Statements of Stockholders' Equity which appears on page 12 of the 2003 Annual Report to Shareholders. ITEM 6. SELECTED FINANCIAL DATA Selected Financial Data, which appears on page 2 of the 2003 Annual Report to Shareholders, is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The remainder of the information required by Item 7 is incorporated by reference from pages 3 through 9 of the 2003 Annual Report to Shareholders. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This information is incorporated by reference from page 8 of the 2003 Annual Report to Shareholders. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements listed in the Index to Consolidated Financial Statements filed as part of this Annual Report on Form 10-K, together with the report of Ernst & Young LLP dated March 12, 2004 are incorporated herein by reference from the 2003 Annual Report to Shareholders. Selected Quarterly Financial Data, on page 9 of the 2003 Annual Report to Shareholders, is incorporated by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no disagreements with auditors on accounting principles or practices or financial statement disclosures in 2003. 7 ITEM 9A. CONTROLS AND PROCEDURES As of December 31, 2003, the Company's management carried out an evaluation, under the supervision and with the participation of the Company's Chief Executive Officer and President, Chief Executive Officer and Vice Chairman, and Vice President and Treasurer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934. Based on that evaluation, the Company's Chief Executive Officer and President, Chief Executive Officer and Vice Chairman, and Vice President and Treasurer concluded that the Company's disclosure controls and procedures are effective, as of December 31, 2003. There have been no significant changes in the Company's internal controls regarding financial reporting during the quarter ended December 31, 2003 that have materially affected, or are reasonably likely to materially affect, the Company's internal control regarding financial reporting, including any corrective actions with regard to significant deficiencies and material weaknesses. 8 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT A. DIRECTORS OF THE COMPANY AND COMPLIANCE WITH SECTION 16 (A) The information required by this item is incorporated herein by reference from the proxy statement for the 2004 Annual Meeting of Stockholders, which will be held on May 10, 2004. CODE OF ETHICS FOR SENIOR FINANCIAL EXECUTIVES AND DIRECTORS. The Company, for many years, has had in place a written Code of Ethics covering, among other subjects, ethical behavior, compliance with laws, and conflicts of interest. This Code of Ethics was adopted by the Company's Board of Directors and is applicable to all Company employees, including Senior Financial Officers and Directors. Each year, Company Directors, officers, and management, supervisory, and administrative employees are required to acknowledge, in writing, that they have read and understood the Company's Code of Ethics. A copy of the Company's Code of Ethics is posted on its web site at www.sonesta.com. AUDIT COMMITTEE CHARTER. The Company's Audit Committee Charter, which is an appendix to the Company's Proxy Statement, outlines the Committee's purpose, responsibilities, and authorities, and is reviewed and reassessed by the Audit Committee on an annual basis. AUDIT COMMITTEE MEMBERS AND FINANCIAL EXPERT. The Company's Board of Directors has an Audit Committee consisting of Messrs. George S. Abrams, Vernon R. Alden, Joseph L. Bower and Charles J. Clark. All the members of the Audit Committee are financially literate and independent. Mr. Clark, who the Company considers a financial expert, as defined by NASDAQ rules, serves as Chairman of the Audit Committee. Mr. Clark has 35 years of experience as a commercial banker, 25 years of which were spent managing a commercial lending department, and 2 years as head of a commercial credit department. Mr. Clark has vast experience in reviewing and evaluating financial statements. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item 11 is incorporated herein by reference from the Company's proxy statement for the 2004 Annual Meeting of Stockholders, which will be held on May 10, 2004. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The remainder of the information required by this Item 12 is incorporated by reference from the Company's proxy statement for the 2004 Annual Meeting of Stockholders, which will be held on May 10, 2004. The Company has no equity compensation plans for which disclosure under Item 201(d) of Regulation S-K is required. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference from the Company's Proxy Statement for the 2004 Annual Meeting of Stockholders, which will be held on May 10, 2004. 9 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. AUDITORS. Ernst & Young LLP have been the Company's independent auditors for 2003, as determined by a shareholders' vote during the 2003 Annual Meeting of Shareholders. A representative of Ernst & Young LLP is expected to be present at our annual meeting, with the opportunity to make a statement if he or she desires to do so. This representative will be available to respond to appropriate questions from shareholders who are present at our annual meeting. The fees for services provided by Ernst & Young LLP to us in the last two fiscal years were as follows:
FY 2002 FY 2003 ------------ ------------- Audit Fees $ 142,500 $ 165,650 Audit-Related Fees 38,400 13,000 Tax Fees 18,690 -- ------------ ------------- SUBTOTAL 199,590 178,650 All Other Fees -- -- ------------ ------------- Ernst & Young LLP Total Fees $ 199,590 $ 178,650 ============ =============
The Company's Audit Committee has established policies and procedures which are intended to control the services provided by the Company's auditors and to monitor their continuing independence. Under these policies, no services may be undertaken by the Company's auditors unless the engagement is specifically approved by the Company's Audit Committee or the services are included within a category which has been pre-approved by the Audit Committee. The maximum charge for services is established by the audit committee when the specific engagement or the category of services is approved or pre-approved. In certain circumstances, management is required to notify the Audit Committee when pre-approved services are undertaken and the Committee or its Chairman may approve amendments or modifications of the engagement or the maximum fees. The Company's Audit Committee will not approve engagements of the Company's auditors to perform non-audit services for the Company if doing so will cause the auditors to cease to be independent within the meaning of applicable SEC or NASDAQ rules. In other circumstances, the Audit Committee considers among other things, whether the auditors are able to provide the required services in a more or less effective and efficient manner than other available service providers. Since May 6, 2003, the date when SEC rules relating to approval of services by auditors became effective, all services for which the Company engaged the auditors were approved by the Audit Committee. The total fees the Company paid to Ernst & Young LLP for services in 2002 and 2003 are set forth above. The Company's Audit Committee approved the engagement of Ernst & Young LLP to provide these non-audit services because it determined that Ernst & Young LLP's providing these services would not compromise its independence and that its familiarity with the Company's record keeping and accounting systems would permit it to provide these services with equal or higher quality, quicker and at a lower cost than the Company could obtain these services from other providers. 10 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements: The financial statements listed in the accompanying Index to Consolidated Financial Statements are incorporated by reference from the 2003 Annual Report to Shareholders. 2. Financial Statement Schedules: The schedule listed in the accompanying Index to Consolidated Financial Statements is incorporated by reference from the 2003 Annual Report to Shareholders. 3. Exhibits: The exhibits listed on the accompanying Index to Exhibits are incorporated by reference from the 2003 Annual Report to Shareholders. (b) Reports on Form 8-K filed during the last quarter of 2003: None 11 SONESTA INTERNATIONAL HOTELS CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE Item 15 (a) (1) and (2) References (Page)
2003 Annual Report Form 10-K to Shareholders* --------- ------------------ Consolidated Balance Sheets at December 31, 2003 and 2002 . . . . . . . . . . . . . . 12 and 13 For the years ended December 31, 2003, 2002, and 2001: Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . 11 Consolidated Statements of Stockholders' Equity . . . . . . . . . . . . . 14 Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . 15 Notes to Consolidated Financial Statements . . . . . . . . . . . . . 16 Consolidated Financial Statement Schedule for the year ended December 31, 2003: II. Consolidated Valuation and Qualifying Accounts . . . . . . . . . . . . . . 13
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. - ---------- *Incorporated by Reference 12 SONESTA INTERNATIONAL HOTELS CORPORATION SCHEDULE II CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED DECEMBER 31, 2003
Balance Amounts Balance Beginning Charged Amounts End of of Year to Income Written Off Year ---------- ---------- ----------- ------- YEAR ENDED DECEMBER 31, 2001 Allowance for doubtful accounts $ 270,178 $ 80,312 $ (90,950) $ 259,540 ========== ========== ========== ========== YEAR ENDED DECEMBER 31, 2002 Allowance for doubtful accounts $ 259,540 $ 12,395 $ 30,692 $ 241,243 ========== ========== ========== ========== YEAR ENDED DECEMBER 31, 2003 Allowance for doubtful accounts $ 241,243 $ (14,263) $ 5,956 $ 221,024 ========== ========== ========== ==========
13 SONESTA INTERNATIONAL HOTELS CORPORATION INDEX TO EXHIBITS
NUMBER DESCRIPTION PAGE NOS. - ------ ----------- --------- 3.1 Certificate of Incorporation as amended to date. (5) 3.2 Company By-laws, as amended to date. (7) 10.1 Management Agreement, between Sonesta Hotels of Florida, Inc., and Sunny Isles Luxury Ventures L.C., Trustee, dated as of June 21, 2001. (14) 10.2 Purchase and Sale Agreement, between Sonesta Hotels of Anguilla, Limited, and Flag Luxury Properties (Anguilla), LLC, dated July 26, 2002. (14) 10.3 (a) First Amendment to the 2002 Royal Sonesta Loan Agreement, dated 26 effective March 15, 2004, by and between Royal Sonesta, Inc. ("Royal Sonesta"), Sonesta International Hotels Corporation ("Sonesta") and Hibernia National Bank ("Hibernia"). (Filed herewith) 10.3 (b) Loan Agreement dated effective April 1, 2002, by and between Royal Sonesta, Sonesta and Hibernia. (14) 10.3 (c) Promissory Note dated effective April 1, 2002 by Royal Sonesta in favor of Hibernia in the amount of $5,000,000.00. (14) 10.3 (d) Multiple Indebtedness Mortgage by Royal Sonesta in favor of Hibernia, dated March 28, 2002, effective April 1, 2002, in the amount of $50,000,000.00. (14) 10.3 (e) Continuing Guaranty, effective April 1, 2002, by Sonesta in favor of Hibernia. (14) 10.4 (a) Management Agreement, between Sonesta Coconut Grove, Inc. ("SCG"), and Mutiny on the Park, Ltd. ("Mutiny"), dated December 22, 2000. (13) 10.4 (b) Letter of Amendment of Management Agreement, between SCG and Mutiny, dated January 5, 2001. (13)
14
NUMBER DESCRIPTION PAGE NOS. - ------ ----------- --------- 10.4 (c) Intercreditor Agreement, between SCG, Mutiny and Ricardo Dunin Borkowsky ("Dunin"), dated December 22,2000. (13) 10.4 (d) Promissory Note ($1,000,000) in favor of SCG, dated December 22, 2000. (13) 10.4 (e) Promissory Note ($4,000,000) in favor of SCG, dated December 22, 2000. (13) 10.4 (f) Collateral Pledge and Escrow Agreement ($1,000,000) dated December 22, 2000. (13) 10.4 (g) Collateral Pledge and Escrow Agreement ($4,000,000), dated December 22, 2000. (13) 10.5 (a) Commitment Letter agreement, dated January 30, 2004, between Sonesta 29 International Hotels Corporation ("Sonesta") and Citizens Bank of Massachusetts ("Citizens"). (Filed herewith) 10.5 (b) Fourth Allonge to $2,000,000 Commercial Promissory Note dated 31 September 29, 2000 (the "Note"), dated January 30, 2004, between Sonesta and Citizens, extending the maturity of the Note to December 31, 2004. (Filed herewith) 10.5 (c) Third Allonge to $2,000,000 Commercial Promissory Note dated 32 September 29, 2000 (the "Note"), dated November 24, 2003, between Sonesta and Citizens, extending the maturity of the Note to January 31, 2004. (Filed herewith) 10.5 (d) Commitment Letter agreement, dated September 27,2002, between Sonesta Sonesta and Citizens Bank of Massachusetts ("Citizens"). (14) 10.5 (e) Second Allonge to $2,000,000 Commercial Promissory Note dated September 29, 2000 (the "Note"), dated September 28, 2002, between Sonesta and Citizens, extending the maturity of the Note to September 28, 2003. (14) 10.5 (f) Commercial Promissory Note ($2,000,000) from Sonesta to Citizens, dated September 29, 2000. (12)
15
NUMBER DESCRIPTION PAGE NOS. - ------ ----------- --------- 10.6 (a) Mortgage and Loan Modification Agreement, dated as of March 24, 2004, 33 between SunAmerica, Charterhouse of Cambridge Trust ("Trust") and Sonesta of Massachusetts, Inc. ("Sonesta Mass"). (Filed herewith) 10.6 (b) Reaffirmation and Modification of Limited Guaranty Agreement and 52 Environmental Indemnity Agreement dated as of March 24, 2004, between SunAmerica, Trust and Sonesta Mass. (Filed herewith) 10.6 (c) Amended and Restated Promissory Note ($41,000,000), dated May 30, 2000, from the Trustees of Trust and Sonesta Mass to SunAmerica Life Insurance Company ("SunAmerica"). (12) 10.6 (d) Mortgage and Loan Modification Agreement, dated as of May 30, 2000, between Trust and Sonesta Mass, and SunAmerica. (12) 10.6 (e) Reaffirmation and Modification of Limited Guaranty Agreement and Environmental Indemnity Agreement, dated as of May 30, 2000, between Trust, Sonesta Mass, and Sonesta International Hotels Corporation ("Sonesta"), and SunAmerica. (12) 10.6 (f) Deficiency Guaranty Agreement, dated as of May 30, 2000, between Trust, Sonesta Mass, and SunAmerica, "Escrow Agent". (12) 10.7 (a) Mortgage and Loan Modification Agreement, dated as of March 24, 2004, 56 between SunAmerica and Sonesta Beach Resort Limited Partnership ("Partnership"). (Filed herewith) 10.7 (b) Reaffirmation and Modification of Limited Guaranty Agreement and 79 Environmental Indemnity Agreement dated as of March 24, 2004, between SunAmerica and Partnership. (Filed herewith) 10.7 (c) Consolidated and Renewed Promissory Note ($31,000,000), dated May 30, 2000, from Partnership to SunAmerica. (12) 10.7 (d) Consolidated, Amended and Restated Mortgage, Security Agreement, Fixture Filing, Financing Statement and Assignment of Leases and Rents, dated as of May 30, 2000, between Partnership and SunAmerica. (12)
16
NUMBER DESCRIPTION PAGE NOS. - ------ ----------- --------- 10.7 (e) Mortgage, Security Agreement, Fixture Filing, Financing Statement and Assignment of Leases and Rents, dated as of May 30, 2000, between Partnership and SunAmerica. (12) 10.7 (f) Limited Guaranty Agreement, dated as of May 30, 2000, between Sonesta and SunAmerica. (12) 10.7 (g) Non-Recourse Guaranty Agreement, dated as of May 30, 2000, between the Partnership and SunAmerica. (12) 10.7 (h) Environmental Indemnity Agreement, dated as of May 30, 2000, between the Partnership, Sonesta and SunAmerica. (12) 10.8 (a) Fifth Amendment to Loan Agreement, dated January 1, 2004, providing 82 for an additional $300,000 loan to Masters of Tourism for "New Employee Housing" to the two hotels in Sharm El Sheikh: Sonesta Beach and Sonesta Club. (Filed herewith) 10.8 (b) Promissory Note ($1,116,853), from Masters of Tourism to Sonesta International Hotels Limited ("SIHL"), dated July 1, 2002. (14) 10.8 (c) Fourth Amendment to Loan Agreement, dated July 1, 2002, providing for an additional $500,000 loan to Masters of Tourism for "Essential New Facilities". (14) 10.8 (d) Loan Agreement ($1,000,000), dated December 18, 1996, between Masters of Tourism and SIHL. (8) 10.8 (e) (Personal) Guaranty of Hisham Aly, dated as of December 18, 1996. (8) 10.8 (f) Loan Agreement ($277,935) dated as of January 1, 1997, between Masters of Tourism and SIHL (consolidating two (2) outstanding loan balances). (8) 10.8 (g) Amendment to Loan Agreement, dated April 29, 1997, between Masters of Tourism and SIHL. (9) 10.8 (h) (Personal) Guaranty of Hisham Aly, dated as of April 29, 1997. (9) 10.8 (i) Second Amendment to Loan Agreement, dated September 15, 1998, between Masters of Tourism and SIHL. (10)
17
NUMBER DESCRIPTION PAGE NOS. - ------ ----------- --------- 10.8 (j) Third Amendment to Loan Agreement, dated January 1, 2000, between Masters of Tourism and SIHL. (11) 10.9 Indenture of Lease, dated March 18, 2002, between ATC Realty, Inc. and Sonesta International Hotels International Hotels Corporation. (14) 10.10 (a) Extension of Lease by Royal Sonesta, Inc., dated August 6, 1993. (6) 10.10 (b) Agreement, dated September 9, 1993, between Royal Sonesta, Inc. and Aetna Life Insurance Company. (6) 10.11 (a) Hotel Lease, dated December 12, 1967, between Chateau Louisiane, Inc., as "Landlord", and The Royal Orleans, Inc., as "Tenant". (1) 10.11 (b) Hotel lease-Amendment No. 1, dated November 26, 1973, between Chateau Louisiane, Inc. and Louisiana Sonesta Corporation. (2) 10.11 (c) Hotel Lease-Amendment No. 2, dated September 1, 1977, between Chateau Louisiane, Inc. and Royal Sonesta, Inc. (3) 10.11 (d) Hotel Lease-Amendment No. 3, dated September 17, 1981, between Aetna Life Insurance Company and Royal Sonesta, Inc. (4) 10.12 (a) Restated Employment Agreement, dated January 1, 1992, between the Registrant and Paul Sonnabend, together with letter agreement regarding permanent and total disability. (5) (Management contract under Item 601 (10)(iii) (A)) 10.12 (b) Restated Employment Agreement, dated January 1, 1992, between the Registrant and Roger P. Sonnabend, together with letter agreement regarding permanent and total disability. (5) (Management contract under Item 601 (10) (iii) (A)). 10.12 (c) Restated Employment Agreement, dated January 1, 1992, between the Registrant and Stephen Sonnabend together with letter agreement regarding permanent and total disability. (5) (Management contract under Item 601 (10) (iii) (A)).
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NUMBER DESCRIPTION PAGE NOS. - ------ ----------- --------- 13 Annual Report to Security Holders for the calendar year ended December 87 31, 2003 21 Subsidiaries of the Registrant. 112 23 Consent of Ernst and Young LLP filed herewith. 113 31 31 (a) Certification required by Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended. (Filed herewith) 22 31 (b) Certification required by Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended. (Filed herewith) 23 31 (c) Certification required by Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended. (Filed herewith) 24 32 Certification required by 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002). (Filed herewith) 25
(1) Incorporated by reference to the Company's 1967 Report on Form 10-K. (2) Incorporated by reference to the Company's 1973 Report on Form 10-K. (3) Incorporated by reference to the Company's 1977 Report on Form 10-K. (4) Incorporated by reference to the Company's 1981 Report on Form 10-K. (5) Incorporated by reference to the Company's 1992 Report on Form 10-K. (6) Incorporated by reference to the Company's 1993 Report on Form 10-K. (7) Incorporated by reference to the Company's 1995 Report on Form 10-K. (8) Incorporated by reference to the Company's 1996 Report on Form 10-K. (9) Incorporated by reference to the Company's 1997 Report on Form 10-K. (10) Incorporated by reference to the Company's 1998 Report on Form 10-K. (11) Incorporated by reference to the Company's 1999 Report on Form 10-K. (12) Incorporated by reference to the Company's 2000 Report on Form 10-K. (13) Incorporated by reference to the Company's 2001 Report on Form 10-K. (14) Incorporated by reference to the Company's 2002 Report on Form 10-K. 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SONESTA INTERNATIONAL HOTELS CORPORATION (Registrant) By: /S/ Boy Van Riel Date: March 29, 2004 --------------------------------------- Boy van Riel Vice President and Treasurer, Principal Financial and Accounting Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /S/ Roger P. Sonnabend Date: March 29, 2004 --------------------------------------- Roger P. Sonnabend Executive Chairman of the Board By: /S/ Boy Van Riel Date: March 29, 2004 --------------------------------------- Boy van Riel Vice President and Treasurer, Principal Financial and Accounting Officer By: /S/ Paul Sonnabend Date: March 29, 2004 --------------------------------------- Paul Sonnabend Director By: /S/ Peter J. Sonnabend Date: March 29, 2004 --------------------------------------- Peter J. Sonnabend Director By: /S/ Stephanie Sonnabend Date: March 29, 2004 --------------------------------------- Stephanie Sonnabend Director By: /S/ Stephen Sonnabend Date: March 29, 2004 --------------------------------------- Stephen Sonnabend Director
20 By: /S/ George S. Abrams Date: March 29, 2004 --------------------------------------- George S. Abrams Director By: /S/ Vernon R. Alden Date: March 29, 2004 --------------------------------------- Vernon R. Alden Director By: /S/ Joseph L. Bower Date: March 29, 2004 --------------------------------------- Joseph L. Bower Director By: /S/ Charles J. Clark Date: March 29, 2004 --------------------------------------- Charles J. Clark Director By: /S/ Jean C. Tempel Date: March 29, 2004 --------------------------------------- Jean C. Tempel Director
21 EX-10.3(A) 3 a2132289zex-10_3a.txt EX-10.3(A) Exhibit 10.3(a) FIRST AMENDMENT TO THE 2002 ROYAL SONESTA LOAN AGREEMENT BE IT KNOWN, that on the days of March 2004, before us, the undersigned Notaries Public duly commissioned and qualified, personally came and appeared: ROYAL SONESTA, INC., a Louisiana corporation having its principal place of business in New Orleans, Louisiana, TIN #72-0803191, herein represented by its undersigned officer, duly authorized and acting pursuant to resolutions of its Board of Directors, a certified copy of which is annexed hereto ("Borrower"); and HIBERNIA NATIONAL BANK, a national banking association, organized and existing under the laws of the United States of America, and domiciled in the Parish of Orleans, State of Louisiana, with its principal office at 313 Carondelet Street, New Orleans, Louisiana 70130, TIN #72-0210640, represented herein by its duly authorized undersigned officer ("Bank"); and SONESTA INTERNATIONAL HOTELS CORPORATION, a New York corporation having its principal place of business in Boston, Massachusetts, TIN #135648107, herein represented by its undersigned officer, duly authorized and acting pursuant to resolutions of its Board of Directors ("Guarantor"). who covenant and agree that: WHEREAS, Borrower, Guarantor and Bank entered into the 2002 Royal Sonesta Loan Agreement ("2002 Agreement") effective as of April 1, 2002, WHEREAS, Borrower, Guarantor and Bank desire to amend certain provisions of the 2002 Agreement to provide that (i) the commitment to lend under the Revolving Credit Loan is reduced in the aggregate principal amount at any one time outstanding to $3,000,000, (ii) the expiration of the commitment shall be February 28, 2005, (iii) Guarantor will no longer required to maintain a minimum level of equity, and (iv) Guarantor is no longer restricted from paying dividends. NOW, THEREFORE, in consideration of the mutual benefits received or to be received by each of them, Borrower, Guarantor and Bank do hereby enter into this First Amendment of the 2002 Agreement ("First Amendment") and covenant and agree as follows: 1. Section 1.1 TERMS DEFINED ABOVE is hereby amended to read as follows: " As used in this 2002 Agreement, the terms "Borrower", "Bank", "Guarantor", "2002 Agreement", and "First Amendment" shall have the meanings indicated above." 26 2. The following definitions in the Section 1.2 section entitled "DEFINITIONS" are hereby amended to read as follows: "MAXIMUM REVOLVING CREDIT LOAN AMOUNT" shall mean the sum of Three Million and No/100 ($3,000,000.00) Dollars. "TERMINATION DATE" shall mean February 28, 2005. 3. Section 2.1 is hereby amended in its entirety to read as follows: SECTION 2.1 LOAN. Subject to the terms and conditions of this Agreement, and relying on the representations and warranties contained in this Agreement, and provided no Event of Default exists, Bank agrees to make, and Borrower agrees to accept the Revolving Credit Loan in the aggregate principal amount at any one time outstanding not to exceed Three Million and No/100 ($3,000,000.00) Dollars. Prior to the Termination Date, Borrower may utilize the Revolving Credit Loan by borrowing, repaying or prepaying, and re-borrowing such Revolving Credit Loan in whole or in part, all in accordance with the terms and conditions hereof. The Revolving Credit Loan outstanding on the Termination Date shall be repaid in full on that date. 4. Section 2.8 is hereby amended in its entirety to read as follows: SECTION 2.8 COMMITMENT FEE. In addition to the commitment fee of $2,500.00 ("Commitment Fee") which Borrower has paid Bank, Borrower shall pay Bank a fee of $1,000.00 for the First Amendment fee ("Amendment Fee"). 5. Borrower and Guarantor hereby reaffirm represent, warrant and covenant to Bank that the representations and warranties set forth in Section 4 remain true and in effect. In particular Borrower and Guarantor represent that the execution of the First Amendment is properly authorized and will not violate the Borrower's or the Guarantor's Articles of Incorporation or their Bylaws, or any contract, agreement, law, regulation, order, injunction, judgment, decree or writ to which Borrower or Guarantor is subject, or any indenture, mortgage, deed of trust, credit agreement, lease or other instrument to which Borrower or Guarantor or any of their property is bound, and do not conflict with or result in a breach of or constitute a default under any such instrument. Neither Borrower nor Guarantor is in default, in any respect which materially and adversely affects their business, properties, operations or condition, financial or otherwise, under any indenture, mortgage, deed of trust, contract, agreement or other instrument to which Borrower or Guarantor is a party or by which they are bound, nor, in any respect which materially and adversely affects their business, properties, operations or condition, financial or otherwise any order, writ, injunction, judgment, decree or any statute, rule or regulation. 6. Borrower will promptly pay or will cause to be paid all reasonable legal costs and fees incurred by Bank in connection with the preparation of this First Amendment. 27 7. Section 6.11 (a) (i) and (ii) entitled FINANCIAL RATIOS is hereby deleted in its entirety. 8. Section 7.4 entitled DIVIDENDS. DISTRIBUTION. REDEMPTIONS is hereby deleted in its entirety. Except as hereinabove stated, the terms and conditions of the Agreement shall remain unchanged and in full force and effect and be binding upon Borrower and Bank as though set forth herein at length, and nothing herein contained shall be construed as a novation of the debt. THUS DONE AND PASSED on the 15th of March, 2004, in the City of Boston, State of Massachusetts in the presence of the undersigned witnesses who hereunto sign their names with the Mortgagor and me, Notary, after due reading of the whole. WITNESSES: BORROWER ROYAL SONESTA, INC /S/ BY: /S/ - ---------------------- ----------------------------------- Peter J. Sonnabend Name: Boy van Riel Title: Vice President & Treasurer /S/ - ---------------------- David Rakouskas GUARANTOR SONESTA INTERNATIONAL HOTELS CORPORATION BY: /S/ ----------------------------------- Name: Boy van Riel Title: Vice President & Treasurer ----------------------------------------- BAR # ---------------- NOTARY PUBLIC /S/ ------------------------- Karen K. Pettiford MY COMMISSION EXPIRES ON 4/2/2010 ------------ THUS DONE AND PASSED on the 15th of March, 2004, in the city of New Orleans, State of Louisiana, in the presence of the undersigned witnesses who hereunto sign their names with the Mortgagor and me, Notary, after due reading of the whole. WITNESSES: BANK HIBERNIA NATIONAL BANK /S/ BY: /S/ - ---------------------- ----------------------------------- Christine Ricouard Name: Andrew B. Booth -------------------------------- Title: Vice President -------------------------------- /S/ - ---------------------- Brian Page /S/ ----------------------------------------- KATHLEEN S. PLEMER NOTARY PUBLIC BAR # 11003 MY COMMISSION ISSUED FOR LIFE 28 EX-10.5(A) 4 a2132289zex-10_5a.txt EX-10.5(A) Exhibit 10.5(a) January 30, 2004 Mr. Boy A.J. van Riel, Vice President & Treasurer Sonesta International Hotels Corporation 116 Huntington Avenue Boston, MA 02116 Dear Boy: We are pleased to advise you that Citizens Bank of Massachusetts has approved for your use an unsecured line of credit at our Prime Rate in the original available amount of $2,000,000. This line of credit will be guaranteed by certain of the Company's principal domestic subsidiaries (as described in Exhibit A). Unless renewed, it will expire on December 31, 2004. Advances under the line would be made against a revolving note, with interest payable monthly in arrears. Advances will be made only in the Bank's sole discretion. To enable the Bank to monitor the Company's financial condition, you agree to submit to the Bank the following: (a) fiscal year-end consolidated and consolidating financial statements audited by a CPA firm satisfactory to the Bank with 120 days after each fiscal year-end, (b) quarterly 10Q reports within 45 days after each quarter-end, and (c) such other information as the Bank may request from time to time. You further agree as follows: (a) the line of credit will have a principal balance outstanding of zero dollars ($0) for the two-month period of November and December 2004; (b) the Company will not pay dividends or make distributions to shareholders during 2004 in excess of the lesser of $0.10 per share or $370,000; and (c) the Company will not permit its indebtedness to exceed the amounts shown on Exhibit B and will not guarantee the debt of any other entity. All expenses incurred in connection with this transaction, including but not limited to legal and appraisal fees, shall be the direct responsibility of the Borrower, whether or not this facility becomes active. This commitment shall expire thirty days from the date of this letter, unless the enclosed copy has been signed and delivered to the Bank on or before that date. 29 Again, we are delighted to make this accommodation available to you, and are pleased to have Sonesta as one of our customers. If you are in agreement with these terms and conditions, please indicate your acceptance by signing on the two lines designated below and returning an executed copy to my attention. Thank you. Sincerely, /S/ Thomas E. O'Leary Senior Vice President ACCEPTED SONESTA INTERNATIONAL HOTELS CORPORATION By:/S/ ----------------------------------------- Boy A.J. van Riel Vice President & Treasurer I hereby acknowledge and affirm guaranty of the above-described credit facility, by the principal domestic subsidiaries of Sonesta International Hotels Corporation as described in Exhibit A, in my capacity as authorized signer for said subsidiaries. By:/S/ ----------------------------------------- Boy A.J. van Riel, as authorized signer for Sonesta subsidiaries 30 EX-10.5(B) 5 a2132289zex-10_5b.txt EX-10.5(B) Exhibit 10.5(b) SONESTA INTERNATIONAL HOTELS CORPORATION (the "Borrower") Fourth Allonge to $2,000,000 Commercial Promissory Note dated September 29, 2000 (the "Note") Boston, Massachusetts January 30, 2004 1. Amendment to Maturity. As used in the Note, the definition of "Maturity" is hereby amended to read "December 31, 2004." THIS ALLONGE IS MADE AND DELIVERED by the Borrower and shall be a part of the Note. The Note referred to above, as amended hereby, is hereby reaffirmed by the Borrower. SONESTA INTERNATIONAL HOTELS CORPORATION By: /S/ ------------------------------------- Boy A.J. van Riel Vice President & Treasurer 1309840.2 31 EX-10.5(C) 6 a2132289zex-10_5c.txt EX-10.5(C) Exhibit 10.5(c) SONESTA INTERNATIONAL HOTELS CORPORATION (the "Borrower") Third Allonge to $2,000,000 Commercial Promissory Note dated September 29, 2000 (the "Note") Boston, Massachusetts November 24, 2003 1. Amendment to Maturity. As used in the Note, the definition of "Maturity" is hereby amended to read "January 31, 2004." THIS ALLONGE IS MADE AND DELIVERED by the Borrower and shall be a part of the Note. The Note referred to above, as amended hereby, is hereby reaffirmed by the Company. SONESTA INTERNATIONAL HOTELS CORPORATION By: /S/ --------------------------------------- Peter J. Sonnabend Vice Chairman 1309840.2 32 EX-10.6(A) 7 a2132289zex-10_6a.txt EX-10.6(A) Exhibit 10.6(a) COMMONWEALTH OF MASSACHUSETTS COUNTY OF MIDDLESEX Prepared by: And when recorded mail to: Otten, Johnson, Robinson, Neff & Ragonetti, P.C. 950 Seventeenth Street Suite 1600 Denver, Colorado 80202 Attention: David T. Brennan, Esq. MORTGAGE AND LOAN MODIFICATION AGREEMENT This MORTGAGE AND LOAN MODIFICATION AGREEMENT (this "Agreement"), dated as of March 24, 2004, to be effective as of December 1, 2003 (the "Effective Date"), is made by and between ROGER P. SONNABEND, PETER J. SONNABEND and BOY A.J. VAN RIEL, trustees of the Charterhouse of Cambridge Trust, and not individually, under a Declaration of Trust dated December 27, 1963 and recorded at Middlesex South Deeds Book 11160, Page 340, as amended by an Amendment of Declaration of Trust dated July 8, 1966 and recorded at Middlesex South Deeds Book 11160, Page 359 ("Charterhouse"), and SONESTA OF MASSACHUSETTS, INC., a Massachusetts corporation ("Sonesta" and, together with Charterhouse, "Borrower"), and SUNAMERICA LIFE INSURANCE COMPANY, an Arizona corporation ("Lender"). RECITALS A. On or about December 18, 1996, Lender made a loan in the principal amount of $22,880,000.00 (the "Original Loan") to Borrower. B. The Original Loan was evidenced by a Promissory Note dated December 18, 1996, in the original principal amount of the Original Loan executed by Borrower to the order of Lender (the "Original Note"), and is secured by, among other things, a Mortgage, Security Agreement, Fixture Filing, Financing Statement and Assignment of Leases and Rents dated as of December 18, 1996 (the "Original Mortgage"), executed by Borrower for the benefit of Lender, encumbering certain real property and improvements thereon commonly known as the Royal Sonesta Hotel, City of Cambridge, County of Middlesex, Massachusetts, and more particularly described in the Original Mortgage and in EXHIBIT A attached hereto (the "Property"). The Original Mortgage was recorded on July 3, 1997, at Book 26983, Page 631, in the Middlesex South District Registry of Deeds (the "Records"). 33 C. In connection with the Original Loan, Borrower executed a Replacement Reserve and Security Agreement dated as of December 18, 1996 (the "Replacement Reserve and Security Agreement") for the benefit of Lender. D. On or about June 2, 2000, Lender made an additional advance of $19,865,733.66 (the "Additional Advance") on the Original Loan. The Original Loan and the Additional Advance were consolidated and are evidenced by an Amended and Restated Promissory Note dated May 30, 2000, in the original principal amount of $41,000,000.00, executed by Borrower to the order of Lender (the "Note"). In connection with the Additional Advance, Borrower and Lender executed a Mortgage and Loan Modification Agreement dated as of May 30, 2000 (the "Modification Agreement"). The Modification Agreement was recorded at Book 31470, Page 360, in the Records. E. The Original Loan and the Additional Advance, as consolidated and evidenced by the Note, and as secured by the Original Mortgage as modified by the Modification Agreement, are referred to collectively herein as the "Loan." The Original Mortgage, as modified by the Modification Agreement, is referred to herein as the "Mortgage." The Original Note, the Original Mortgage, the Replacement Reserve and Security Agreement and each other document executed by Borrower and evidencing or securing the Original Loan, together with the Note, the Modification Agreement and each other document executed by Borrower in connection with the Additional Advance, are referred to herein, collectively, as the "Loan Documents." F. As of the Effective Date, the outstanding principal balance existing under the Loan is $39,346,801.84 and there is no accrued and unpaid interest due thereon. G. Borrower and Lender wish to provide modified repayment terms for the Loan, and wish to modify certain terms of the Note, the Mortgage and the other Loan Documents to reflect certain other agreements as hereinafter provided. AGREEMENT NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Lender hereby agree as follows: 1. NO DEFENSES, SETOFFS OR COUNTERCLAIMS. The Lender has performed all of its obligations to date under the Loan Documents, and the amounts owed by the Borrower to the Lender under the Loan are free from any defenses, setoffs or counterclaims in favor of the Borrower against the Lender. To the extent that any such defenses, setoffs, or counterclaims now exist, Borrower hereby waives and releases the same in exchange for the Lender's agreement to modify the Loan and the Loan Documents as set forth herein. 2. MODIFICATION OF NOTE. (a) Section 1 of the Note is hereby modified to provide that: (i) The balance of principal outstanding from time to time under the Note shall continue to bear interest at eight and sixty one-hundredths percent 34 (8.60%, hereinafter the "Note Rate"), based on a 360-day year for the actual number of days elapsed. (ii) Commencing on January 1, 2004, and on the first day of each month thereafter through and including December 1, 2006 (the "Reduced Payment Period"), provided that no Event of Default has occurred under the Note or any of the other Loan Documents, payments of interest only on the principal balance of the Note, at the rate of five percent (5.00%) per annum based on a 360-day year for the actual number of days elapsed (the "Reduced Payment Rate"), shall be payable, in arrears. Unpaid accrued interest on the Note shall be added to the principal balance of the Note on December 1, 2004, December 1, 2005 and December 1, 2006. Maker may pay any accrued but unpaid interest on the Note which has been added to the principal balance of the Note, without prepayment premium, at any time and from time to time, on or before December 31, 2007, as provided in Section 4.24 of the Mortgage. (iii) Commencing on January 1, 2007, and on the first day of each month thereafter through and including December 1, 2007 (the "Interest Only Payment Period"), provided that no Event of Default has occurred under the Note or any of the other Loan Documents, payments of interest only on the principal balance of the Note, at the Note Rate, based on a 360-day year for the actual number of days elapsed, shall be payable, in arrears. (iv) Commencing on January 1, 2008, and on the first day of each month thereafter through and including June 1, 2010 (the "Principal and Interest Payment Period"), combined payments of principal and interest shall be payable, in arrears, in the amount of $332,910.63. (v) The entire outstanding principal balance of the Note, together with all accrued and unpaid interest and all other sums due thereunder, shall be due and payable in full on July 1, 2010 (the "Original Maturity Date"). (b) Section 5 of the Note is hereby modified to provide that if Maker delivers a Defeasance Notice to Holder during the Reduced Payment Period or the Interest Only Payment Period: (i) Unpaid accrued interest on the Note shall be added to the principal balance of the Note on the Defeasance Date; and (ii) Maker shall then satisfy the Defeasance Requirements, including the remittance of the Defeasance Deposit, such that the Defeasance Collateral will be sufficient to pay as and when due the principal of and interest on the Note on each regularly scheduled payment date thereunder and on the Original Maturity Date, at the Note Rate and on the payment schedule set forth in the Note, and not as modified by Section 2(a) of this Agreement. (c) The third sentence of Section 18 of the Note is hereby deleted in its entirety and replaced with the following: 35 The agreement contained in this paragraph to limit the personal liability of Maker shall become null and void and be of no further force and effect in the event (i) that the Property or any part thereof or any interest therein, or any interest in Maker, shall be further encumbered by a voluntary lien securing any obligation upon which Maker or any general partner, principal or affiliate of Maker shall be personally liable for repayment, whether as obligor or guarantor which has not been approved in advance by Holder; (ii) of any breach or violation of Section 4.24 or 4.25 of the Mortgage; (iii) of any breach or violation of Section 5.4, 5.5 or 5.7 of the Mortgage; (iv) of any fraud or material misrepresentation by Maker in connection with the Property, the Loan Documents or the application made by Maker for the Loan; or (v) of any execution, amendment, modification or termination without the prior written consent of Holder, if such consent is required under the terms of Section 5.3 of the Mortgage, of any Primary Lease or Secondary Lease. 3. MODIFICATION OF MORTGAGE. (a) Sections 1.4, 1.10, 1.11, 1.12, 1.18, 1.23, 1.26, 1.28, 1.29, 1.30 and 1.32 of the Mortgage are hereby deleted in their entireties, and the following substituted therefor: "1.4 ENVIRONMENTAL INDEMNITY AGREEMENT: The Environmental Indemnity Agreement dated as of December 18, 1996 made by Mortgagor and Guarantor for the benefit of Mortgagee, as modified by (a) the Modification Agreement, (b) the Reaffirmation and Modification of Limited Guaranty Agreement and Environmental Indemnity Agreement dated as of May 30, 2000 executed by Guarantor for the benefit of Mortgagee, (c) the Second Modification Agreement and (d) the Reaffirmation Agreement. 1.10 GUARANTY AGREEMENT: The Limited Guaranty Agreement dated as of December 18, 1996 made by Guarantor for the benefit of Mortgagee, as modified by (a) the Reaffirmation and Modification of Limited Guaranty Agreement and Environmental Indemnity Agreement dated as of May 30, 2000 executed by Guarantor for the benefit of Mortgagee, and (b) the Reaffirmation Agreement. 1.11 INTANGIBLE PERSONALTY: The right to use all trademarks and trade names and symbols or logos used in connection therewith, or any modifications or variations thereof, in connection with the operation of the improvements existing or to be constructed on the Property, together with all accounts, deposit accounts (including, without limitation, the Pledged Accounts), letter of credit rights, 36 monies in the possession of Mortgagee (including without limitation proceeds from insurance, retainages, deposits for taxes and insurance and monies on deposit in the Additional Collateral Account), Permits, contract rights (including, without limitation, rights to receive insurance proceeds), amounts paid as rents of the Property or the fees, charges, accounts, or other payments for the use or occupancy of rooms and other public facilities in the Property, and general intangibles (whether now owned or hereafter acquired, and including proceeds thereof) relating to or arising from Mortgagor's ownership, use, operation, leasing, or sale of all or any part of the Property, specifically including but in no way limited to any right which Mortgagor may have or acquire to transfer any development rights from the Property to other real property, and any development rights which may be so transferred. 1.12 LEASE CERTIFICATE: The Certificate Concerning Secondary Leases dated as of March 24, 2004, and effective as of the Effective Date, made by Mortgagor to Mortgagee concerning the Secondary Leases. 1.18 NOTE: Mortgagor's Amended and Restated Promissory Note dated as of May 30, 2000, payable to the order of Mortgagee in the principal face amount of $41,000,000.00, as modified by the Second Modification Agreement, the last payment under which is due on July 1, 2010 or, if extended pursuant to its terms, July 1, 2015, unless such due date is accelerated, together with all renewals, extensions and modifications of such Promissory Note. All terms and provisions of the Note are incorporated by this reference in this Mortgage. 1.23 REPLACEMENT RESERVE AND SECURITY AGREEMENT: The Replacement Reserve and Security Agreement dated as of December 18, 1996, executed by Mortgagor for the benefit of Mortgagee, as modified by the Modification Agreement and Second Modification Agreement. 1.26 DEFICIENCY GUARANTY AGREEMENT: The Deficiency Guaranty Agreement dated as of May 30, 2000, executed by Guarantor for the benefit of Mortgagee, as modified by the Reaffirmation and Modification of Deficiency Guaranty Agreement dated as of March 24, 2004, executed by Guarantor for the benefit of Mortgagee. 1.28 KEY BISCAYNE LOAN DOCUMENTS: The Key Biscayne Note, all of the mortgages, deeds of trust, and other instruments and documents executed by the Key Biscayne Borrower and/or Guarantor securing the Key Biscayne Note, including any guaranty 37 agreements, environmental indemnity agreements, replacement reserve agreements, collateral assignment of liquor licenses, lease certificates, and all other documents executed or delivered by the Key Biscayne Borrower and/or Guarantor in connection with the transaction pursuant to which the Key Biscayne Note has been executed and delivered, together with the Key Biscayne Modification Agreement and the other documents executed by the Key Biscayne Borrower and/or Guarantor in connection with the Key Biscayne Modification Agreement, but excluding the Non-Recourse Guaranty Agreement and the Key Biscayne Second Mortgage. The term 'Key Biscayne Loan Documents' also includes all modifications, extensions, renewals, and replacements of each document referred to above. 1.29 KEY BISCAYNE NOTE: The Consolidated and Renewed Promissory Note dated as of May 30, 2000 executed by the Key Biscayne Borrower and payable to the order to Mortgagee in the principal face amount of $31,000,000.00, as modified by the Key Biscayne Modification Agreement, the last payment under which is due on July 1, 2010, or, if extended by Mortgagee by its terms, July 1, 2015, unless such due date is accelerated, together with all renewals, extensions and modifications of such consolidated and renewed promissory note. All terms and provisions of the Key Biscayne Note are incorporated by this reference in this Mortgage. 1.30 KEY BISCAYNE SECOND MORTGAGE: The Mortgage, Security Agreement, Fixture Filing, Financing Statement and Assignment of Leases and Rents dated as of May 30, 2000 executed by Key Biscayne Borrower for the benefit of Mortgagee and securing Key Biscayne Borrower's obligations under the Non-Recourse Guaranty Agreement, as modified by the Key Biscayne Modification Agreement. 1.32 NON-RECOURSE GUARANTY AGREEMENT: The Non-Recourse Guaranty Agreement dated as of May 30, 2000 made by Key Biscayne Borrower for the benefit of Mortgagee, and secured by the Key Biscayne Second Mortgage, as modified by the Reaffirmation and Modification of Non-Recourse Guaranty Agreement dated as of March 24, 2004, executed by Key Biscayne Borrower for the benefit of Mortgagee, pursuant to which Key Biscayne Borrower has guaranteed payment and performance of the Note and the other Loan Documents." (b) The following definitions are hereby added to the end of Article 1 of the Mortgage: 38 "1.33 ADDITIONAL COLLATERAL ACCOUNT: An account maintained by Mortgagee or a Servicer designated by Mortgagee, into which Excess Cash Flow shall be deposited in accordance with Section 4.24, and which shall be additional Collateral for the Loan. 1.34 ANNUAL CAPITAL EXPENSE AMOUNT: An amount equal to five percent (5.00%) of Gross Revenue (as defined in Section 4.24(e)) for the Reduced Payment Period and the Interest Only Payment Period (as defined in Section 4.24(a)). 1.35 CAPITAL EXPENSE LIMIT: The Annual Capital Expense Amount plus such Annual Capital Expense Amounts accrued in prior years and not applied to Capital Expenses of the Property. 1.36 EFFECTIVE DATE: December 1, 2003. 1.37 KEY BISCAYNE MODIFICATION AGREEMENT: The Mortgage and Loan Modification Agreement dated as of March 24, 2004, executed by Key Biscayne Borrower and Mortgagee. 1.38 PLEDGED ACCOUNTS: The Additional Collateral Account and the Pledged Operating Account. 1.39 PLEDGED OPERATING ACCOUNT: That certain deposit account (ABA # 011500120; Account # 1110419918) maintained by Mortgagor with Citizens Bank. 1.40 REAFFIRMATION AGREEMENT: The Reaffirmation and Modification of Guaranty Agreement and Environmental Indemnity Agreement dated as of March 24, 2004, and effective as of the Effective Date, executed by Guarantor for the benefit of Mortgagee. 1.41 SECOND MODIFICATION AGREEMENT: The Mortgage and Loan Modification Agreement dated as of March 24, 2004, and effective as of the Effective Date, executed by Mortgagor and Mortgagee." (c) Section 4.13 of the Mortgage is hereby modified to provide that, in addition to the financial reports described therein, Mortgagor must also provide to Mortgagee, by the twentieth (20th) day of each month during the Reduced Payment Period and the Interest Only Payment Period (as such terms are defined in Section 4.24(a)), a report of the Gross Revenue, Operating Expenses, Net Cash Flow and Excess Cash Flow of the Property for the previous calendar month (the "Net Cash Flow Report"). The Net Cash Flow Report shall be in such detail as Mortgagee may require, shall be prepared in accordance with the Uniform System of Accounts for the Lodging Industry, Ninth Revised Edition, First Printing 1996 as adopted by the American Hotel and Motel Association, as amended or supplemented from time to time, and shall be certified as true and correct by Mortgagor (or, if required by Mortgagee during the 39 continuance of any Event of Default, certified by an independent certified public accountant acceptable to Mortgagee). (d) A new Section 4.24 is hereby added to the Mortgage, as follows: "4.24 APPLICATION OF NET CASH FLOW TO CAPITAL EXPENSES; DEFERRED INTEREST REDUCTION PAYMENTS; ADDITIONAL COLLATERAL ACCOUNT. (a) For the period from January 1, 2004 through December 31, 2006 (the "Reduced Payment Period"), and for the period from January 1, 2007 to December 31, 2007 (the "Interest Only Payment Period"), all Net Cash Flow from the Property shall, at Mortgagor's election, either be (i) retained in the Pledged Operating Account or transferred by Mortgagor to the Central Account as provided in subsection 4.24(b), (ii) used to pay Capital Expenses of the Property, subject to Mortgagee's prior written approval to the extent that such Capital Expenses exceed the Capital Expense Limit, (iii) paid to Mortgagee or Servicer for deposit in the Additional Collateral Account, as set forth in subsection 4.24(b) hereof, or (iv) paid to Mortgagee (any such payment a "Deferred Interest Reduction Payment") and applied (A) first, to accrued but unpaid interest on the Loan, and (B) second, to accrued but unpaid interest which has been previously added to the principal balance of the Loan during the Reduced Payment Period ("Capitalized Interest"), without prepayment premium. Except for payments of Capitalized Interest pursuant to subsection 4.24(a)(iv)(B) hereof, Mortgagor shall not be permitted to prepay the principal balance of the Loan except as set forth in Section 5 of the Note. Deferred Interest Reduction Payments during the Reduced Payment Period and the Interest Only Payment Period, if any, may be made no more than once per month, and shall be remitted together with the regularly scheduled monthly payment of interest under the Note. Net Cash Flow shall not be used by Mortgagor for any purpose, other than as provided in this subsection 4.24(a). (b) So long as no Event of Default has occurred, Mortgagor may make daily transfers of Net Cash Flow from the Property to a corporate bank account maintained by Guarantor (the "Central Account"), provided that Guarantor shall properly account for all funds so transferred as Mortgagor's funds. So long as no Event of Default has occurred, Net Cash Flow (as defined in subsection 4.24(d) hereof) from the Key Biscayne Property may be used to fund Operating Expenses (as defined in subsection 4.24(f) hereof) of the Property, and Net Cash Flow from the Property may be used to fund Operating Expenses of the Key Biscayne Property. So 40 long as no Event of Default has occurred, Mortgagor and Key Biscayne Borrower may calculate Gross Revenues, Operating Expenses, Net Cash Flow and Excess Cash Flow, for purposes of this Section 4.24, on a consolidated basis for both the Property and the Key Biscayne Property. Each month during the Reduced Payment Period and the Interest Only Payment Period, on or before the twentieth (20th) day of the month, Mortgagor shall remit to Mortgagee all Net Cash Flow for the prior month from the Property, or from the Property and the Key Biscayne Property on a consolidated basis, as applicable, which was not applied in accordance with subsections 4.24(a)(ii) or (iv) hereof (the "Excess Cash Flow"), if any. All Excess Cash Flow so received by Mortgagee shall be retained in an account (the "Additional Collateral Account") maintained by Mortgagee or an entity designated by Mortgagee to service the Loan ("Servicer"), and held as additional Collateral for the Loan. So long as no Event of Default has occurred, in months in which Gross Revenue from the Property (or from the Property and the Key Biscayne Property on a consolidated basis, as applicable) is insufficient to fund Operating Expenses of the Property (or of the Property and the Key Biscayne Property on a consolidated basis, as applicable), Mortgagor may obtain a disbursement of funds from the Additional Collateral Account in the lesser of (i) the amount necessary to pay the unpaid Operating Expenses for the subject month, or (ii) the balance in the Additional Collateral Account, less any minimum required balance required by the depository bank to be maintained therein, upon submission of a written request to Mortgagee or Servicer. So long as no Event of Default has occurred, Mortgagor may obtain a disbursement of funds from the Additional Collateral Account to make a Deferred Interest Reduction Payment to Mortgagee as provided in subsection 4.24(a)(iv), in the lesser of (i) the amount requested by Mortgagor to make the Deferred Interest Reduction Payment, or (ii) the balance in the Additional Collateral Account, less any minimum required balance required by the depository bank to be maintained therein, upon submission of a written notice to Mortgagee or Servicer. (c) The annual operating statements for the Property described in Subsection 4.13 hereof shall indicate the amount of Net Cash Flow for each twelve month period from January 1 through December 31 included in the Reduced Payment Period and the Interest Only Payment Period, and shall certify (i) the application of Net Cash Flow for the relevant period to Capital Expenses, subject to Mortgagee's prior written approval to the extent that such Capital Expenses exceed the Capital Expense Limit; (ii) the payment of Net Cash Flow for the relevant period to Mortgagee for deposit in the Additional Collateral Account; and/or (iii) that 41 Deferred Interest Reduction Payment(s) to Mortgagee have been made in the amount of all remaining Net Cash Flow for the relevant period. (d) For purposes of this Section 4.24, "Net Cash Flow" shall mean the difference between Gross Revenue and Operating Expenses for the applicable period. (e) For purposes of this Section 4.24, "Gross Revenue" shall mean all revenue received by or on behalf of Mortgagor from or with respect to the Property for the relevant period for which the calculation of Gross Revenue is being made, including, but not limited to rents, room charges, parking fees, payments from tenants and other occupants of any portion of the Property or from the operation of the Property, and payments received from insurance on account of business or rental interruption and condemnation proceeds from any temporary use or occupancy. Gross Revenue shall not include: (i) proceeds from the sale or other disposition of any part or all of the Property, or from any financing or refinancing of the Property; (ii) proceeds from any condemnation of any part or all of the Property (except for temporary use or occupancy); (iii) proceeds on account of a casualty to the Property (other than payments from insurance on account of business or rental interruption); (iv) other insurance proceeds (other than in compensation of lost rent or its equivalent); (v) similar items or transactions, the proceeds of which under generally accepted accounting principles are deemed attributable to capital and are not in the nature of rent; and (vi) contributions or loans to Borrower by any member or affiliate of Borrower. (f) For purposes of this Section 4.24, "Operating Expenses" shall mean all ordinary and necessary operating expenses actually incurred by Mortgagor in connection with the operation of the Property and the continued existence in good standing of Mortgagor for the relevant period for which the calculation of Operating Expenses is being made, including but not limited to (i) payments made to Mortgagee for taxes and insurance, if any, under the Mortgage, (ii) debt service as required by the Note (excluding Deferred Interest Reduction Payments), and (iii) actual Capital Expenses of the Property, not in excess of the Capital Expense Limit, paid in accordance herewith, but excluding (a) any non-cash expenditure, such as depreciation, and (b) any payment to a member or affiliate of Mortgagor, including, without limitation, payments to a member or affiliate of Mortgagor for management of the Property, not pre-approved by Mortgagee, but including management fees paid in accordance with a Management Agreement entered into by Mortgagor (if any) and approved by 42 Mortgagee. For purposes of this subsection 4.24(f), the fees, and the methods of calculation thereof, indicated on the "Corporate Fees and Charges Schedule" delivered by Mortgagor to Mortgagee on February 20, 2004 have been pre-approved by Mortgagee. (g) For purposes of this Section 4.24, "Capital Expenses" shall mean all cash expenditures for the Property that would be considered capital in nature under generally accepted accounting principles." (e) A new Section 4.25 is hereby added to the Mortgage, as follows: "4.25 COVENANTS CONCERNING ACCOUNTS. (a) During the term of the Loan, Mortgagor shall maintain the Pledged Operating Account as the exclusive account into which Gross Revenue from the Property shall be deposited. (b) Unless and until Mortgagor has received written notice from Mortgagee that an Event of Default has occurred and specifying the Event of Default (any such notice being referred to herein, individually, as a "Default Notice"), (i) Mortgagor shall deposit all Gross Revenue received by or for the benefit of Mortgagor and attributable to the Property into the Pledged Operating Account, and (ii) funds on deposit in the Pledged Operating Account may be withdrawn by Mortgagor from time to time to pay Operating Expenses as and when due, to pay for Capital Expenses in amounts not to exceed the accrued Capital Expense Limit, and for transfer to the Central Account, subject to the restrictions contained in this Mortgage. (c) After Mortgagor's receipt of a Default Notice, and during the continuance of any Event of Default, (i) Mortgagor shall deposit all revenues received by or for the benefit of Mortgagor and attributable to the Property into the Pledged Operating Account on the business day received by Mortgagor, and (ii) Mortgagor shall have no right to withdraw any funds in the Pledged Operating Account as contemplated in Section 4.25(b) above for any purpose, including without limitation for transfer to the Central Account. (d) After Mortgagee has given any Default Notice, and during the continuance of any Event of Default, Mortgagee shall apply, or cause to be applied, as and when due, funds on deposit in the Pledged Operating Account and/or the Additional Collateral Account in the following order and priority: 43 (i) first, to Mortgagor to pay actual Operating Expenses and/or, subject to Mortgagee's prior written consent, not to be unreasonably withheld, Capital Expenses, as set forth in a request for disbursement to be delivered no more than twice monthly by Mortgagor to Mortgagee; (ii) second, to Mortgagor, or Mortgagor's account, in payment of monthly amounts pursuant to the tax and insurance escrows, if any, for the Property required under this Mortgage; (iii) third, to Mortgagee, or Mortgagee's account, in payment of any late charges, default interest and other sums previously due under the Note or other Loan Documents (other than regularly scheduled monthly payments due under the Note) and to repayment of any advances, costs, expenses or other payments owing by Mortgagor to Mortgagee under this Mortgage or the other Loan Documents; and (iv) fourth, to Mortgagee, or Mortgagee's account, in payment of the regularly scheduled monthly payment then due under the Note. (e) Mortgagor shall deposit, and Mortgagor shall cause its agents and/or property manager or managers to deposit, all revenues received by or for the benefit of Mortgagor and attributable to the Property into the Pledged Operating Account by wire transfer or by direct or traditional deposit, and, if any such revenues are received by Mortgagor in the form of checks, drafts or other instruments then Mortgagor shall also immediately endorse (if applicable) and deposit same into the Pledged Operating Account." (f) A new Section 4.26 is hereby added to the Mortgage, as follows: "4.26 APPRAISAL. On one occasion while any portion of the Secured Obligations remains unpaid, upon written request by Mortgagee, Mortgagor shall obtain and deliver to Mortgagee, at Mortgagor's expense, an MAI appraisal of the Property (a) made by an appraiser certified in the state where the Property is located and approved by Mortgagee, and (b) satisfactory to Mortgagee in all other respects." (g) A new Section 4.27 is hereby added to the Mortgage, as follows: "4.27 CONSENT TO RELIEF FROM AUTOMATIC STAY. In the event of the filing of a petition in bankruptcy by or against Mortgagor under the United States Bankruptcy Code, Mortgagor consents and 44 agrees to the entry of immediate relief from the automatic stay of section 362(a) of the Bankruptcy Code, and shall not contest any motion by Mortgagee for termination of, or other relief from, such automatic stay." (h) A new Section 5.11 is hereby added to the Mortgage, as follows: "5.11 DISTRIBUTIONS TO OWNERS PRIOR TO PRINCIPAL AND INTEREST PAYMENT PERIOD. Without the prior written consent of Mortgagee, Mortgagor will not distribute any portion of the Gross Revenue from the Property to any other holder of a direct or indirect ownership interest in Borrower, prior to the commencement of the Principal and Interest Payment Period (as defined in the Note); provided, however, that payments to a member or affiliate of Mortgagor which have been pre-approved by Mortgagee, as described in subsection 4.24(f) hereof, shall be allowed." (i) EXHIBIT B, Permitted Exception No. 1, of the Mortgage is hereby deleted in its entirety, and the following substituted therefor: "Real property taxes for the second half of fiscal year 2004 and for subsequent years not yet due and payable." 4. MODIFICATION OF REPLACEMENT RESERVE AND SECURITY AGREEMENT. The Replacement Reserve and Security Agreement, as previously modified by the Modification Agreement, is further modified as follows: (a) All references to the term "Note" contained in the Replacement Reserve and Security Agreement shall be deemed to refer to the Note as defined herein and as modified by this Agreement; all references to the term "Loan" contained in the Replacement Reserve and Security Agreement shall be deemed to refer to the loan evidenced by the Note. (b) All references to the term "Mortgage" contained in the Replacement Reserve and Security Agreement shall be deemed to refer to the Mortgage, as defined herein and as modified by this Agreement. (c) All references contained in the Replacement Reserve and Security Agreement to the term "Loan Documents" shall be deemed to refer to such term as defined herein and as modified by this Agreement. (d) From the Effective Date until the earlier of (i) the expiration of the Interest Only Payment Period (as defined in Section 4.24(a) of the Mortgage), or (ii) the occurrence of a Reinstatement as set forth in Section 5 of this Agreement, Borrower's obligations to make monthly deposits to the Replacement Reserve Account pursuant to Section 4 of the Replacement Reserve and Security Agreement, to submit Capital Budgets pursuant to Section 6 of the Replacement Reserve and Security Agreement, and to submit reports pursuant to Section 8 of the Replacement Reserve and Security Agreement shall be suspended, it being the intent of the parties that such obligations shall be superseded by the provisions of the new Sections 4.24, 4.25 and 5.11 of the Mortgage during such period. 45 (e) Any amounts on deposit in the Replacement Reserve Account on the Effective Date may be withdrawn by Borrower and applied to Capital Expenses during the Reduced Payment Period and/or the Interest Only Payment Period with the prior written approval of Lender, which consent shall not be unreasonably withheld or delayed. (f) Upon the earlier of (i) the expiration of the Interest Only Payment Period, or (ii) the occurrence of a Reinstatement as set forth in Section 5 of this Agreement, Borrower's obligations to make monthly deposits to the Replacement Reserve Account pursuant to Section 4 of the Replacement Reserve and Security Agreement, to submit Capital Budgets pursuant to Section 6 of the Replacement Reserve and Security Agreement, and to submit reports pursuant to Section 8 of the Replacement Reserve and Security Agreement shall be fully reinstated. 5. REINSTATEMENT. On the first day of any month during the Reduced Payment Period or the Interest Only Payment Period, provided that no Event of Default has occurred under the Note or any of the other Loan Documents, the Borrower may effect a "Reinstatement" of the Loan by satisfying the following conditions: (a) Borrower shall deliver written notice to Lender, not less than thirty (30) days prior to the Reinstatement, of Borrower's intent to effect a Reinstatement; and (b) On the date of the Reinstatement, Borrower shall pay all accrued and unpaid interest on the Note, except any accrued and unpaid interest which has been added to the principal balance of the Note. Upon the occurrence of a Reinstatement pursuant to this Section 5: (a) Section 1 of the Note shall be amended to provide that (i) commencing on the date of the Reinstatement, and on the first day of each month thereafter through and including June 1, 2010, combined payments of principal and interest shall be payable, in arrears, in the amount of $332,910.63; and (ii) the entire outstanding principal balance of the Note, together with all accrued and unpaid interest and all other sums due thereunder, shall be due and payable in full on the Original Maturity Date. (b) Borrower's obligations to submit monthly Net Cash Flow Reports pursuant to Section 4.13 of the Mortgage shall be terminated. (c) Sections 4.24, 4.25 and 5.11 of the Mortgage shall be terminated and of no further effect. (d) Borrower's obligations to make monthly deposits to the Replacement Reserve Account pursuant to Section 4 of the Replacement Reserve and Security Agreement, to submit Capital Budgets pursuant to Section 6 of the Replacement Reserve and Security Agreement, and to submit reports pursuant to Section 8 of the Replacement Reserve and Security Agreement shall be fully reinstated. 6. MODIFICATION OF ENVIRONMENTAL INDEMNITY AGREEMENT. The Environmental Indemnity Agreement dated as of December 16, 1996, executed by Borrower and 46 Guarantor, as previously modified by the Modification Agreement and by the Reaffirmation and Modification of Limited Guaranty Agreement and Environmental Indemnity Agreement dated as of May 30, 2000 executed by Guarantor for the benefit of Borrower (as so modified, the "Environmental Indemnity Agreement"), is further modified as follows: (a) All references to the term "Note" contained in the Environmental Indemnity Agreement shall be deemed to refer to the Note as defined herein and as modified by this Agreement; all references to the term "Loan" contained in the Environmental Indemnity Agreement shall be deemed to refer to the loan evidenced by the Note. (b) All references to the term "Mortgage" contained in the Environmental Indemnity Agreement shall be deemed to refer to the Mortgage, as defined herein and as modified by this Agreement. (c) All references contained in the Environmental Indemnity Agreement to the term "Loan Documents" shall be deemed to refer to such term as defined herein and as modified by this Agreement. (d) In consideration of Lender's willingness to enter into this Agreement, Borrower hereby reaffirms all of its agreements and obligations under the Environmental Indemnity Agreement, as modified by the Modification Agreement and hereby. 7. MODIFICATION OF OTHER LOAN DOCUMENTS. (a) All references to the term "Note" contained in the Loan Documents shall be deemed to refer to the Note as defined herein and as modified by this Agreement; all references to the term "Loan" contained in the Loan Documents shall be deemed to refer to the loan evidenced by the Note. (b) All references to the term "Mortgage" contained in the Loan Documents shall be deemed to refer to the Mortgage as defined herein and as modified by this Agreement. (c) All references contained in any of the Loan Documents to the term "Loan Documents" shall be deemed to refer to such term as defined herein and as modified by this Agreement. 8. REAFFIRMATION OF LOAN DOCUMENTS. (a) Borrower hereby re-makes each and every representation and warranty of Borrower to Lender contained in Article III of the Mortgage and Section 1 of the Environmental Indemnity Agreement, each as modified hereby. (b) As modified hereby, the terms and provisions of the Mortgage and the other Loan Documents are hereby ratified and confirmed, and shall be and remain in full force and effect, enforceable in accordance with their terms. 47 9. GRANT OF LIEN AND SECURITY INTEREST. (a) Borrower hereby acknowledges and confirms that the Mortgage, as modified hereby, constitutes a first priority security conveyance of and first lien on the Property, subject only to the Permitted Exceptions set forth therein. (b) In consideration of Lender's willingness to enter into this Agreement and as security for Borrower's obligations under the Note and the other Loan Documents and Key Biscayne Borrower's obligations under the Key Biscayne Note and the Key Biscayne Loan Documents (as such terms are defined in the Mortgage), Borrower hereby (a) grants, bargains, sells, conveys, mortgages and warrants with MORTGAGE COVENANTS unto Lender the entire right, title, interest and estate of Borrower in and to the Property, whether now owned or hereafter acquired; TO HAVE AND TO HOLD the same, together with all and singular the rights, hereditaments, and appurtenances in anywise appertaining or belonging thereto, unto Lender and Lender's successors, substitutes and assigns forever, and (b) grants to Lender a security interest in the Property, Chattels and Intangible Personalty (as defined in the Mortgage, as modified hereby), each on the terms and conditions set forth in the Mortgage, as modified hereby. 10. STATUTORY CONDITION. This Agreement is upon the STATUTORY CONDITION, and upon the further condition that each of the aforementioned covenants, agreements, representations and warranties shall be kept and duly performed. If there shall occur a breach of any of such conditions which constitutes an Event of Default under the Loan Documents, or if the entire mortgage debt becomes due at the option of Lender, the holder hereof shall have the STATUTORY POWER OF SALE, and, as to the Collateral (as defined in the Mortgage, as modified hereby), all rights and remedies conferred by the Uniform Commercial Code. 11. ENDORSEMENT TO LENDER'S TITLE INSURANCE POLICY. Upon closing of the loan restructure transaction described in this Agreement, Borrower shall deliver to Lender, at Borrower's sole expense, an endorsement to Lender's title insurance policy or a new title insurance policy, satisfactory in form and substance to Lender, issued by a title insurance company approved by Lender, in an amount not less than the amount of the Loan, insuring Lender that the Mortgage as modified by this Agreement is a valid first and prior lien on the Property, subject only to such exceptions to and conditions of title as Lender may approve, and containing such additional endorsements as Lender may require including, without limitation, a tie-in endorsement aggregating such title insurance coverage with the title insurance coverage insuring the lien of the Key Biscayne Second Mortgage. 12. OPINION OF BORROWER'S COUNSEL. Upon closing of the loan restructure transaction described in this Agreement, Borrower shall deliver to Lender a legal opinion of independent counsel to Borrower, in form and substance satisfactory to Lender, opining that the Loan as restructured is not usurious under any applicable law, that the loan restructure transaction and the execution and delivery of all documents in connection therewith have been duly authorized by all necessary parties (other than Lender), and that all such documents are binding and enforceable in accordance with their terms, and addressing such other matters as Lender may reasonably require. 48 13. PAYMENT OF COSTS AND EXPENSES. Borrower shall pay all costs and expenses incurred by Lender in connection with this Agreement and in connection with the restructure of the Loan, including, without limitation, all reasonable attorneys' fees, recording fees and title insurance fees (including the fees for issuance of the endorsement to Lender's title insurance policy or a new title insurance policy, as applicable) deemed necessary by Lender. Such costs and expenses shall be paid by Borrower upon closing of the loan restructure transaction described in this Agreement ("Closing"). Such costs and expenses shall be considered Operating Expenses of the Property, as defined in subsection 4.24(f) of the Mortgage, for the period in which they are paid by Borrower. Failure to pay such costs and expenses upon Closing shall constitute a default by Borrower under Section 6.3 of the Mortgage, and continuance of such failure for a period of thirty (30) days following written notice thereof from Lender to Borrower shall constitute an Event of Default under the Mortgage. 14. MISCELLANEOUS. (a) All capitalized terms used herein without definition shall have the meanings given to them in the Mortgage. (b) This Agreement may be executed in several counterparts, and executed counterparts bearing signatures of Borrower and Lender shall constitute a fully-executed original of this Agreement. (c) This Agreement shall be governed by the laws of the Commonwealth of Massachusetts, without giving effect to its principles of conflicts of laws. (d) The parties hereby agree to execute any and all additional documents that may reasonably be required in order to evidence, secure or carry out the agreements and undertakings set forth in this Agreement. (e) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their permitted successors and assigns. (f) EACH PARTY TO THIS AGREEMENT KNOWINGLY, IRREVOCABLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM BASED ON THIS AGREEMENT, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THE NOTE, THE MORTGAGE OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO OR TO ANY LOAN DOCUMENT OR ORIGINAL LOAN DOCUMENT. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES TO ENTER INTO THE TRANSACTIONS EVIDENCED BY THIS AGREEMENT. (g) Borrower shall not deposit funds attributable to the Property into the Pledged Operating Account unless and until a Notice of Assignment and Control Agreement concerning such account, in form and substance satisfactory to Lender, has been executed by Borrower, Lender and the depository bank at which the account is maintained, and a fully 49 executed original of such Notice of Assignment and Control Agreement has been delivered to Lender. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] 50 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth above. BORROWER: -------------------------------------------------- Roger P. Sonnabend, Trustee of the Charterhouse of Cambridge Trust, and not individually /S/ -------------------------------------------------- Peter J. Sonnabend, Trustee of the Charterhouse of Cambridge Trust, and not individually /S/ -------------------------------------------------- Boy A.J. van Riel, Trustee of the Charterhouse of Cambridge Trust, and not individually SONESTA OF MASSACHUSETTS, INC., a Massachusetts corporation By: /S/ ---------------------------------------------- Peter J. Sonnabend, Vice President LENDER: SUNAMERICA LIFE INSURANCE COMPANY, an Arizona corporation By:/S/ ---------------------------------------------- Name: Keith C. Honig ------------------------------------------- Title: Authorized Agent ------------------------------------------- A- 51 EX-10.6(B) 8 a2132289zex-10_6b.txt EX-10.6(B) Exhibit 10.6(b) REAFFIRMATION AND MODIFICATION OF LIMITED GUARANTY AGREEMENT AND ENVIRONMENTAL INDEMNITY AGREEMENT THIS REAFFIRMATION AND MODIFICATION OF LIMITED GUARANTY AGREEMENT AND ENVIRONMENTAL INDEMNITY AGREEMENT (this "Reaffirmation"), dated as of March 24, 2004, to be effective as of December 1, 2003 (the "Effective Date"), is executed by SONESTA INTERNATIONAL HOTELS CORPORATION, a New York corporation ("Guarantor"), for the use and benefit of SUNAMERICA LIFE INSURANCE COMPANY, an Arizona corporation ("Lender"). RECITALS A. On or about January 6, 1997, Lender made a $22,880,000.00 loan (the "Original Loan") to Charterhouse of Cambridge Trust and Sonesta of Massachusetts, Inc. (collectively, the "Borrower"). B. The Original Loan (i) was evidenced by a Promissory Note dated December 18, 1996, in the original principal amount of the Original Loan executed by Borrower to the order of Lender (the "Original Note"), (ii) is secured by, among other things, a Mortgage, Security Agreement, Fixture Filing, Financing Statement and Assignment of Leases and Rents dated as of December 18, 1996 (the "Original Mortgage"), executed by Borrower for the benefit of Lender, encumbering certain real property and improvements thereon commonly known as the Royal Sonesta Hotel, City of Cambridge, County of Middlesex, Massachusetts, more particularly described in the Original Mortgage (the "Property") and recorded on July 3, 1997, at Book 26983, Page 631, in the Middlesex South District Registry of Deeds (the "Records"), and (iii) is guaranteed as to certain obligations by Guarantor pursuant to a Limited Guaranty Agreement dated as of December 18, 1996 (the "Original Guaranty"). C. In connection with the Original Loan, Borrower and Guarantor also executed that certain Environmental Indemnity Agreement dated as of December 18, 1996 (the "Original Environmental Indemnity"). D. On or about June 2, 2000, Lender made an additional advance of $19,865,733.66 (the "Additional Advance") on the Original Loan, and in connection with the Additional Advance, (i) Lender and Borrower consolidated, amended and restated the Original Loan and the Additional Advance pursuant to that certain Amended and Restated Promissory Note dated May 30, 2000, in the original principal amount of $41,000,000.00, executed by Borrower to the order of Lender (the "Amended and Restated Note"), (ii) Lender and Borrower entered into certain other modifications to the Original Loan pursuant to that certain Mortgage and Loan Modification Agreement dated as of May 30, 2000 and recorded at Book 31470, Page 360, in the Records (the "First Modification") executed by Lender and Borrower, and (iii) Guarantor reaffirmed its obligations under the Original Guaranty and Original Environmental Indemnity pursuant to that certain Reaffirmation and Modification of Limited Guaranty Agreement and Environmental Indemnity Agreement dated as of May 30, 2000 (the "First Reaffirmation") executed by Guarantor for the benefit of Lender. 52 E. The Original Guaranty and the Original Environmental Indemnity, each as modified and reaffirmed pursuant to the First Reaffirmation, are referred to herein as the "Guaranty" and "Environmental Indemnity," respectively. The Original Mortgage, as modified by the First Modification, is referred to herein as the "Mortgage." The Amended and Restated Note, the Mortgage and each other document executed by Borrower and evidencing or securing the Original Loan, each as modified by the First Modification Agreement, together with the First Modification Agreement and each other document executed by Borrower in connection with the Additional Advance, are referred to herein, collectively, as the "Loan Documents." F. On or about the date hereof, but effective as of the Effective Date, Lender and Borrower are amending certain terms and provisions of the Amended and Restated Note, the Mortgage and certain other of the Loan Documents pursuant to a Mortgage and Loan Modification Agreement dated as of the date hereof (the "Second Modification Agreement") executed by Lender and Borrower to, among other things, alter certain of the interest rate and payment provisions set forth in the Amended and Restated Note (the "Restructure"). G. As a condition of Lender's willingness to enter into the Restructure and to execute the Second Modification Agreement, Lender has required that Guarantor execute this Reaffirmation. NOW THEREFORE, in consideration of the Restructure, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Guarantor hereby agrees as follows: AGREEMENT 1. All references to the term "Note" contained in the Guaranty and the Environmental Indemnity shall hereafter be deemed to refer to the Amended and Restated Note, as amended by the Second Modification Agreement. 2. All references to the term "Mortgage" contained in the Guaranty and the Environmental Indemnity shall hereafter be deemed to refer to the Mortgage, as modified by the Second Modification Agreement. 3. All references to the term "Loan Documents" contained in the Guaranty and the Environmental Indemnity shall hereafter be deemed to refer to the Loan Documents, as modified by the Second Modification Agreement. 4. Guarantor hereby consents to (a) the Restructure, (b) each and every provision of the Amended and Restated Note, as modified by the Second Modification Agreement, (c) each and every provision of the Mortgage, as modified by the Second Modification Agreement, and (d) each and every provision of the Loan Documents, as modified by the Second Modification Agreement. 5. Guarantor hereby agrees that all of the terms and provisions of the Guaranty and the Environmental Indemnity, as modified hereby, are hereby ratified and reaffirmed, and Guarantor hereby acknowledges the validity and enforceability thereof. 53 6. Guarantor hereby re-makes each and every representation of Guarantor to Lender contained in Section 1 of the Environmental Indemnity. 7. Except as expressly modified herein, the terms and conditions of the Environmental Indemnity and Guaranty shall remain unmodified and in full force and effect. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] 54 IN WITNESS WHEREOF, Guarantor has executed this Reaffirmation as of the date first above written. GUARANTOR: SONESTA INTERNATIONAL HOTELS CORPORATION, a New York corporation By:/S/ ---------------------------------------- Peter J. Sonnabend, Vice President 55 EX-10.7(A) 9 a2132289zex-10_7a.txt EX-10.7(A) Exhibit 10.7(a) STATE OF FLORIDA COUNTY OF MIAMI-DADE Prepared by: And when recorded mail to: Otten, Johnson, Robinson, Neff & Ragonetti, P.C. 950 Seventeenth Street Suite 1600 Denver, Colorado 80202 Attention: David T. Brennan, Esq. MORTGAGE AND LOAN MODIFICATION AGREEMENT This MORTGAGE AND LOAN MODIFICATION AGREEMENT (this "Agreement"), dated as of March 24, 2004, to be effective as of December 1, 2003 (the "Effective Date"), is made by and between SONESTA BEACH RESORT LIMITED PARTNERSHIP, a Delaware limited partnership ("Borrower"), and SUNAMERICA LIFE INSURANCE COMPANY, an Arizona corporation ("Lender"). RECITALS A. On or about June 2, 2000, Lender made a loan in the principal amount of $31,000,000.00 (the "Loan") to Borrower. B. The Loan is evidenced by a Consolidated and Renewed Promissory Note dated May 30, 2000, in the original principal amount of the Loan executed by Borrower to the order of Lender (the "Note"), and is secured by, among other things, a Consolidated, Amended and Restated Mortgage, Security Agreement, Fixture Filing, Financing Statement and Assignment of Leases and Rents dated as of May 30, 2000 (the "First Mortgage"), executed by Borrower for the benefit of Lender, encumbering certain real property and improvements thereon commonly known as the Sonesta Beach Resort, Key Biscayne, County of Miami-Dade, Florida, and more particularly described in the First Mortgage and in EXHIBIT A attached hereto (the "Property"). The First Mortgage was recorded with the Clerk of Miami-Dade County, Florida, on June 2, 2000, in Official Records Book 19137, Page 1265. C. In connection with the Loan, Borrower executed a Replacement Reserve and Security Agreement dated as of May 30, 2000 (the "Replacement Reserve and Security Agreement") for the benefit of Lender. 56 D. The Note, the First Mortgage, the Replacement Reserve and Security Agreement and each other document executed by Borrower and evidencing or securing the Loan (excluding, however, the Non-Recourse Guaranty Agreement and the Second Mortgage (as such terms are hereinafter defined)), are referred to herein, collectively, as the "Loan Documents." E. On or about June 2, 2000, Lender also made an additional advance of $19,865,733.66 (the "Cambridge Additional Advance") on an existing loan (the "Original Cambridge Loan") to certain affiliates of Borrower, Sonesta of Massachusetts, Inc., a Massachusetts corporation, and Roger P. Sonnabend, Peter J. Sonnabend, and Boy A.J. van Riel, trustees of the Charterhouse of Cambridge Trust, and not individually, under a Declaration of Trust dated December 27, 1963 and recorded at Middlesex South, Commonwealth of Massachusetts, Deeds Book 11160, Page 340, as amended by Amendment of Declaration of Trust dated July 8, 1966 and recorded at Middlesex South, Commonwealth of Massachusetts, Deeds Book 11160, Page 359 (collectively, the "Cambridge Borrower"), and, in connection with the Cambridge Additional Advance, (i) Lender and Cambridge Borrower consolidated, amended and restated the Original Cambridge Loan and the Cambridge Additional Advance pursuant to that certain Amended and Restated Promissory Note dated May 30, 2000, in the original principal amount of $41,000,000.00, executed by Cambridge Borrower to the order of Lender (the "Cambridge Note"), and (ii) Lender and Cambridge Borrower entered into certain other modifications to the Original Cambridge Loan pursuant to that certain Mortgage and Loan Modification Agreement dated as of May 30, 2000 executed by Lender and Cambridge Borrower (the "First Cambridge Modification Agreement") to, among other things, cross-default and cross-collateralize the Original Cambridge Loan and the Loan. F. In connection with the Cambridge Additional Advance, and in order to effectuate the cross collateralization of the Original Cambridge Loan and the Loan, Lender required Borrower to execute that certain Non-Recourse Guaranty Agreement dated as of May 30, 2000 (the "Non-Recourse Guaranty Agreement"), whereby Borrower guaranteed payment and performance of Cambridge Borrower's obligations under the Original Cambridge Loan, and to secure Borrower's obligations under such Non-Recourse Guaranty Agreement with a second Mortgage, Security Agreement, Fixture Filing, Financing Statement and Assignment of Leases and Rents dated as of May 30, 2000 granted by Borrower for the benefit of Lender and encumbering the Property (the "Second Mortgage"). The Second Mortgage was recorded with the Clerk of Miami-Dade County, Florida, on June 2, 2000, in Official Records Book 19137, Page 1312. G. The loan evidenced by the Cambridge Note, as modified by the First Cambridge Modification Agreement and as modified pursuant to the Mortgage and Loan Modification Agreement of even date herewith between Cambridge Borrower and Lender, is referred to herein as the "Cambridge Loan." H. As of the Effective Date, (i) the outstanding principal balance existing under the Loan is $29,750,020.66 and there is no accrued and unpaid interest due thereon, and (ii) the outstanding principal balance existing under the Cambridge Loan is $39,346,801.84 and there is no accrued and unpaid interest due thereon. 57 I. Borrower and Lender wish to provide modified repayment terms for the Loan, and wish to modify certain terms of the Note, the First Mortgage, the Second Mortgage and the other Loan Documents to reflect certain other agreements as hereinafter provided. AGREEMENT NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Lender hereby agree as follows: 1. NO DEFENSES, SETOFFS OR COUNTERCLAIMS. The Lender has performed all of its obligations to date under the Loan Documents, and the amounts owed by the Borrower to the Lender under the Loan are free from any defenses, setoffs or counterclaims in favor of the Borrower against the Lender. To the extent that any such defenses, setoffs, or counterclaims now exist, Borrower hereby waives and releases the same in exchange for the Lender's agreement to modify the Loan and the Loan Documents as set forth herein. 2. MODIFICATION OF NOTE. (a) Section 1 of the Note is hereby modified to provide that: (i) The balance of principal outstanding from time to time under the Note shall continue to bear interest at eight and sixty one-hundredths percent (8.60%, hereinafter the "Note Rate"), based on a 360-day year for the actual number of days elapsed. (ii) Commencing on January 1, 2004, and on the first day of each month thereafter through and including December 1, 2006 (the "Reduced Payment Period"), provided that no Event of Default has occurred under the Note or any of the other Loan Documents, payments of interest only on the principal balance of the Note, at the rate of five percent (5.00%) per annum based on a 360-day year for the actual number of days elapsed (the "Reduced Payment Rate"), shall be payable, in arrears. Unpaid accrued interest on the Note shall be added to the principal balance of the Note on December 1, 2004, December 1, 2005 and December 1, 2006. Maker may pay any accrued but unpaid interest on the Note which has been added to the principal balance of the Note, without prepayment premium, at any time and from time to time, on or before December 31, 2007, as provided in Section 4.23 of the First Mortgage. (iii) Commencing on January 1, 2007, and on the first day of each month thereafter through and including December 1, 2007 (the "Interest Only Payment Period"), provided that no Event of Default has occurred under the Note or any of the other Loan Documents, payments of interest only on the principal balance of the Note, at the Note Rate, based on a 360-day year for the actual number of days elapsed, shall be payable, in arrears. (iv) Commencing on January 1, 2008, and on the first day of each month thereafter through and including June 1, 2010 (the "Principal and Interest 58 Payment Period"), combined payments of principal and interest shall be payable, in arrears, in the amount of $251,712.92. (v) The entire outstanding principal balance of the Note, together with all accrued and unpaid interest and all other sums due thereunder, shall be due and payable in full on July 1, 2010 (the "Original Maturity Date"). (b) Section 5 of the Note is hereby modified to provide that if Maker delivers a Defeasance Notice to Holder during the Reduced Payment Period or the Interest Only Payment Period: (i) Unpaid accrued interest on the Note shall be added to the principal balance of the Note on the Defeasance Date; and (ii) Maker shall then satisfy the Defeasance Requirements, including the remittance of the Defeasance Deposit, such that the Defeasance Collateral will be sufficient to pay as and when due the principal of and interest on the Note on each regularly scheduled payment date thereunder and on the Original Maturity Date, at the Note Rate and on the payment schedule set forth in the Note, and not as modified by Section 2(a) of this Agreement. (c) The third sentence of Section 18 of the Note is hereby deleted in its entirety and replaced with the following: The agreement contained in this paragraph to limit the personal liability of Maker shall become null and void and be of no further force and effect in the event (i) that the Property or any part thereof or any interest therein, or any interest in Maker, shall be further encumbered by a voluntary lien securing any obligation upon which Maker or any general partner, principal or affiliate of Maker shall be personally liable for repayment, whether as obligor or guarantor which has not been approved in advance by Holder; (ii) of any breach or violation of Section 4.23 or 4.24 of the Mortgage; (iii) of any breach or violation of Section 5.4, 5.5 or 5.7 of the Mortgage; (iv) of any fraud or material misrepresentation by Maker in connection with the Property, the Loan Documents or the application made by Maker for the Loan; or (v) of any execution, amendment, modification or termination without the prior written consent of Holder, if such consent is required under the terms of Section 5.3 of the Mortgage, of any Lease. 3. MODIFICATION OF FIRST MORTGAGE. (a) Sections 1.2, 1.3, 1.6, 1.12, 1.13, 1.15, 1.20, 1.21, 1.25 and 1.26 of the First Mortgage are hereby deleted in their entireties, and the following substituted therefor: "1.2 CAMBRIDGE LOAN DOCUMENTS: The Cambridge Note, all of the mortgages, deeds of trust, and other instruments and 59 documents executed by the Cambridge Borrower and/or Guarantor securing the Cambridge Note, including any guaranty agreements, environmental indemnity agreements, replacement reserve agreements, collateral assignment of liquor licenses, lease certificates, and all other documents executed or delivered by the Cambridge Borrower and/or Guarantor in connection with the transaction pursuant to which the Cambridge Note has been executed and delivered, together with the Cambridge Modification Agreement and the other documents executed by the Cambridge Borrower and/or Guarantor in connection with the Cambridge Modification Agreement. The term 'Cambridge Loan Documents' also includes all modifications, extensions, renewals, and replacements of each document referred to above. 1.3 CAMBRIDGE NOTE: The Amended and Restated Promissory Note dated as of May 30, 2000 executed by the Cambridge Borrower and payable to the order to Mortgagee in the principal face amount of $41,000,000.00, as modified by the Cambridge Modification Agreement, the last payment under which is due on July 1, 2010, or, if extended by Mortgagee by its terms, July 1, 2015, unless such due date is accelerated, together with all renewals, extensions and modifications of such consolidated and renewed promissory note. 1.6 ENVIRONMENTAL INDEMNITY AGREEMENT: The Environmental Indemnity Agreement dated as of May 30, 2000 made by Mortgagor and Guarantor for the benefit of Mortgagee, as modified by (a) the Modification Agreement, and (d) the Reaffirmation Agreement. 1.12 INTANGIBLE PERSONALTY: The right to use all trademarks and trade names and symbols or logos used in connection therewith, or any modifications or variations thereof, in connection with the operation of the improvements existing or to be constructed on the Property, together with all accounts, deposit accounts (including, without limitation, the Pledged Accounts), letter of credit rights, monies in the possession of Mortgagee (including without limitation proceeds from insurance, retainages, deposits for taxes and insurance and monies on deposit in the Additional Collateral Account), Permits, contract rights (including, without limitation, rights to receive insurance proceeds), amounts paid as rents of the Property or the fees, charges, accounts, or other payments for the use or occupancy of rooms and other public facilities in the Property, and general intangibles (whether now owned or hereafter acquired, and including proceeds thereof) relating to or arising from Mortgagor's ownership, use, operation, leasing, or sale of all or any part of the Property, specifically including but in no way 60 limited to any right which Mortgagor may have or acquire to transfer any development rights from the Property to other real property, and any development rights which may be so transferred. 1.13 LEASE CERTIFICATE: The Certificate Concerning Leases dated as of March 24, 2004, and effective as of the Effective Date, made by Mortgagor to Mortgagee concerning the Leases. 1.15 LIMITED GUARANTY AGREEMENT: The Limited Guaranty Agreement dated as of May 30, 2000 made by Guarantor for the benefit of Mortgagee, as modified by the Reaffirmation Agreement. 1.20 NON-RECOURSE GUARANTY AGREEMENT: The Non-Recourse Guaranty Agreement dated as of May 30, 2000 made by Mortgagor for the benefit of Mortgagee, and secured by the Second Mortgage, as modified by the Reaffirmation and Modification of Non-Recourse Guaranty Agreement dated as of March 24, 2004, executed by Mortgagor for the benefit of Mortgagee, pursuant to which Mortgagor has guaranteed payment and performance of the Cambridge Note and the other Cambridge Loan Documents. 1.21 NOTE: Mortgagor's Consolidated and Renewed Promissory Note dated as of May 30, 2000, payable to the order of Mortgagee in the principal face amount of $31,000,000.00, as modified by the Modification Agreement, the last payment under which is due on July 1, 2010 or, if extended pursuant to its terms, July 1, 2015, unless such due date is accelerated, together with all renewals, extensions and modifications of such Promissory Note. All terms and provisions of the Note are incorporated by this reference in this Mortgage. 1.25 REPLACEMENT RESERVE AND SECURITY AGREEMENT: The Replacement Reserve and Security Agreement dated as of May 30, 2000, executed by Mortgagor for the benefit of Mortgagee, as modified by the Modification Agreement. 1.26 SECOND MORTGAGE: The Mortgage, Security Agreement, Fixture Filing, Financing Statement and Assignment of Leases and Rents dated as of May 30, 2000 executed by Mortgagor for the benefit of Mortgagee and securing Mortgagor's obligations under the Non-Recourse Guaranty Agreement, as modified by the Modification Agreement." 61 (b) The following definitions are hereby added to the end of Article 1 of the First Mortgage: "1.28 ADDITIONAL COLLATERAL ACCOUNT: An account maintained by Mortgagee or a Servicer designated by Mortgagee, into which Excess Cash Flow shall be deposited in accordance with Section 4.23, and which shall be additional Collateral for the Loan. 1.29 ANNUAL CAPITAL EXPENSE AMOUNT: An amount equal to five percent (5.00%) of Gross Revenue (as defined in Section 4.23(e)) for the Reduced Payment Period and the Interest Only Payment Period (as defined in Section 4.23(a)). 1.30 CAMBRIDGE MODIFICATION AGREEMENT: The Mortgage and Loan Modification Agreement dated as of March 24, 2004, executed by Cambridge Borrower and Mortgagee. 1.31 CAPITAL EXPENSE LIMIT: The Annual Capital Expense Amount plus such Annual Capital Expense Amounts accrued in prior years and not applied to Capital Expenses of the Property. 1.32 EFFECTIVE DATE: December 1, 2003. 1.33 MODIFICATION AGREEMENT: The Mortgage and Loan Modification Agreement dated as of March 24, 2004, and effective as of the Effective Date, executed by Mortgagor and Mortgagee. 1.34 PLEDGED ACCOUNTS: The Additional Collateral Account and the Pledged Operating Account. 1.35 PLEDGED OPERATING ACCOUNT: That certain deposit account (ABA # 067001518, Account # 8026272255) maintained by Mortgagor with First Colonial Bank. 1.36 REAFFIRMATION AGREEMENT: The Reaffirmation and Modification of Limited Guaranty Agreement and Environmental Indemnity Agreement dated as of March 24, 2004, and effective as of the Effective Date, executed by Guarantor for the benefit of Mortgagee." (c) Section 4.12 of the First Mortgage is hereby modified to provide that, in addition to the financial reports described therein, Mortgagor must also provide to Mortgagee, by the twentieth (20th) day of each month during the Reduced Payment Period and the Interest Only Payment Period (as such terms are defined in Section 4.23(a)), a report of the Gross Revenue, Operating Expenses, Net Cash Flow and Excess Cash Flow of the Property for the previous calendar month (the "Net Cash Flow Report"). The Net Cash Flow Report shall be in such detail as Mortgagee may require, shall be prepared in accordance with the Uniform System of Accounts for the Lodging Industry, Ninth Revised Edition, First Printing 1996 as 62 adopted by the American Hotel and Motel Association, as amended or supplemented from time to time, and shall be certified as true and correct by Mortgagor (or, if required by Mortgagee during the continuance of any Event of Default, certified by an independent certified public accountant acceptable to Mortgagee). (d) A new Section 4.23 is hereby added to the First Mortgage, as follows: "4.23 APPLICATION OF NET CASH FLOW TO CAPITAL EXPENSES; DEFERRED INTEREST REDUCTION PAYMENTS; ADDITIONAL COLLATERAL ACCOUNT. (a) For the period from January 1, 2004 through December 31, 2006 (the "Reduced Payment Period"), and for the period from January 1, 2007 to December 31, 2007 (the "Interest Only Payment Period"), all Net Cash Flow from the Property shall, at Mortgagor's election, either be (i) retained in the Pledged Operating Account or transferred by Mortgagor to the Central Account as provided in subsection 4.23(b), (ii) used to pay Capital Expenses of the Property, subject to Mortgagee's prior written approval to the extent that such Capital Expenses exceed the Capital Expense Limit, (iii) paid to Mortgagee or Servicer for deposit in the Additional Collateral Account, as set forth in subsection 4.23(b) hereof, or (iv) paid to Mortgagee (any such payment a "Deferred Interest Reduction Payment") and applied (A) first, to accrued but unpaid interest on the Loan, and (B) second, to accrued but unpaid interest which has been previously added to the principal balance of the Loan during the Reduced Payment Period ("Capitalized Interest"), without prepayment premium. Except for payments of Capitalized Interest pursuant to subsection 4.23(a)(iv)(B) hereof, Mortgagor shall not be permitted to prepay the principal balance of the Loan except as set forth in Section 5 of the Note. Deferred Interest Reduction Payments during the Reduced Payment Period and the Interest Only Payment Period, if any, may be made no more than once per month, and shall be remitted together with the regularly scheduled monthly payment of interest under the Note. Net Cash Flow shall not be used by Mortgagor for any purpose, other than as provided in this subsection 4.23(a). (b) So long as no Event of Default has occurred, Mortgagor may make daily transfers of Net Cash Flow from the Property to a corporate bank account maintained by Guarantor (the "Central Account"), provided that Guarantor shall properly account for all funds so transferred as Mortgagor's funds. So long as no Event of Default has occurred, Net Cash Flow (as defined in subsection 4.23(d) hereof) from the Cambridge Property may be used to fund Operating Expenses (as defined in subsection 4.23(f) hereof) of the Property, and Net Cash Flow from the Property may be used to fund 63 Operating Expenses of the Cambridge Property. So long as no Event of Default has occurred, Mortgagor and Cambridge Borrower may calculate Gross Revenues, Operating Expenses, Net Cash Flow and Excess Cash Flow, for purposes of this Section 4.23, on a consolidated basis for both the Property and the Cambridge Property. Each month during the Reduced Payment Period and the Interest Only Payment Period, on or before the twentieth (20th) day of the month, Mortgagor shall remit to Mortgagee all Net Cash Flow for the prior month from the Property, or from the Property and the Cambridge Property on a consolidated basis, as applicable, which was not applied in accordance with subsections 4.23(a)(ii) or (iv) hereof (the "Excess Cash Flow"), if any. All Excess Cash Flow so received by Mortgagee shall be retained in an account (the "Additional Collateral Account") maintained by Mortgagee or an entity designated by Mortgagee to service the Loan ("Servicer"), and held as additional Collateral for the Loan. So long as no Event of Default has occurred, in months in which Gross Revenue from the Property (or from the Property and the Cambridge Property on a consolidated basis, as applicable) is insufficient to fund Operating Expenses of the Property (or of the Property and the Cambridge Property on a consolidated basis, as applicable), Mortgagor may obtain a disbursement of funds from the Additional Collateral Account in the lesser of (i) the amount necessary to pay the unpaid Operating Expenses for the subject month, or (ii) the balance in the Additional Collateral Account, less any minimum required balance required by the depository bank to be maintained therein, upon submission of a written request to Mortgagee or Servicer. So long as no Event of Default has occurred, Mortgagor may obtain a disbursement of funds from the Additional Collateral Account to make a Deferred Interest Reduction Payment to Mortgagee as provided in subsection 4.23(a)(iv), in the lesser of (i) the amount requested by Mortgagor to make the Deferred Interest Reduction Payment, or (ii) the balance in the Additional Collateral Account, less any minimum required balance required by the depository bank to be maintained therein, upon submission of a written notice to Mortgagee or Servicer. (c) The annual operating statements for the Property described in Subsection 4.12 hereof shall indicate the amount of Net Cash Flow for each twelve month period from January 1 through December 31 included in the Reduced Payment Period and the Interest Only Payment Period, and shall certify (i) the application of Net Cash Flow for the relevant period to Capital Expenses, subject to Mortgagee's prior written approval to the extent that 64 such Capital Expenses exceed the Capital Expense Limit; (ii) the payment of Net Cash Flow for the relevant period to Mortgagee for deposit in the Additional Collateral Account; and/or (iii) that Deferred Interest Reduction Payment(s) to Mortgagee have been made in the amount of all remaining Net Cash Flow for the relevant period. (d) For purposes of this Section 4.23, "Net Cash Flow" shall mean the difference between Gross Revenue and Operating Expenses for the applicable period. (e) For purposes of this Section 4.23, "Gross Revenue" shall mean all revenue received by or on behalf of Mortgagor from or with respect to the Property for the relevant period for which the calculation of Gross Revenue is being made, including, but not limited to rents, room charges, parking fees, payments from tenants and other occupants of any portion of the Property or from the operation of the Property, and payments received from insurance on account of business or rental interruption and condemnation proceeds from any temporary use or occupancy. Gross Revenue shall not include: (i) proceeds from the sale or other disposition of any part or all of the Property, or from any financing or refinancing of the Property; (ii) proceeds from any condemnation of any part or all of the Property (except for temporary use or occupancy); (iii) proceeds on account of a casualty to the Property (other than payments from insurance on account of business or rental interruption); (iv) other insurance proceeds (other than in compensation of lost rent or its equivalent); (v) similar items or transactions, the proceeds of which under generally accepted accounting principles are deemed attributable to capital and are not in the nature of rent; and (vi) contributions or loans to Borrower by any member or affiliate of Borrower. (f) For purposes of this Section 4.23, "Operating Expenses" shall mean all ordinary and necessary operating expenses actually incurred by Mortgagor in connection with the operation of the Property and the continued existence in good standing of Mortgagor for the relevant period for which the calculation of Operating Expenses is being made, including but not limited to (i) payments made to Mortgagee for taxes and insurance, if any, under the Mortgage, (ii) debt service as required by the Note (excluding Deferred Interest Reduction Payments), and (iii) actual Capital Expenses of the Property, not in excess of the Capital Expense Limit, paid in accordance herewith, but excluding (a) any non-cash expenditure, such as depreciation, and (b) any payment to a member or affiliate of Mortgagor, including, without limitation, payments to a member or affiliate of Mortgagor for management of 65 the Property, not pre-approved by Mortgagee, but including management fees paid in accordance with a Management Agreement entered into by Mortgagor (if any) and approved by Mortgagee. For purposes of this subsection 4.23(f), the fees, and the methods of calculation thereof, indicated on the "Corporate Fees and Charges Schedule" delivered by Mortgagor to Mortgagee on February 20, 2004 have been pre-approved by Mortgagee. (g) For purposes of this Section 4.23, "Capital Expenses" shall mean all cash expenditures for the Property that would be considered capital in nature under generally accepted accounting principles." (e) A new Section 4.24 is hereby added to the First Mortgage, as follows: "4.24 COVENANTS CONCERNING ACCOUNTS. (a) During the term of the Loan, Mortgagor shall maintain the Pledged Operating Account as the exclusive account into which Gross Revenue from the Property shall be deposited. (b) Unless and until Mortgagor has received written notice from Mortgagee that an Event of Default has occurred and specifying the Event of Default (any such notice being referred to herein, individually, as a "Default Notice"), (i) Mortgagor shall deposit all Gross Revenue received by or for the benefit of Mortgagor and attributable to the Property into the Pledged Operating Account, and (ii) funds on deposit in the Pledged Operating Account may be withdrawn by Mortgagor from time to time to pay Operating Expenses as and when due, to pay for Capital Expenses in amounts not to exceed the accrued Capital Expense Limit, and for transfer to the Central Account, subject to the restrictions contained in this Mortgage. (c) After Mortgagor's receipt of a Default Notice, and during the continuance of any Event of Default, (i) Mortgagor shall deposit all revenues received by or for the benefit of Mortgagor and attributable to the Property into the Pledged Operating Account on the business day received by Mortgagor, and (ii) Mortgagor shall have no right to withdraw any funds in the Pledged Operating Account as contemplated in Section 4.24(b) above for any purpose, including without limitation for transfer to the Central Account. (d) After Mortgagee has given any Default Notice, and during the continuance of any Event of Default, Mortgagee shall apply, or 66 cause to be applied, as and when due, funds on deposit in the Pledged Operating Account and/or the Additional Collateral Account in the following order and priority: (i) first, to Mortgagor to pay actual Operating Expenses and/or, subject to Mortgagee's prior written consent, not to be unreasonably withheld, Capital Expenses, as set forth in a request for disbursement to be delivered no more than twice monthly by Mortgagor to Mortgagee; (ii) second, to Mortgagor, or Mortgagor's account, in payment of monthly amounts pursuant to the tax and insurance escrows, if any, for the Property required under this Mortgage; (iii) third, to Mortgagee, or Mortgagee's account, in payment of any late charges, default interest and other sums previously due under the Note or other Loan Documents (other than regularly scheduled monthly payments due under the Note) and to repayment of any advances, costs, expenses or other payments owing by Mortgagor to Mortgagee under this Mortgage or the other Loan Documents; and (iv) fourth, to Mortgagee, or Mortgagee's account, in payment of the regularly scheduled monthly payment then due under the Note. (e) Mortgagor shall deposit, and Mortgagor shall cause its agents and/or property manager or managers to deposit, all revenues received by or for the benefit of Mortgagor and attributable to the Property into the Pledged Operating Account by wire transfer or by direct or traditional deposit, and, if any such revenues are received by Mortgagor in the form of checks, drafts or other instruments then Mortgagor shall also immediately endorse (if applicable) and deposit same into the Pledged Operating Account." (f) A new Section 4.25 is hereby added to the First Mortgage, as follows: "4.25 APPRAISAL. On one occasion while any portion of the Secured Obligations remains unpaid, upon written request by Mortgagee, Mortgagor shall obtain and deliver to Mortgagee, at Mortgagor's expense, an MAI appraisal of the Property (a) made by an appraiser certified in the state where the Property is located and approved by Mortgagee, and (b) satisfactory to Mortgagee in all other respects." 67 (g) A new Section 4.26 is hereby added to the First Mortgage, as follows: "4.26 CONSENT TO RELIEF FROM AUTOMATIC STAY. In the event of the filing of a petition in bankruptcy by or against Mortgagor under the United States Bankruptcy Code, Mortgagor consents and agrees to the entry of immediate relief from the automatic stay of section 362(a) of the Bankruptcy Code, and shall not contest any motion by Mortgagee for termination of, or other relief from, such automatic stay." (h) A new Section 5.11 is hereby added to the First Mortgage, as follows: "5.11 DISTRIBUTIONS TO OWNERS PRIOR TO PRINCIPAL AND INTEREST PAYMENT PERIOD. Without the prior written consent of Mortgagee, Mortgagor will not distribute any portion of the Gross Revenue from the Property to any other holder of a direct or indirect ownership interest in Borrower, prior to the commencement of the Principal and Interest Payment Period (as defined in the Note); provided, however, that payments to a member or affiliate of Mortgagor which have been pre-approved by Mortgagee, as described in subsection 4.23(f) hereof, shall be allowed." (i) EXHIBIT B, Permitted Exception No. 1, of the First Mortgage is hereby deleted in its entirety, and the following substituted therefor: "Real property taxes for 2003 and subsequent years not yet due and payable." 4. MODIFICATION OF SECOND MORTGAGE. (a) Sections 1.2, 1.3, 1.6, 1.10, 1.14, 1.15, 1.17, 1.22, 1.23 and 1.27 of the Second Mortgage are hereby deleted in their entireties, and the following substituted therefor: "1.2 CAMBRIDGE LOAN DOCUMENTS: The Cambridge Note, all of the mortgages, deeds of trust, and other instruments and documents executed by the Cambridge Borrower and/or Guarantor securing the Cambridge Note, including any guaranty agreements, environmental indemnity agreements, replacement reserve agreements, collateral assignment of liquor licenses, lease certificates, and all other documents executed or delivered by the Cambridge Borrower and/or Guarantor in connection with the transaction pursuant to which the Cambridge Note has been executed and delivered, together with the Cambridge Modification Agreement and the other documents executed by the Cambridge Borrower and/or Guarantor in connection with the Cambridge Modification Agreement. The term 'Cambridge Loan Documents' 68 also includes all modifications, extensions, renewals, and replacements of each document referred to above. 1.3 CAMBRIDGE NOTE: The Amended and Restated Promissory Note dated as of May 30, 2000 executed by the Cambridge Borrower and payable to the order to Mortgagee in the principal face amount of $41,000,000.00, as modified by the Cambridge Modification Agreement, the last payment under which is due on July 1, 2010, or, if extended by Mortgagee by its terms, July 1, 2015, unless such due date is accelerated, together with all renewals, extensions and modifications of such consolidated and renewed promissory note. 1.6 ENVIRONMENTAL INDEMNITY AGREEMENT: The Environmental Indemnity Agreement dated as of May 30, 2000 made by Mortgagor and Guarantor for the benefit of Mortgagee, as modified by (a) the Modification Agreement, and (d) the Reaffirmation Agreement. 1.10 FIRST MORTGAGE: The Consolidated, Amended and Restated Mortgage, Security Agreement, Fixture Filing, Financing Statement and Assignment of Leases and Rents dated as of May 30, 2000 executed by Mortgagor for the benefit of Mortgagee and securing Mortgagor's obligations under the Note, as modified by the Modification Agreement. 1.14 INTANGIBLE PERSONALTY: The right to use all trademarks and trade names and symbols or logos used in connection therewith, or any modifications or variations thereof, in connection with the operation of the improvements existing or to be constructed on the Property, together with all accounts, deposit accounts (including, without limitation, the Pledged Accounts), letter of credit rights, monies in the possession of Mortgagee (including without limitation proceeds from insurance, retainages, deposits for taxes and insurance and monies on deposit in the Additional Collateral Account), Permits, contract rights (including, without limitation, rights to receive insurance proceeds), amounts paid as rents of the Property or the fees, charges, accounts, or other payments for the use or occupancy of rooms and other public facilities in the Property, and general intangibles (whether now owned or hereafter acquired, and including proceeds thereof) relating to or arising from Mortgagor's ownership, use, operation, leasing, or sale of all or any part of the Property, specifically including but in no way limited to any right which Mortgagor may have or acquire to transfer any development rights from the Property to other real property, and any development rights which may be so transferred. 69 1.15 LEASE CERTIFICATE: The Certificate Concerning Leases dated as of March 24, 2004, and effective as of the Effective Date, made by Mortgagor to Mortgagee concerning the Leases. 1.17 LIMITED GUARANTY AGREEMENT: The Limited Guaranty Agreement dated as of May 30, 2000 made by Guarantor for the benefit of Mortgagee, as modified by the Reaffirmation Agreement. 1.22 NON-RECOURSE GUARANTY AGREEMENT: The Non-Recourse Guaranty Agreement dated as of May 30, 2000 made by Mortgagor for the benefit of Mortgagee, as modified by the Reaffirmation and Modification of Non-Recourse Guaranty Agreement dated as of March 24, 2004, executed by Mortgagor for the benefit of Mortgagee, pursuant to which Mortgagor has guaranteed payment and performance of the Cambridge Note and the other Cambridge Loan Documents. 1.23 NOTE: Mortgagor's Consolidated and Renewed Promissory Note dated as of May 30, 2000, payable to the order of Mortgagee in the principal face amount of $31,000,000.00, as modified by the Modification Agreement, the last payment under which is due on July 1, 2010 or, if extended pursuant to its terms, July 1, 2015, unless such due date is accelerated, together with all renewals, extensions and modifications of such Promissory Note. 1.27 REPLACEMENT RESERVE AND SECURITY AGREEMENT: The Replacement Reserve and Security Agreement dated as of May 30, 2000, executed by Mortgagor for the benefit of Mortgagee, as modified by the Modification Agreement." (b) The following definitions are hereby added to the end of Article 1 of the Second Mortgage: "1.29 ADDITIONAL COLLATERAL ACCOUNT: An account maintained by Mortgagee or a Servicer designated by Mortgagee, into which Excess Cash Flow shall be deposited in accordance with Section 4.23 of the First Mortgage. 1.30 CAMBRIDGE MODIFICATION AGREEMENT: The Mortgage and Loan Modification Agreement dated as of March 24, 2004, executed by Cambridge Borrower and Mortgagee. 1.31 EFFECTIVE DATE: December 1, 2003. 1.32 MODIFICATION AGREEMENT: The Mortgage and Loan Modification Agreement dated as of March 24, 2004, and effective as of the Effective Date, executed by Mortgagor and Mortgagee. 70 1.33 PLEDGED ACCOUNTS: The Additional Collateral Account and the Pledged Operating Account. 1.34 PLEDGED OPERATING ACCOUNT: That certain deposit account (ABA # 067001518, Account # 8026272255) maintained by Mortgagor with First Colonial Bank. 1.35 REAFFIRMATION AGREEMENT: The Reaffirmation and Modification of Limited Guaranty Agreement and Environmental Indemnity Agreement dated as of March 24, 2004, and effective as of the Effective Date, executed by Guarantor for the benefit of Mortgagee." (c) EXHIBIT B, Permitted Exception No. 1, of the Second Mortgage is hereby deleted in its entirety, and the following substituted therefor: "Real property taxes for 2003 and subsequent years not yet due and payable." 5. MODIFICATION OF REPLACEMENT RESERVE AND SECURITY AGREEMENT. The Replacement Reserve and Security Agreement is modified as follows: (a) All references to the term "Note" contained in the Replacement Reserve and Security Agreement shall be deemed to refer to the Note as defined herein and as modified by this Agreement; all references to the term "Loan" contained in the Replacement Reserve and Security Agreement shall be deemed to refer to the loan evidenced by the Note. (b) All references to the term "Mortgage" contained in the Replacement Reserve and Security Agreement shall be deemed to refer to the First Mortgage, as defined herein and as modified by this Agreement. (c) All references contained in the Replacement Reserve and Security Agreement to the term "Loan Documents" shall be deemed to refer to such term as defined herein and as modified by this Agreement. (d) From the Effective Date until the earlier of (i) the expiration of the Interest Only Payment Period (as defined in Section 4.23(a) of the First Mortgage), or (ii) the occurrence of a Reinstatement as set forth in Section 6 of this Agreement, Borrower's obligations to make monthly deposits to the Replacement Reserve Account pursuant to Section 4 of the Replacement Reserve and Security Agreement, to submit Capital Budgets pursuant to Section 6 of the Replacement Reserve and Security Agreement, and to submit reports pursuant to Section 8 of the Replacement Reserve and Security Agreement shall be suspended, it being the intent of the parties that such obligations shall be superseded by the provisions of the new Sections 4.23, 4.24 and 5.11 of the First Mortgage during such period. (e) Any amounts on deposit in the Replacement Reserve Account on the Effective Date may be withdrawn by Borrower and applied to Capital Expenses during the Reduced Payment Period and/or the Interest Only Payment Period with the prior written approval of Lender, which consent shall not be unreasonably withheld or delayed. 71 (f) Upon the earlier of (i) the expiration of the Interest Only Payment Period, or (ii) the occurrence of a Reinstatement as set forth in Section 6 of this Agreement, Borrower's obligations to make monthly deposits to the Replacement Reserve Account pursuant to Section 4 of the Replacement Reserve and Security Agreement, to submit Capital Budgets pursuant to Section 6 of the Replacement Reserve and Security Agreement, and to submit reports pursuant to Section 8 of the Replacement Reserve and Security Agreement shall be fully reinstated. 6. REINSTATEMENT. On the first day of any month during the Reduced Payment Period or the Interest Only Payment Period, provided that no Event of Default has occurred under the Note or any of the other Loan Documents, the Borrower may effect a "Reinstatement" of the Loan by satisfying the following conditions: (a) Borrower shall deliver written notice to Lender, not less than thirty (30) days prior to the Reinstatement, of Borrower's intent to effect a Reinstatement; and (b) On the date of the Reinstatement, Borrower shall pay all accrued and unpaid interest on the Note, except any accrued and unpaid interest which has been added to the principal balance of the Note. Upon the occurrence of a Reinstatement pursuant to this Section 6: (a) Section 1 of the Note shall be amended to provide that (i) commencing on the date of the Reinstatement, and on the first day of each month thereafter through and including June 1, 2010, combined payments of principal and interest shall be payable, in arrears, in the amount of $251,712.92; and (ii) the entire outstanding principal balance of the Note, together with all accrued and unpaid interest and all other sums due thereunder, shall be due and payable in full on the Original Maturity Date. (b) Borrower's obligations to submit monthly Net Cash Flow Reports pursuant to Section 4.12 of the First Mortgage shall be terminated. (c) Sections 4.23, 4.24 and 5.11 of the First Mortgage shall be terminated and of no further effect. (d) Borrower's obligations to make monthly deposits to the Replacement Reserve Account pursuant to Section 4 of the Replacement Reserve and Security Agreement, to submit Capital Budgets pursuant to Section 6 of the Replacement Reserve and Security Agreement, and to submit reports pursuant to Section 8 of the Replacement Reserve and Security Agreement shall be fully reinstated. 7. MODIFICATION OF ENVIRONMENTAL INDEMNITY AGREEMENT. The Environmental Indemnity Agreement dated as of May 30, 2000, executed by Borrower and Guarantor (the "Environmental Indemnity Agreement"), is modified as follows: (a) All references to the term "Note" contained in the Environmental Indemnity Agreement shall be deemed to refer to the Note as defined herein and as modified by 72 this Agreement; all references to the term "Loan" contained in the Environmental Indemnity Agreement shall be deemed to refer to the loan evidenced by the Note. (b) All references to the term "Mortgage" contained in the Environmental Indemnity Agreement shall be deemed to refer to the First Mortgage, as defined herein and as modified by this Agreement. (c) All references contained in the Environmental Indemnity Agreement to the term "Loan Documents" shall be deemed to refer to such term as defined herein and as modified by this Agreement. (d) In consideration of Lender's willingness to enter into this Agreement, Borrower hereby reaffirms all of its agreements and obligations under the Environmental Indemnity Agreement, as modified hereby. 8. MODIFICATION OF OTHER LOAN DOCUMENTS. (a) All references to the term "Note" contained in the Loan Documents shall be deemed to refer to the Note as defined herein and as modified by this Agreement; all references to the term "Loan" contained in the Loan Documents shall be deemed to refer to the loan evidenced by the Note. (b) All references to the term "Mortgage" contained in the Loan Documents shall be deemed to refer to the First Mortgage as defined herein and as modified by this Agreement. (c) All references to the term "Second Mortgage" contained in the Loan Documents shall be deemed to refer to the Second Mortgage as defined herein and as modified by this Agreement. (d) All references contained in any of the Loan Documents to the term "Loan Documents" shall be deemed to refer to such term as defined herein and as modified by this Agreement. 9. REAFFIRMATION OF LOAN DOCUMENTS. (a) Borrower hereby re-makes each and every representation and warranty of Borrower to Lender contained in Article III of the First Mortgage, Article III of the Second Mortgage, and Section 1 of the Environmental Indemnity Agreement, each as modified hereby. (b) As modified hereby, the terms and provisions of the First Mortgage, Second Mortgage and the other Loan Documents are hereby ratified and confirmed, and shall be and remain in full force and effect, enforceable in accordance with their terms. 73 10. GRANT OF LIEN AND SECURITY INTEREST. (a) Borrower hereby acknowledges and confirms that the First Mortgage, as modified hereby, constitutes a first priority security conveyance of and first lien on the Property, subject only to the Permitted Exceptions set forth therein. Borrower hereby acknowledges and confirms that the Second Mortgage, as modified hereby, constitutes a second priority security conveyance of and second lien on the Property, subject only to the First Mortgage and to the Permitted Exceptions set forth in the Second Mortgage. (b) In consideration of Lender's willingness to enter into this Agreement and (i) with respect to the First Mortgage, as security for Borrower's obligations under the Note and the other Loan Documents (as such terms are defined in the First Mortgage, as modified hereby), and (ii) with respect to the Second Mortgage, as security for Borrower's obligations under the Non-Recourse Guaranty Agreement (as defined in the Second Mortgage, as modified hereby), Borrower hereby (A) grants, bargains, sells, conveys, mortgages, and warrants unto Lender the entire right, title, interest and estate of Borrower in and to the Property, whether now owned or hereafter acquired; TO HAVE AND TO HOLD the same, together with all and singular the rights, hereditaments, and appurtenances in anywise appertaining or belonging thereto, unto Lender and Lender's successors, substitutes and assigns forever, and (B) grants to Lender a security interest in the Property, Chattels and Intangible Personalty (as defined in the First Mortgage and Second Mortgage, each as modified hereby), each on the terms and conditions set forth in the First Mortgage and Second Mortgage, as modified hereby. Notwithstanding anything to the contrary contained in this Agreement, recovery under the Second Mortgage continues to be limited to $20,000,000.00. 11. ENDORSEMENT TO LENDER'S TITLE INSURANCE POLICY. Upon closing of the loan restructure transaction described in this Agreement, Borrower shall deliver to Lender, at Borrower's sole expense, an endorsement to Lender's title insurance policy or a new title insurance policy, satisfactory in form and substance to Lender, issued by a title insurance company approved by Lender, in an amount not less than the amount of the Loan, insuring Lender (a) that the First Mortgage as modified by this Agreement is a valid first and prior lien on the Property, subject only to such exceptions to and conditions of title as Lender may approve, and containing such additional endorsements as Lender may require; and (b) that the Second Mortgage as modified by this Agreement is a valid second lien on the Property, subject only to the First Mortgage and such exceptions to and conditions of title as Lender may approve, and containing such additional endorsements as Lender may require. 12. OPINION OF BORROWER'S COUNSEL. Upon closing of the loan restructure transaction described in this Agreement, Borrower shall deliver to Lender a legal opinion of independent counsel to Borrower, in form and substance satisfactory to Lender, opining that the Loan as restructured is not usurious under any applicable law, that the loan restructure transaction and the execution and delivery of all documents in connection therewith have been duly authorized by all necessary parties (other than Lender), and that all such documents are binding and enforceable in accordance with their terms, and addressing such other matters as Lender may reasonably require. 74 13. PAYMENT OF COSTS AND EXPENSES. Borrower shall pay all costs and expenses incurred by Lender in connection with this Agreement and in connection with the restructure of the Loan, including, without limitation, all reasonable attorneys' fees, recording fees and title insurance fees (including the fees for issuance of the endorsement to Lender's title insurance policy or a new title insurance policy, as applicable) deemed necessary by Lender. Such costs and expenses shall be paid by Borrower upon closing of the loan restructure transaction described in this Agreement ("Closing"). Such costs and expenses shall be considered Operating Expenses of the Property, as defined in subsection 4.23(f) of the First Mortgage, for the period in which they are paid by Borrower. Failure to pay such costs and expenses upon Closing shall constitute a default by Borrower under Section 6.3 of the First Mortgage, and continuance of such failure for a period of thirty (30) days following written notice thereof from Lender to Borrower shall constitute an Event of Default under the First Mortgage. 14. MISCELLANEOUS. (a) All capitalized terms used herein without definition shall have the meanings given to them in the First Mortgage. (b) This Agreement may be executed in several counterparts, and executed counterparts bearing signatures of Borrower and Lender shall constitute a fully-executed original of this Agreement. (c) This Agreement shall be governed by the laws of the State of Florida, without giving effect to its principles of conflicts of laws. (d) The parties hereby agree to execute any and all additional documents that may reasonably be required in order to evidence, secure or carry out the agreements and undertakings set forth in this Agreement. (e) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their permitted successors and assigns. (f) EACH PARTY TO THIS AGREEMENT KNOWINGLY, IRREVOCABLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM BASED ON THIS AGREEMENT, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THE NOTE, THE FIRST MORTGAGE, SECOND MORTGAGE OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO OR TO ANY LOAN DOCUMENT OR ORIGINAL LOAN DOCUMENT. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES TO ENTER INTO THE TRANSACTIONS EVIDENCED BY THIS AGREEMENT. (g) Borrower shall not deposit funds attributable to the Property into the Pledged Operating Account unless and until a Notice of Assignment and Control Agreement concerning such account, in form and substance satisfactory to Lender, has been executed by Borrower, Lender and the depository bank at which the account is maintained, and a fully 75 executed original of such Notice of Assignment and Control Agreement has been delivered to Lender. 15. NOVATION. It is the intent of the parties to this Agreement that this Agreement shall not constitute a novation and shall in no way adversely affect the lien priority of the First Mortgage or the Second Mortgage. In the event that this Agreement, or any part hereof, shall be construed by a court of competent jurisdiction as operating to affect the lien priority of said First Mortgage or Second Mortgage, or either of them, over the claims which would otherwise be subordinate thereto, then to the extent so ruled by such court, and to the extent that third persons acquiring an interest in such property as is encumbered by the First Mortgage and the Second Mortgage between the time of execution of the First Mortgage and the Second Mortgage and the execution hereof are prejudiced thereby, then, at Lender's option, this Agreement, or such portion hereof as shall be so construed, shall be void and of no force and effect, and this Agreement shall constitute, as to that portion, a subordinate lien on the collateral described herein, incorporating by reference the terms of the First Mortgage and the Second Mortgage, and which First Mortgage and Second Mortgage then shall be enforced pursuant to the terms therein contained, independent of this Agreement; provided, however, that notwithstanding the foregoing, the parties hereto, as between themselves, shall be bound by all terms and conditions hereof until all indebtedness owing from the Borrower to the Lender shall have been paid in full. 16. TAXES; INDEMNIFICATION. Borrower shall pay when due any documentary stamp taxes, intangible personal property taxes or other taxes which are assessed in connection with the execution, delivery or recordation of this Agreement (collectively, "Taxes"). Borrower shall indemnify, defend and hold harmless Lender from any and all such Taxes. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] 76 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth above. BORROWER: Witnesses: SONESTA BEACH RESORT LIMITED PARTNERSHIP, a Delaware limited partnership /S/ By: Florida Sonesta Corporation, a Florida - ----------------------------------- corporation, its General Partner Print Name: Boy Van Riel ----------------------- /S/ By:/S/ - ----------------------------------- ------------------------------ Print Name: Bonnie Atzl Peter J. Sonnabend, Vice President ----------------------- COMMONWEALTH OF MASSACHUSETTS ) ) ss. COUNTY OF SUFFOLK ) The foregoing instrument was acknowledged before me this 22nd day of March, 2004, by Peter J. Sonnabend, as Vice President of Florida Sonesta Corporation, a Florida corporation, General Partner of Sonesta Beach Resort Limited Partnership, a Delaware limited partnership, who is known to me. Serial Numbers, if any: ------------------------- My commission expires: 4/2/2010 /S/ ---------------------------------- Notary Public Karen K. Pettiford ---------------------------------- Print Name [SIGNATURES CONTINUED ON NEXT PAGE] 77 LENDER: Witnesses: SUNAMERICA LIFE INSURANCE COMPANY, an Arizona corporation /S/ By: AIG Global Investment Corp., a - ------------------------------------ New Jersey corporation, its investment Print Name: Lisa C. Wright advisor ------------------------ /S/ By:/S/ - ------------------------------------ ----------------------------------- Print Name: Tara Macneill Name: Keith Honig ------------------------ -------------------------------- Title: Managing Director ------------------------------- STATE OF CALIFORNIA ) ) ss. COUNTY OF LOS ANGELES ) The foregoing instrument was acknowledged before me this 22nd day of March, 2004, by Keith Honig, as Managing Director of AIG Global Investment Corp., a New Jersey corporation, investment advisor of SunAmerica Life Insurance Company, an Arizona corporation, WHO IS KNOWN TO ME, Serial Numbers, if any: ------------------------- My commission expires: 1/10/07 ------------------------- /S/ ---------------------------------- Notary Public Catherine Muslein ---------------------------------- Print Name 78 EX-10.7(B) 10 a2132289zex-10_7b.txt EX-10.7(B) EXhibit 10.7(b) REAFFIRMATION AND MODIFICATION OF LIMITED GUARANTY AGREEMENT AND ENVIRONMENTAL INDEMNITY AGREEMENT THIS REAFFIRMATION AND MODIFICATION OF LIMITED GUARANTY AGREEMENT AND ENVIRONMENTAL INDEMNITY AGREEMENT (this "Reaffirmation"), dated as of March 24, 2004, to be effective as of December 1, 2003 (the "Effective Date"), is executed by SONESTA INTERNATIONAL HOTELS CORPORATION, a New York corporation ("Guarantor"), for the use and benefit of SUNAMERICA LIFE INSURANCE COMPANY, an Arizona corporation ("Lender"). RECITALS A. On or about June 2, 2000, Lender made a $31,000,000.00 loan (the "Original Loan") to Sonesta Beach Resort Limited Partnership, a Delaware limited partnership ("Borrower"). B. The Original Loan is (i) evidenced by a Consolidated and Renewed Promissory Note dated May 30, 2000, in the original principal amount of the Original Loan executed by Borrower to the order of Lender (the "Note"), (ii) secured by, among other things, a Consolidated, Amended and Restated Mortgage, Security Agreement, Fixture Filing, Financing Statement and Assignment of Leases and Rents dated as of May 30, 2000 (the "Mortgage"), executed by Borrower for the benefit of Lender, encumbering certain real property and improvements thereon commonly known as the Sonesta Beach Resort, Key Biscayne, Florida, more particularly described in the Mortgage (the "Property") and recorded on June 2, 2000, with the Clerk of Dade County, Florida, at Official Records Book 19137, Page 1265, and (iii) guaranteed as to certain obligations by Guarantor pursuant to a Limited Guaranty Agreement dated as of May 30, 2000 (the "Guaranty"). C. In connection with the Original Loan, Borrower and Guarantor also executed that certain Environmental Indemnity Agreement dated as of May 30, 2000 (the "Environmental Indemnity"). D. The Note, the Mortgage and each other document executed by Borrower and evidencing or securing the Original Loan, are referred to herein, collectively, as the "Loan Documents." E. On or about the date hereof, but effective as of the Effective Date, Lender and Borrower are amending certain terms and provisions of the Note, the Mortgage and certain other of the Loan Documents pursuant to a Mortgage and Loan Modification Agreement dated as of the date hereof (the "Modification Agreement") executed by Lender and Borrower to, among other things, alter certain of the interest rate and payment provisions set forth in the Note (the "Restructure"). F. As a condition of Lender's willingness to enter into the Restructure and to execute the Modification Agreement, Lender has required that Guarantor execute this Reaffirmation. 79 NOW THEREFORE, in consideration of the Restructure, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Guarantor hereby agrees as follows: AGREEMENT 1. All references to the term "Note" contained in the Guaranty and the Environmental Indemnity shall hereafter be deemed to refer to the Note, as amended by the Modification Agreement. 2. All references to the term "Mortgage" contained in the Guaranty and the Environmental Indemnity shall hereafter be deemed to refer to the Mortgage, as modified by the Modification Agreement. 3. All references to the term "Loan Documents" contained in the Guaranty and the Environmental Indemnity shall hereafter be deemed to refer to the Loan Documents, as modified by the Modification Agreement. 4. Guarantor hereby consents to (a) the Restructure, (b) each and every provision of the Note, as modified by the Modification Agreement, (c) each and every provision of the Mortgage, as modified by the Modification Agreement, and (d) each and every provision of the Loan Documents, as modified by the Modification Agreement. 5. Guarantor hereby agrees that all of the terms and provisions of the Guaranty and the Environmental Indemnity, as modified hereby, are hereby ratified and reaffirmed, and Guarantor hereby acknowledges the validity and enforceability thereof. 6. Guarantor hereby re-makes each and every representation of Guarantor to Lender contained in Section 1 of the Environmental Indemnity. 7. Except as expressly modified herein, the terms and conditions of the Environmental Indemnity and Guaranty shall remain unmodified and in full force and effect. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] 80 IN WITNESS WHEREOF, Guarantor has executed this Reaffirmation as of the date first above written. GUARANTOR: SONESTA INTERNATIONAL HOTELS CORPORATION, a New York corporation By: /S/ ----------------------------------- Peter J. Sonnabend, Vice President 81 EX-10.8(A) 11 a2132289zex-10_8a.txt EX-10.8(A) Exhibit 10.8(a) FIFTH AMENDMENT TO LOAN AGREEMENT Reference is made to the Loan Agreement made as of the 18th day of December, 1996, in the City of Boston, Massachusetts, U.S.A. by and between SONESTA INTERNATIONAL HOTELS LIMITED (or its assignee) organized and existing under the laws of The Bahamas and having its principal place of business at 116 Huntington Avenue, Boston, Massachusetts, U.S.A. and represented in the signature of that Agreement by PETER J. SONNABEND, VICE PRESIDENT (hereinafter referred to as the "Lender"), and MASTERS OF TOURISM organized and existing under the laws of The Arab Republic of Egypt and having its principal place of business at Salah Salem Avenue, El Abour Building, No. 13, Flat 84, Heliopolis, Cairo, Egypt and represented in the signature of that Agreement by MOHAMMED HISHAM AHMED ALY, CHAIRMAN (hereinafter referred to as the "Borrower") ("Loan Agreement"), as amended by an "Amendment to Loan Agreement", dated April 29, 1997 ("the Amendment"), and further amended by a "Second Amendment to Loan Agreement", dated September 15, 1998 (the "Second Amendment"), and further amended by a "Third Amendment to Loan Agreement", dated as of January 1, 2000 (the "Third Amendment"), and further amended by a "Fourth Amendment to Loan Agreement", dated as of July 1, 2002 ("Fourth Amendment"). This Agreement shall constitute the "Fifth Amendment" to the Loan Agreement. MOHAMMED HISHAM AHMED ALY, personally, executed the Loan Agreement, the Amendment, the Second Amendment, the Third Amendment and the Fourth Amendment to acknowledge his personal guaranty of the Borrower's payment and performance obligations thereunder. WHEREAS, the purpose of the Loan Agreement was to provide U.S. $1,000,000 to the Borrower as a loan to finance the expansion and improvement of Sonesta Beach Resort, Sharm El Sheikh (the "Hotel"), as described in the Loan Agreement; and WHEREAS, the purpose of the Amendment was to provide an additional U.S. $500,000 to the Borrower as a loan in connection with the further expansion of the Hotel, but Borrower subsequently informed Lender that the additional U.S. $500,000, described in the Amendment, was no longer required by the Borrower in order to complete the expansion and improvement of the Hotel, and the further expansion of the Hotel--such expansion and improvements being referred to as "Improvements" under the Loan Agreement, as amended by the Amendment; and WHEREAS, pursuant to the Second Amendment, Loan principal was to be repaid in seven (7) annual installments of U.S. $142,857, together with interest, with the first payment due January 1, 1999, and said principal payment was made during 1999, but accrued interest of U.S.$78,750 82 remained unpaid as of December 31, 1999, leaving a Loan balance of U.S. $935,893 as of December 31, 1999; and WHEREAS, pursuant to the Third Amendment the parties provided for repayment of the Loan in monthly installments over five (5) years; and WHEREAS, pursuant to the Fourth Amendment the parties increased the principal balance of the Loan by U.S. $500,000, and to used the new loan proceeds for certain agreed upon purposes, and otherwise provided for the improvement and upgrading of the Hotel; and WHEREAS, the parties now desire to increase the principal balance of the Loan by U.S.$300,000, and to use the new loan proceeds to create new employee housing to benefit Sonesta Beach Resort, Sharm El Sheikh and Sonesta Club, Sharm El Sheikh; NOW THEREFORE, for consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree to amend the terms of the Loan Agreement, as previously amended by the Amendment, the Second Amendment, the Third Amendment, and the Fourth Amendment as follows: 1. LOAN BALANCE. The parties agree and acknowledge that the outstanding principal balance of the Loan as of December 31, 2003 was U.S.$678,145. 2. NEW LOAN PROCEEDS. In addition to the 2003 year end outstanding Loan balance of U.S.$678,145, referenced in Section 1, above, Lender agrees to loan Borrower the sum of U.S.$300,000 ("New Loan Proceeds"). The New Loan Proceeds shall be used by Borrower solely for creating new employee housing to be located at Sonesta Club, Sharm El Sheikh, which housing shall include: Hotel: (i) not less than 25 units, with each unit designed to accommodate up to four (4) employees; (ii) adequate bathroom and locker facilities; (iii) air-conditioning in all housing units and bath areas; and (iv) landscaping. The improvements referenced in subsections (i) - (iv), above, are referred to in this Fourth Amendment as the "New Employee Housing". To the extent the New Loan Proceeds are insufficient to fund all such New Employee Housing, Owner shall provide such additional funds as are necessary; provided, however, that if any portion of the New Employee Housing has not been fully completed and is not available for its intended use by July 31, 2004, then no amount of cash from the Hotel operation shall thereafter be distributed to Borrower, or used for Borrower's personal expenses, or paid to any lending institutions, until either said New Employee Housing have been 83 fully completed and are in use, or an amount of funds have been set aside under Lender's control which is adequate, in Lender's reasonable judgment, to complete the New Employee Housing. Borrower hereby assigns to Lender its rights to and interest in such cash flow for the purposes described in this Section. 3. FUNDING. The New Loan Proceeds shall be advanced as follows: (i) U.S.$225,000 on or before March 1, 2004 (subject to delivery of such loan documentation as Lender may reasonably require); and (ii) U.S.$75,000 when Lender has determined to its reasonable satisfaction that the New Employee Housing, taken as a whole, have been completed. 4. REPAYMENT OF LOAN. As the New Loan Proceeds are advanced, they shall be combined with the currently outstanding Loan proceeds for repayment purposes; that is, from the time of the execution of this Fifth Amendment until such time as the New Loan Proceeds have been fully funded, Borrower shall continue to make monthly payments of principal and interest based on the payment schedule set forth in the Fourth Amendment. When the New Loan Proceeds have been fully funded, the total outstanding balance of the Loan and the New Loan Proceeds will be approximately U.S. $872,000 (less any principal repayment from the date of this Fifth Amendment) (the "Combined Loan"). The Combined Loan balance shall be repaid monthly, together with interest at the "Prime" rate charged by Citizens Bank, Boston, Massachusetts (currently 4.00%), from time to time; provided that for purposes of the Combined Loan the interest shall be adjusted twice each year, on January 1 and July 1. Attached hereto as "Exhibit A" is a payment schedule which illustrates the amortization of the Combined Loan over the term (this schedule assumes a constant interest rate of 4.00% per annum; as noted above, THE ACTUAL APPLICABLE RATE OF INTEREST IS SUBJECT TO ADJUSTMENT SEMI-ANNUALLY). Loan payments shall be due and payable on or before the last day of each calendar month, as was the case under the Fourth Amendment regarding the Loan. Any amounts of the Combined Loan remaining unpaid and outstanding as of October 31, 2007 shall be due and payable at that time. 5. AMENDMENT TO LOAN AGREEMENT. The Loan Agreement is hereby amended to provide that any amounts owed to Lender, which are not received by Lender when due, shall compound and be added to principal, as of the end of the calendar month in which the payment was due. 6. FURTHER AMENDMENT TO LOAN AGREEMENT. The Loan Agreement is hereby further amended to provide that all unpaid amounts outstanding under the Loan Agreement, or any Amendment thereto, shall be due and payable upon termination, for any reason, of the 84 Amended and Restated Management Agreement, dated as of January 1, 2004, between Borrower, as "Owner" and Lender "Operator". 7. AS AMENDED, LOAN AGREEMENT OTHERWISE UNCHANGED. In all other respects, the Loan Agreement, as amended, remains unchanged and in full force and effect, including without limitation the provisions of Section 2.06 of the Loan Agreement under which the "Operator" under the Management Agreement between Borrower and Lender is authorized and instructed to make payments from Hotel funds directly to the Lender. IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment to be executed by their respective, duly authorized signatories as of January 1, 2004. Witness SONESTA INTERNATIONAL HOTELS LIMITED /S/ By: /S/ - ------------------------------------ ------------------------------------ Felix Madera Name: Peter J. Sonnabend Title: Vice President Witness SHARM GROUP /S/ By: /S/ - ------------------------------------ ------------------------------------ Nadar Aly Name: Mohamed Hisham Ahmed Aly Title: Chairman and Managing Director Witness MASTERS OF TOURISM /S/ By: /S/ - ------------------------------------ ------------------------------------ Nadar Aly Name: Mohamed Hisham Ahmed Aly Title: Chairman Sharm Today executes this Agreement for the sole purpose of acknowledging its consent to the location of the New Employee Housing on its property. Witness SHARM TODAY /S/ By: /S/ - ------------------------------------ ------------------------------------ Nadar Aly Name: Mohamed Hisham Ahmed Aly Title: Chairman 85 Mohamed Hisham Ahmed Aly hereby executes this Fifth Amendment to Loan Agreement in order to acknowledge his continuing personal guaranty under the Loan Agreement, as amended, and his agreement to be a joint and several guarantor of the Borrower's obligations to the Lender. Witness By: /S/ - ------------------------------------ ---------------------------------- Nadar Aly Mohamed Hisham Ahmed Aly 86 EX-13 12 a2132289zex-13.txt EX-13 TO OUR SHAREHOLDERS: - -------------------------------------------------------------------------------- One of the advantages of longevity is perspective. Having been a public company since 1956, and having operated hotels for several years prior to that, we have seen the cycle of good economic times evolve into difficult times--then back to good times, many times. So while the past year, and the two years prior to it, have been disappointing business-wise, we understand that we are in the down part of the cycle, and that better times are ahead. A possible bellwether of better times is the performance of Sonesta Beach Resort Key Biscayne, which reported higher revenues and higher operating profits in 2003 than in 2002. The Resort's performance is particularly notable because the Miami area has experienced an explosion of new hotel rooms in recent years, which has put pressure on all hotels in attracting and retaining qualified employees, and in filling guestrooms at adequate rates. Among the new hotels in the Miami area are our Trump International Sonesta Beach Resort, in Sunny Isles Beach, which opened in April 2003, and Sonesta Hotel & Suites, in Coconut Grove, which opened in April 2002. Trump Sonesta Resort, a 388-room high-rise beach resort, is truly spectacular. It is difficult opening a new resort in a soft economy; we are confident, however, that this property will be a great success. Sonesta Hotel & Suites Coconut Grove completed its first full year in 2003. Coconut Grove is an important community in the Miami area, with a number of fine hotels. Sonesta Coconut Grove occupies the premier hotel site in the community, and we believe that, as business travel to Miami strengthens, the Hotel will do very well. Royal Sonesta Hotel New Orleans continues to lead the City in REVPAR (room revenue per available room) among competitive properties. In 2003, the Hotel continued its guestroom renovation program, and the Hotel recently was awarded the prestigious Four Diamond status by the American Automobile Association. All things considered, Chateau Sonesta Hotel New Orleans had a good year in 2003. The Hotel, which the Company operates under a management contract, has always provided its owner with sufficient cash flow to cover all of its obligations, including debt service, even during the past few difficult years. While Royal Sonesta Hotel Boston (Cambridge) continues to suffer from a fall-off in corporate business travel, 2003 presented a new challenge: A new luxury hotel opened directly across the street. While this will help lend visibility to the area where the Hotel is located in the long run, in the short term it has had a negative competitive impact on the Hotel's results. Sonesta Beach Resort Bermuda has been closed since last September, when Hurricane Fabian caused considerable damage to the property. The Resort's owner has developed exciting plans for a new resort property, including 285 hotel guestrooms, condominiums, villas, and a water park, and has committed to reopen the Resort this spring. We are pleased with the results reported by our five (5) hotels and three (3) Nile River cruise vessels, in Egypt. With one exception, all of these operations reported higher profit levels in 2003 than in 2002. Corporate business remains strong at Sonesta Hotel Cairo, which completed a major lobby renovation. Sonesta St. George Hotel, in Luxor, was able to increase its revenues considerably, resulting in a significant improvement in profitability. Our resorts in Sharm el Sheikh: Sonesta Beach and Sonesta Club, were also successful in increasing their revenues; the owner of those properties continues to invest in improvements and new facilities. Sonesta Port Said, which performed reasonably well, in 2002, maintained its average rate and occupancy, in 2003, despite downward pressure in that market. Our Sonesta Sun Goddess cruise ship reported outstanding improvements in average rate and profitability, in 2003, while Sonesta Moon Goddess, which had an outstanding 2002, exceeded those results, in 2003. While Sonesta continues to operate Sonesta Nile Goddess, its operation has been dedicated to a European tour operator, so occupancy has increased, but at a lower average rate. Our franchised properties in Peru (7) and Tuscany (4) continue to represent the "Sonesta" brand well in those markets. The opening of the first Sonesta hotel in Brazil, expected in 2003, has been postponed until later this year. Sonesta Hotel Ibirapuera, in Sao Paulo, will be an outstanding addition to the Sonesta family. If you would like additional information about Sonesta hotels, resorts or cruises, please visit our web site at sonesta.com. We appreciate the continued interest and support of you, our shareholders, and of our hotel owners, guests, partners and employees. [LOGO] /s/ROGER P. SONNABEND Executive Chairman of the Board [LOGO] /s/PETER J. SONNABEND Chief Executive Officer and Vice Chairman [LOGO] /s/STEPHANIE SONNABEND Chief Executive Officer and President March 9, 2004 1 SONESTA INTERNATIONAL HOTELS CORPORATION 5-YEAR SELECTED FINANCIAL DATA - -------------------------------------------------------------------------------- (In thousands except for per share data)
2003 2002 2001 2000 1999 --------- -------- -------- -------- -------- Revenues....................................... $ 84,896 $ 90,131 $ 93,463 $103,224 $ 97,106 Operating income (loss)........................ (1,191) 2,276 2,858 12,291 11,033 Net interest expense........................... (5,836) (5,799) (5,111) (4,270) (3,403) Other.......................................... 630 10 230 560 3,913(1) -------- -------- -------- -------- -------- Income (loss) from continuing operations before income taxes................................. (6,397) (3,513) (2,023) 8,581 11,543 Income tax provision (benefit)................. 34 (790) (333) 3,066 4,141 -------- -------- -------- -------- -------- Income (loss) from continuing operations....... (6,431) (2,723) (1,690) 5,515 7,402 Discontinued operations: Loss from operations and sale of discontinued hotel...................................... -- (1,928) (314) (1,275) (1,620) Income tax benefit........................... -- (655) (107) (433) (551) -------- -------- -------- -------- -------- Loss from discontinued operations.............. -- (1,273) (207) (842) (1,069) -------- -------- -------- -------- -------- Net income (loss).............................. $ (6,431) $ (3,996) $ (1,897) $ 4,673 $ 6,333 ======== ======== ======== ======== ======== Basic and diluted profit (loss) per share of common stock: Continuing operations.......................... $ (1.74) $ (.74) $ (.45) $ 1.49 $ 1.88 Discontinued operations........................ -- (.34) (.06) (.23) (.27) -------- -------- -------- -------- -------- Net income (loss).............................. $ (1.74) $ (1.08) $ (.51) $ 1.26 $ 1.61 ======== ======== ======== ======== ======== Cash dividends declared........................ $ .05 $ .20 $ .20 $ .20 $ .18 ======== ======== ======== ======== ======== Net property and equipment..................... $ 80,849 $ 83,171 $ 95,129 $ 89,791 $ 84,202 Total assets................................... 110,119 118,450 128,817 138,313 107,518 Long-term debt including currently payable portion...................................... 69,311 70,043 75,262 77,010 50,329 Redeemable preferred stock..................... -- -- -- 294 294 Common stockholders' equity.................... 15,866 22,482 27,218 29,927 26,088 Common stockholders' equity per share.......... 4.29 6.08 7.36 8.08 7.02 Total revenues including hotels operated under management contracts......................... 150,496 149,558 154,652 179,697 173,398 Common shares outstanding at end of year....... 3,698 3,698 3,698 3,705 3,715
(1) Includes non-recurring income of $3,875. Market price data for the Company's common stock showing high and low prices by quarter for each of the last two years is as follows:
NASDAQ QUOTATIONS -------------------------------------------------------------------- 2003 2002 ---------------------------- ---------------------------- HIGH LOW HIGH LOW -------- -------- -------- -------- First......................................... $5.25 $3.41 $ 6.30 $5.25 Second........................................ 5.30 3.51 9.00 5.02 Third......................................... 5.03 4.26 6.30 4.42 Fourth........................................ 5.03 4.00 5.18 4.00
The Company's common stock trades on the NASDAQ Stock Market under the symbol SNSTA. As of February 25, 2004 there were 479 holders of record of the Company's common stock. A copy of the Company's Form 10-K Report, which is filed annually with the Securities and Exchange Commission, is available to stockholders. Requests should be sent to the Office of the Secretary at the Company's Executive Office. 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - -------------------------------------------------------------------------------- The Company's consolidated financial statements include the revenues, expenses, assets and liabilities of the Royal Sonesta Hotel Boston (Cambridge), Royal Sonesta Hotel New Orleans, and the Sonesta Beach Resort Key Biscayne. The Boston (Cambridge) and Key Biscayne properties are owned by the Company, and the New Orleans hotel is operated under a long-term lease. The financial statements also include the revenues and expenses from the management of properties located in the United States, Bermuda and Egypt. In September 2002, the Company sold the Sonesta Beach Resort Anguilla (see Note 9--Discontinued Operations). The following revenues and results from operations for the 2002 and 2001 periods have been reclassified to present the operations of the Anguilla resort as a discontinued operation. RESULTS OF OPERATIONS In 2003, the Company recorded a net loss from continuing operations of $6,431,000, or $(1.74) per share, compared to a net loss from continuing operations of $2,723,000, or $(0.74) per share, in 2002. The Company's 2003 results continued to be affected by lower demand and by reduced business travel, in particular. Discounted room rates due to intense competition for available business have resulted in decreases in room revenue per available room ("REVPAR"), in particular at the Company's Royal Sonesta Hotel Boston (Cambridge) and Royal Sonesta Hotel New Orleans, resulting in lower revenues and operating profits during 2003 compared to 2002. Royal Sonesta Hotel Boston (Cambridge) experienced a decrease in revenues of 15% during 2003 compared to 2002. The Company's 2003 results were also affected by an $800,000 expense incurred to fund operating losses at Sonesta Hotel & Suites Coconut Grove, and by a provision for costs and expenses of $847,000 related to the arbitration of a dispute with the owner of a managed hotel (see Note 10--Legal Proceedings). REVENUES
TOTAL REVENUES (in thousands) ----------------------------------------- NO. OF ROOMS 2003 2002 2001 -------- -------- -------- -------- Sonesta Beach Resort Key Biscayne 300 $26,587 $25,477 $26,144 Royal Sonesta Hotel Boston (Cambridge) 400 21,622 25,500 26,831 Royal Sonesta Hotel New Orleans 500 33,210 34,954 36,299 Management and service fees and other revenues 3,477 4,200 4,189 ------- ------- ------- TOTAL REVENUES $84,896 $90,131 $93,463 ======= ======= =======
2003 VERSUS 2002: Total revenues in 2003 were $84,896,000 compared to $90,131,000 in 2002, a decrease of $5,235,000, or 6%. This decrease was primarily due to a $3,878,000 decrease in revenues at Royal Sonesta Hotel Boston (Cambridge). Business in Boston, in general, continued to decline in 2003, primarily because of reduced business travel. In addition, results at Royal Sonesta Hotel Boston (Cambridge) were impacted by competition from a new hotel which opened in the immediate vicinity in the spring of 2003. A more detailed discussion of the revenues by hotel, and of our management income, follows. Sonesta Beach Resort Key Biscayne reported a 4% increase in revenues during 2003 compared to 2002. Room revenues per available room ("REVPAR") increased by 5% in 2003 compared to last year, due to an increase in occupancy. Food and beverage revenues, and revenues from other sources increased by 4% compared to 2003, due to the higher occupancy levels. The increase in occupancy was mainly from increased group and convention business. Revenues in 2003 at Royal Sonesta Hotel Boston (Cambridge) decreased by $3,878,000, or 15% compared to 2002. Room revenues decreased by $3,251,000 due to a 20% decrease in REVPAR, caused both by lower occupancies and average rates achieved. Food and beverage revenues, and revenues from other sources, such as telephone and parking, decreased by 6% due to the lower occupancy levels. Competition from a newly built hotel that opened nearby in early 2003, as well as reduced business travel contributed to the decline in revenues. Revenues at Royal Sonesta Hotel New Orleans declined in 2003 due to competitive rate pressure, and a lower number of city-wide conventions in New Orleans. Total revenues for 2003 decreased by $1,744,000 to $33,210,000, a 5% decline. Room revenues decreased by $1,596,000 due to a 7% decrease in REVPAR, due to lower average rates. Because occupancy levels remained stable, revenues from other sources, including food and beverage, remained virtually the same in 2003 compared to 2002. Income from management activities decreased by $723,000 during 2003 compared to 2002. This decrease was primarily due to lower license fees of $243,000 from Aruba following the expiration of the license agreement for the hotel in 2002, and lower fee income of $358,000 from Chateau Sonesta New Orleans, because the hotel's 2003 profit levels were insufficient for Sonesta to earn incentive fees. In addition, the Company earned lower management income of $131,000 from Sonesta Beach Resort Bermuda, which closed for repairs following storm damage sustained in September 2003. 2002 VERSUS 2001: Total revenues in 2002 were $90,131,000 compared to $93,463,000 in 2001, a decrease of approximately $3,332,000. Revenues decreased in all three of the Company's owned and leased hotels, as travel declined in 2002 following the events of September 11, 2001, and due to the economic recession. Declines in business travel, in particular, 3 - -------------------------------------------------------------------------------- affected the Company's hotels. A detailed discussion of the revenues by hotel, and of our management income, follows. Revenues at Sonesta Beach Resort Key Biscayne decreased by $667,000 to $25,477,000 in 2002. Room revenues decreased by $1,340,000 compared to 2001, due to a 7% decrease in room revenue per available room ("REVPAR"), which was entirely due to a decrease in average room rate achieved. The decrease in room revenue was partially offset by an increase in other revenues of $673,000, which included increased food and beverage revenues and higher revenues from other guest services. Revenues at Royal Sonesta Hotel Boston (Cambridge) decreased by $1,331,000, from $26,831,000 in 2001 to $25,500,000 in 2002. This was primarily due to a 4.5% decrease in room revenues and a 6% decrease in food and beverage revenues. The hotel's occupancy increased slightly in 2002 compared to 2001, but intense competition for available business caused the hotel's average room rate to decline by 8%. Royal Sonesta Hotel New Orleans recorded 2002 total revenues of $34,954,000, a 4% decrease compared to 2001 revenues of $36,299,000. The $1,345,000 decline in revenues was entirely due to a 5% REVPAR decrease because of lower occupancy in 2002 compared to 2001. Revenues from management activities in 2002 were $4,200,000, virtually unchanged from 2001 revenues of $4,189,000. OPERATING INCOME
OPERATING INCOME / (LOSS) (in thousands) ------------------------------ 2003 2002 2001 -------- -------- -------- Sonesta Beach Resort Key Biscayne $ 386 $ (541) $(1,442) Royal Sonesta Hotel Boston (Cambridge) 189 2,884 3,206 Royal Sonesta Hotel New Orleans 2,994 3,409 4,166 ------- ------- ------- Operating income from hotels after management and service fees 3,569 5,752 5,930 Management activities and other (4,760) (3,476) (3,072) ------- ------- ------- Operating income (loss) $(1,191) $ 2,276 $ 2,858 ======= ======= =======
2003 VERSUS 2002: The Company reported an operating loss of $1,191,000 in 2003, compared to operating income of $2,276,000 in 2002. The main reason for this $3,467,000 decrease was the decline in operating income at Royal Sonesta Hotel Boston (Cambridge) of $2,695,000 due to the large revenue loss at this location. In addition, the 2003 loss from management activities included a provision for costs and expenses of $847,000 related to the arbitration of a dispute with the owner of a managed hotel (see Note 10-Legal Proceedings). A more detailed explanation of the changes in income by hotel, as well as for the Company's management activities, follows. Sonesta Beach Resort Key Biscayne posted a $927,000 increase in operating income during 2003 compared to 2002. Revenue increases of $1,110,000 were partially offset by a very slight increase in overall expenses of $183,000 (less than a 1% increase). This increase consisted primarily of an increase in cost and operating expenses of $599,000, partially offset by decreases in advertising expense and a decrease in real estate tax expense of $310,000 due to a refund obtained for 2002. Royal Sonesta Hotel Boston (Cambridge) reported operating income of $189,000 during 2003, compared to operating income of $2,884,000 in 2002, a decrease of $2,695,000. Decreased revenues of $3,878,000 were partially offset by a decrease in expenses of $1,183,000, or 5%, mainly due to lower cost and operating expenses, and lower real estate taxes. Operating income at Royal Sonesta New Orleans decreased by $415,000, from $3,409,000 in 2002 to $2,994,000 in 2003. Decreases in revenues of $1,744,000 were for the most part offset by decreased operating expenses of $1,329,000. This decrease consisted mainly of lower cost and operating expenses of $801,000, and lower maintenance expense of $408,000. Operating losses from management activities, which are computed after giving effect to management, marketing and service fees to owned and leased hotels, increased from $3,476,000 in 2002 to $4,760,000 in 2003. Revenues from management activities decreased by $723,000 and fee income from owned and leased hotels decreased by $201,000. Expenses related to these activities increased by $360,000. This increase resulted from a provision of $847,000 for costs and expenses related to the arbitration of a dispute with the owner of a managed hotel, partially offset by decreased corporate costs, primarily in corporate marketing expense. Also included in expenses in 2003 was $800,000 ($950,000 in 2002) for net operating losses from Sonesta Hotel & Suites Coconut Grove from the hotel's opening, in April 2002, through December 31, 2003. Under its management agreement for this hotel, the Company is obligated to fund these losses. 2002 VERSUS 2001: Operating income in 2002 was $2,276,000, compared to $2,858,000 in 2001, a decrease of $582,000. Decreased income at Royal Sonesta Hotel New Orleans was only partially offset by a reduced operating loss of Sonesta Beach Resort Key Biscayne. The operating loss from management activities increased as a result of a $950,000 expense in 2002 for the Company's contribution towards the operating losses of Sonesta Hotel & Suites Coconut Grove. A more detailed explanation of the operating income at each of the hotels, as well as the Company's management activities, follows. Sonesta Beach Resort Key Biscayne reported a 2002 operating loss of $541,000 compared to an operating loss in 2001 of $1,442,000, an improvement of $901,000. Revenues decreased by $667,000 in 2002 4 - -------------------------------------------------------------------------------- compared to 2001, but expenses decreased by $1,568,000 in 2002, a 6% decrease compared to 2001. Substantial decreases in costs and operating expenses, administrative and general and rental expenses offset an increase in depreciation expense of $494,000 following major improvements and refurbishments to the hotel in recent years. Royal Sonesta Hotel Boston (Cambridge) recorded operating income during 2002 of $2,884,000 compared to $3,206,000 in 2001, a decrease of $322,000. Decreases in revenues of $1,331,000 were partially offset by decreases in expenses in 2002 of $1,009,000, or 4%. This decrease resulted mainly from savings in costs and operating expenses, administrative and general, and repairs and maintenance expenses. Royal Sonesta Hotel New Orleans reported 2002 operating income of $3,409,000, a $757,000 decrease compared to 2001 operating income of $4,166,000. Decreases in revenues of $1,345,000 were partially offset by decreased expenses of $588,000. The decrease in expenses was mainly due to lower rent expense in 2002 compared to the previous year because of lower operating profits. Under its lease for the hotel, rent is based on a percentage of profits, as defined in the lease. Operating losses from management activities, which are computed after giving effect to management, marketing and service fees from owned and leased hotels, increased from $3,072,000 in 2001 to $3,476,000 in 2002. Revenues from these activities increased slightly by $11,000. Decreased corporate costs, in particular expenses related to development activities, were offset by an expense recorded in 2002 of $950,000, which represented the anticipated net operating loss for the first 12 months of operations of Sonesta Hotel & Suites Coconut Grove, which opened April 1, 2002. Under its management agreement for this hotel, the Company is obligated to fund operating losses. OTHER INCOME AND DEDUCTIONS Interest expense decreased slightly in 2003 compared to 2002, and in 2002 compared to 2001, due to the lower principal balance of the mortgage loans for Royal Sonesta Hotel Boston (Cambridge) and Sonesta Beach Resort Key Biscayne. Interest income decreased from $460,000 in 2002 to $358,000 in 2003 due to a reduction in short-term investment income attributable to the Company's lower cash balances. Interest income in 2002 decreased by $842,000 compared to 2001, also due to a substantial decrease in short-term investment income. This was also because of the Company's lower cash balances, as well as the much lower rates of return during 2002 compared to 2001. The 2003 gain on sale of assets of $652,000 resulted primarily from the sale of a villa which the Company owned and operated adjacent to the Sonesta Beach Resort Key Biscayne. A gain on casualty of $213,000 in 2001 was related to a hail storm, which damaged the roof of the Royal Sonesta Hotel New Orleans in January 2000. The proceeds from insurance exceeded the book value of the assets destroyed. FEDERAL, STATE AND FOREIGN INCOME TAXES The Company recorded a tax expense of $34,000 in 2003 despite its pre-tax loss of approximately $6.4 million. A valuation allowance was recorded against the 2003 federal income tax benefit since it is uncertain when the Company will realize a future benefit for the losses incurred in 2003. The Company provided for state taxes on its income from Royal Sonesta Hotel New Orleans, and foreign taxes primarily on the Company's management income from its Egyptian operations. This provision was reduced by the reversal of a general provision for federal taxes which carried forward from previous years. The income tax benefit in 2002 and 2001 was lower than the statutory rate primarily because of state taxes payable on the Company's income from Royal Sonesta New Orleans, and because of foreign taxes provided on the Company's management income from its Egyptian operations. LIQUIDITY AND CAPITAL RESOURCES The Company had cash and cash equivalents of approximately $4,327,000 at December 31, 2003. In addition, the Company has $5,000,000 available under two credit lines. A $2,000,000 line of credit will expire December 31, 2004. This line bears interest at the prime rate (4% at December 31, 2003). The terms of the line require the bank's approval for additional borrowings by the Company, restrict dividends, and require that no amounts are outstanding under the line during the two consecutive months of November and December. A subsidiary of the Company has a $3,000,000 line of credit, which expires on February 28, 2005. The loan is secured by a mortgage on the Company's leasehold interest in the Royal Sonesta Hotel New Orleans, and by a Company guaranty. The terms of the line require a certain minimum level of income, a minimum net worth and a maximum defined debt to net worth ratio for Royal Sonesta Hotel New Orleans. The interest rate is LIBOR plus 3% (4.1% at December 31, 2003), and the commitment fee on the unused portion of the line is 0.65% per annum. The Company operates the Sonesta Hotel & Suites Coconut Grove, Miami, which is a condominium hotel that opened in April 2002. The Company loaned $5,000,000 during 2002 and 2001 to the hotel's owner to fund part of the project costs, and for pre-opening costs and working capital (see also Note 3--Long Term Receivables and Advances). Under its agreements, the Company is committed to fund net operating losses, 5 - -------------------------------------------------------------------------------- and to provide the hotel's owner with a minimum annual return of $500,000 starting April 1, 2003. During 2003 and 2002, the Company contributed $1,750,000 to fund hotel losses and, in addition, provided $156,000 for working capital. The $156,000 is included in prepaid and other current assets at December 31, 2003, and the Company recorded an expense for the operating losses of $800,000 and $950,000 in 2003 and 2002, respectively. The Company has not accrued the minimum return due for 2003 of $375,000, as the Hotel's owner has agreed that payment of the 2003 minimum return will not be required at this time. The Company operates the Trump International Sonesta Beach Resort, a condominium hotel in Sunny Isles Beach, Florida. This hotel opened in April 2003. Under its agreements, the Company advanced funds for pre-opening costs and working capital. In addition, the Company contributes to the total cost for the hotel's non-guestroom furniture, fixtures and equipment ("FF&E") in excess of $3,000,000, and has guaranteed an equipment lease in the amount of $1,000,000. The Company has also agreed to purchase condominium units in the hotel. Under the same agreements, the Company committed to advance 50% of the hotel's net operating losses for the period from the opening of the hotel until November 1, 2004. After November 1, 2004 the Company is committed to advance funds for operating losses and to provide the hotel's owner with an annual minimum return of $800,000. Amounts advanced for losses and minimum return payments, as well as amounts advanced for pre-opening costs, are subject to repayment out of excess profits in subsequent years. The Company and the hotel's owner are in dispute regarding two contract provisions. The first pertains to the amount of the Company's contribution to the hotel's FF&E, and the second issue pertains to the amount of the contribution by the condominium association (which is controlled by the hotel's owner) to the condominium hotel's operating expenses. The Company's cash commitment, excluding funds for its share of the hotel's losses, is approximately $5,572,000, of which $4,538,000 was funded at December 31, 2003. The remaining $1,034,000 consists of a $315,000 liability towards the cost of the excess FF&E, which the Company estimates at $2,000,000, and $719,000 for a contract to acquire two condominium units in the hotel. The Company has refused to fund these amounts, and to complete the purchase of the two units, until the hotel owner has funded its share of the losses, and the condominium association's share of the operating expenses of the condominium hotel. In addition to the $4,538,000, the Company advanced $2,675,000 at December 31, 2003, of which $1,172,000 is owed by the hotel owner for its share of the hotel's losses and for the condominium association's share of the condominium hotel operating expenses. The remaining $1,503,000 represents the Company's advances for its share of the losses. The Company expects to recover part of the $2,675,000 in 2004 out of rents due to the hotel owner on unsold condominium units, and from the owner's share of the profits during the first quarter of 2004. The Company sold Sonesta Beach Resort Anguilla in September 2002 for $10,450,000. Net proceeds, before taxes, were $5,739,000, after payment of the remaining balance of $4,216,000 of the mortgage loan which encumbered the resort, and after payment of commissions and expenses related to the sale of $495,000. The Company contributed $1,262,000 and $3,496,000 to its Pension Plan in the years 2003 and 2001, respectively. During 2001, the Company redeemed its 5% Cumulative Preferred Stock at the redemption price of $27.50 per share, for a total of $294,000. Company management believes that its present cash balances and available credit lines will be adequate to meet its cash requirements for 2004 and for the foreseeable future, for the following reasons: - It has reduced capital expenditure budgets in 2004. - Effective January 1, 2004, it has restructured its mortgage debt obligations for Royal Sonesta Hotel Boston (Cambridge) and Sonesta Beach Resort Key Biscayne, which will sharply reduce debt service payments during the next four years (see also Note 4--Borrowing Arrangements). - It does not expect to increase its financial commitment to Trump International Sonesta Beach Resort in 2004. - It expects the increase in funding for Sonesta Hotel & Suites Coconut Grove to be modest (or none), based on the hotel's expected performance in 2004. - The Company has no major obligations for investments in hotel projects. 6 - -------------------------------------------------------------------------------- As of December 31, 2003, the Company's contractual obligations (in thousands) were as follows:
YEAR -------------------------------------------------------------------- 2004 2005 2006 2007 2008 -------- -------- -------- -------- -------- Long-Term debt obligations............... $ -- $ -- $ -- $ -- $1,442 Operating leases......................... 669 668 642 581 530 ----- ------ ------ ------ ------ Total.................................. $ 669 $ 668 $ 642 $ 581 $1,972 Thereafter Total ---------- -------- Long-Term debt obligations............... $67,869 $69,311 Operating leases......................... 1,834 4,924 ------- ------- Total.................................. $69,703 $74,235
The Company's hotels have certain purchase obligations, primarily for maintenance and service contracts. These are not included in the above obligations since the amounts committed are not material, and because the majority of these contracts may be terminated on relatively short notice. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the Company to make estimates and assumptions. The Company believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity. - Revenue recognition--a substantial portion of our revenues result from the operations of our owned and leased hotels. These revenues are recognized at the time that lodging and other hotel services are provided to our guests. Many of our guests settle their accounts with credit cards, so that actual receipt of revenues is delayed until payment is received from the credit card companies, which typically is within 3 days after departure. Other revenues, principally those relating to groups using lodging and banquet facilities, are billed directly to the customers. These revenues are subject to credit risk, which the Company manages by establishing allowances for uncollectible accounts. If management establishes allowances for uncollectible accounts that are insufficient, it will overstate income, and this will result in increases in allowances for uncollectible accounts in future periods. - Impairment of long lived assets--the Company monitors the carrying value of its owned properties from the perspective of accounting rules relating to impairment. A requirement to assess impairment would be triggered by so called "impairment indicators". For us, these might include low rates of occupancy, operating costs in excess of revenues, or maturing mortgages for which there were no suitable refinancing options. Impairment also needs to be considered with respect to costs incurred for new hotel investments or development opportunities that are under study. The Company monitors these costs on a quarterly basis and if a pending project is no longer considered to be viable, the cost is charged against income. If the Company misjudges the impairment indicators, it may result in the Company failing to record an impairment charge, or recording a charge which may be inaccurate. - Pension Benefits--the Company continues to maintain a defined benefit plan for eligible employees. Costs and liabilities are developed from actuarial valuations. In these valuations are assumptions relating to discount rates, expected return on assets, employee turnover, and future wage increases. Differences between assumed amounts and actual performance will impact reported amounts for the Company's pension expense, as well as the liability for future pension benefits. - Sonesta Hotel & Suites Coconut Grove--the Company operates a condominium hotel under a management agreement, under which it is committed to fund net operating losses, and provide the owner with minimum annual returns of $500,000 beginning as of April 1, 2003. The owner has agreed that payment of the minimum return attributable to the partial year 2003 will not be required at this time. Under its agreements, the Company is entitled to management and marketing fees based on revenues, and incentive fees based on profits. In case the aforementioned annual minimum returns are not met, the Company's policy is to eliminate management and marketing fees from its revenues. If the amounts of the shortfall exceeds the fee income, the Company will book the additional amounts as an administrative and general expense, based on its most current projections. Amounts advanced for seasonal losses and for working capital (which the Company is obligated to provide) will be included in prepaid expenses and other current assets on the Company's balance sheets. - Trump International Sonesta Beach Resort--the Company operates a condominium hotel in Sunny Isles Beach, Florida, which opened in April 2003. Under the management agreement, the Company is entitled to management and marketing fees based on the hotel's revenues, 7 - -------------------------------------------------------------------------------- and incentive fees based on the hotel's net operating income. The Company is obligated to advance funds to provide a minimum annual return of $800,000 to the hotel's owner, starting as of November 1, 2004. From the opening in April 2003 until November 1, 2004, the Company is obligated to advance 50% of any net operating losses. Amounts advanced under these obligations are subject to repayment, without interest, out of future profits in excess of the aforementioned minimum return. If the minimum returns are not earned, the Company will eliminate the fee income earned from the property from its revenues. If the amounts of the shortfalls exceed the total fee income, the Company will reflect such excess amounts as long-term receivables and advances on its balance sheet. The Company also provides, as a non-interest bearing advance, funds for working capital and pre-opening expenses, which it can recover out of the future excess profits. These amounts are also included in long-term receivables and advances. Lastly, the Company has invested in the furniture, fixtures and equipment of the non-guestroom areas of the hotel, an amount of $2 million. This is recorded as an other long-term asset, and is being amortized over the 10-year initial term of the management agreement. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK The Company is exposed to market risk from changes in interest rates. The Company uses fixed rate debt to finance the ownership of its properties. The table that follows summarizes the Company's fixed rate debt obligations outstanding at December 31, 2003. This information should be read in conjunction with Note 4--Borrowing Arrangements. Short and Long Term Debt (in thousands) maturing in:
YEAR -------------------------------------------------------------------- 2004 2005 2006 2007 2008 Thereafter -------- -------- -------- -------- -------- ---------- Fixed rate................ $ -- $ -- $ -- $ -- $1,442 $67,869 Average interest rate..... 8.6% 8.6% 8.6% 8.6% 8.6% 8.6% Total Fair Value -------- ---------- Fixed rate................ $$69,311 $$72,418 Average interest rate.....
8 - -------------------------------------------------------------------------------- SELECTED QUARTERLY FINANCIAL DATA Selected quarterly financial information for the years ended December 31, 2003 and 2002 is as follows:
(in thousands except for per share data) 2003 ----------------------------------------------------- 1st 2nd 3rd 4th -------- -------- -------- -------- Revenues.................................................... $23,684 $21,755 $17,655 $21,802 Operating income (loss)..................................... 1,021 (268) (1,134) (810) Net loss.................................................... (345) (1,267) (1,804) (3,015) Net loss per share of common stock.......................... $ (0.09) $ (0.35) $ (0.48) $ (0.82)
2002 ----------------------------------------------------- 1st 2nd 3rd 4th -------- -------- -------- -------- Revenues.................................................... $25,387 $24,403 $17,872 $22,469 Operating income (loss)..................................... 2,240 2,178 (1,654) (488) Net income (loss) from continued operations................. 432 360 (2,195) (1,320) Net income (loss) from discontinued operations.............. 116 (267) (1,084) (38) ------- ------- ------- ------- Net income (loss)........................................... $ 548 $ 93 $(3,279) $(1,358) Net income (loss) per share from continuing operations...... $ 0.12 $ 0.09 $ (0.59) $ (0.36) Net income (loss) per share from discontinued operations.... 0.03 (0.07) (0.29) (0.01) ------- ------- ------- ------- Net income (loss) per share of common stock................. $ 0.15 $ 0.02 $ (0.88) $ (0.37)
9 [Ernst & Young Letterhead] REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders Sonesta International Hotels Corporation We have audited the accompanying consolidated balance sheets of Sonesta International Hotels Corporation as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sonesta International Hotels Corporation at December 31, 2003 and 2002 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG March 12, 2004 10 SONESTA INTERNATIONAL HOTELS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS - -------------------------------------------------------------------------------- For the three years ended December 31, 2003 (in thousands except for per share data)
2003 2002 2001 -------- ------- ------- Revenues: Rooms..................................................... $48,357 $52,644 $56,208 Food and beverage......................................... 24,581 24,807 24,749 Management, license and service fees...................... 3,445 4,174 4,138 Parking, telephone and other.............................. 8,513 8,506 8,368 ------- ------- ------- 84,896 90,131 93,463 ------- ------- ------- Costs and expenses: Costs and operating expenses.............................. 39,395 40,326 41,907 Advertising and promotion................................. 7,024 7,626 7,669 Administrative and general................................ 16,035 15,243 15,430 Human resources........................................... 1,469 1,583 1,818 Maintenance............................................... 5,902 6,338 6,660 Rentals................................................... 5,778 5,866 6,967 Property taxes............................................ 1,914 2,584 2,561 Depreciation and amortization............................. 8,570 8,289 7,593 ------- ------- ------- 86,087 87,855 90,605 ------- ------- ------- Operating income (loss)..................................... (1,191) 2,276 2,858 ------- ------- ------- Other income (deductions): Interest expense.......................................... (6,194) (6,259) (6,413) Interest income........................................... 358 460 1,302 Foreign exchange profit (loss)............................ (22) 10 (39) Gain on sales of assets................................... 652 -- 56 Gain from casualty........................................ -- -- 213 ------- ------- ------- (5,206) (5,789) (4,881) ------- ------- ------- Loss from continuing operations before income taxes......... (6,397) (3,513) (2,023) Income tax provision (benefit).............................. 34 (790) (333) ------- ------- ------- Loss from continuing operations............................. (6,431) (2,723) (1,690) Discontinued operations (Note 9): Loss from operations and sale of discontinued hotel....... -- (1,928) (314) Income tax benefit........................................ -- (655) (107) ------- ------- ------- Loss on discontinued operations............................. -- (1,273) (207) ------- ------- ------- Net loss.................................................... $(6,431) $(3,996) $(1,897) ======= ======= ======= Basic and diluted loss per share from: Continuing operations..................................... $ (1.74) $ (.74) $ (.45) Discontinued operations................................... -- (.34) (.06) ------- ------- ------- Net loss per share of common stock.......................... $ (1.74) $ (1.08) $ (.51) ======= ======= ======= Dividends per common share.................................. $ .05 $ .20 $ .20 Dividends per preferred share............................... $ -- $ -- $ .63 Weighted average shares outstanding......................... 3,698 3,698 3,700
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 11 SONESTA INTERNATIONAL HOTELS CORPORATION CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------- December 31, 2003 and 2002 (in thousands)
2003 2002 --------- -------- ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 4,327 $ 12,675 Accounts and notes receivable: Trade, less allowance of $221 ($241 in 2002) for doubtful accounts...................................... 7,844 6,920 Other, including current portion of long-term receivables and advances............................... 494 443 -------- -------- Total accounts and notes receivable............. 8,338 7,363 Refundable income taxes..................................... 38 1,600 Current portion of deferred taxes........................... -- 311 Inventories................................................. 1,108 1,109 Prepaid expenses and other current assets................... 2,471 3,294 -------- -------- Total current assets............................ 16,282 26,352 LONG-TERM RECEIVABLES AND ADVANCES.......................... 10,031 7,147 PROPERTY AND EQUIPMENT, AT COST: Land and land improvements................................ 9,102 9,202 Buildings................................................. 60,521 64,361 Furniture and equipment................................... 42,428 41,168 Leasehold improvements.................................... 7,201 6,069 Projects in progress...................................... 60 367 -------- -------- 119,312 121,167 Less accumulated depreciation and amortization............ 38,463 37,996 -------- -------- Net property and equipment...................... 80,849 83,171 OTHER LONG-TERM ASSETS...................................... 2,957 1,780 -------- -------- $110,119 $118,450 ======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 12 - --------------------------------------------------------------------------------
2003 2002 --------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt......................... $ -- $ 946 Accounts payable.......................................... 3,403 4,199 Advance deposits.......................................... 2,972 3,352 Federal, foreign and state income taxes................... 576 848 Accrued liabilities: Salaries and wages...................................... 1,629 1,860 Rentals................................................. 5,025 5,000 Interest................................................ 297 543 Pension and other employee benefits..................... 180 1,418 Other................................................... 1,851 1,117 -------- -------- 8,982 9,938 -------- -------- Total current liabilities....................... 15,933 19,283 LONG-TERM DEBT.............................................. 69,311 69,097 DEFERRED FEDERAL AND STATE INCOME TAXES..................... 5,091 5,275 OTHER NON-CURRENT LIABILITIES............................... 3,918 2,313 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock: Class A, $.80 par value Authorized--10,000 shares Issued--6,102 shares at stated value.................... 4,882 4,882 Retained earnings......................................... 23,037 29,653 Treasury shares--2,404, at cost........................... (12,053) (12,053) -------- -------- Total stockholders' equity............................ 15,866 22,482 -------- -------- $110,119 $118,450 ======== ========
13 SONESTA INTERNATIONAL HOTELS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------- For the three years ended December 31, 2003 (in thousands, except for per share date)
COMMON TREASURY STOCK SHARES TOTAL ------------------- ------------------- ------------------------------ NO. OF NO. OF RETAINED NO. OF SHARES STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT EARNINGS OUTSTANDING EQUITY -------- -------- -------- -------- --------- ------------- -------------- Balance January 1, 2001...................... 6,102 $4,882 (2,397) $(11,988) $ 37,033 3,705 $ 29,927 Purchase of 7,000 shares.................... -- -- (7) (65) -- (7) (65) Cash dividends on common stock ($0.20 per share)... -- -- -- -- (740) -- (740) Cash dividends on preferred stock ($0.63 per share)... -- -- -- -- (7) -- (7) Net loss.................... -- -- -- -- (1,897) -- (1,897) ----- ------ ------ -------- -------- ------ -------- Balance December 31, 2001... 6,102 4,882 (2,404) (12,053) 34,389 3,698 27,218 Cash dividends on common stock ($0.20 per share)... -- -- -- -- (740) -- (740) Net loss.................... -- -- -- -- (3,996) -- (3,996) ----- ------ ------ -------- -------- ------ -------- Balance December 31, 2002... 6,102 4,882 (2,404) (12,053) 29,653 3,698 22,482 Cash dividends on common stock ($0.05 per share)... -- -- -- -- (185) -- (185) Net loss.................... -- -- -- -- (6,431) -- (6,431) ----- ------ ------ -------- -------- ------ -------- Balance December 31, 2003... 6,102 $4,882 (2,404) $(12,053) $ 23,037 3,698 $ 15,866 ===== ====== ====== ======== ======== ====== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 14 SONESTA INTERNATIONAL HOTELS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------- For the three years ended December 31, 2003 (in thousands)
2003 2002 2001 -------- -------- -------- CASH PROVIDED (USED) BY OPERATING ACTIVITIES Net loss.................................................. $ (6,431) $ (3,996) $ (1,897) Items not (providing) requiring cash Pension expense......................................... 1,483 1,672 1,448 Depreciation and amortization of property and equipment............................................. 8,420 8,289 7,593 Other amortization...................................... 240 90 96 Deferred federal and state income tax provision......... 127 31 39 Gain on sales of assets................................. (652) -- (56) Gain from casualty...................................... -- -- (213) Deferred interest income................................ (197) (179) (106) Deferred interest expense............................... 214 -- -- Loss from discontinued operations....................... -- 1,928 314 Changes in assets and liabilities Accounts and notes receivable........................... (788) (235) 512 Refundable income taxes................................. 1,562 (101) (1,499) Inventories............................................. 1 304 205 Prepaid expenses and other.............................. 823 670 (2,179) Accounts payable........................................ (742) 244 (1,340) Advance deposits........................................ (380) (1,224) 395 Federal, foreign and state income taxes................. (272) (121) 564 Accrued liabilities..................................... (835) (912) (5,574) -------- -------- -------- Cash provided (used) by operating activities.......... 2,573 6,460 (1,698) CASH PROVIDED (USED) BY INVESTING ACTIVITIES Proceeds from sales of assets........................... 1,078 9,955 71 Proceeds from casualty insurance........................ -- -- 213 Proceeds from maturities of U.S. government debt securities............................................ -- -- 10,313 Expenditures for property and equipment................. (6,524) (8,083) (13,297) New loans and advances.................................. (3,104) (3,689) (2,855) Payments received on long-term receivables and advances.............................................. 348 337 505 Net cash deficit from discontinued operations........... -- (273) (498) Other investments....................................... (1,219) (465) -- -------- -------- -------- Cash used by investing activities..................... (9,421) (2,218) (5,548) CASH USED BY FINANCING ACTIVITIES Scheduled payments on long-term debt.................... (945) (867) (1,242) Payments on long-term debt following sale of hotel...... -- (4,216) -- Redemption of preferred stock........................... -- -- (294) Purchase of common stock................................ -- -- (65) Cash dividends paid..................................... (555) (740) (747) -------- -------- -------- Cash used by financing activities..................... (1,500) (5,823) (2,348) -------- -------- -------- Net decrease in cash and cash equivalents................... (8,348) (1,581) (9,594) Cash and cash equivalents at beginning of year.............. 12,675 14,256 23,850 -------- -------- -------- Cash and cash equivalents at end of year.................... $ 4,327 $ 12,675 $ 14,256 ======== ======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 15 SONESTA INTERNATIONAL HOTELS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION: Sonesta International Hotels Corporation (the Company) is engaged in the operation of hotels in Boston (Cambridge), Massachusetts; New Orleans, Louisiana; and Key Biscayne, Florida. The Company also operates, under management agreements, hotels in Bermuda; Coconut Grove and Sunny Isles (Miami), Florida; New Orleans, Louisiana; and in Cairo, Sharm El Sheikh, Luxor, and Port Said, Egypt. The Company also manages three Nile River cruise ships in Egypt. Sonesta has granted licenses, for which it receives fees, for the use of its name for hotels in Peru and Italy. In September 2002, the Company sold the Sonesta Beach Resort Anguilla (see Note 9--Discontinued Operations). The Company's revenues and results from operations for the 2002 and 2001 periods present the operations of the resort as a discontinued operation. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. OPERATIONS: The consolidated financial statements include the results of operations of wholly owned and leased properties and fee income from managed and licensed properties. FOREIGN CURRENCY TRANSACTIONS: Assets and liabilities denominated in foreign currency are converted at end of year rates, and income and expense items are converted at weighted average rates during the period. The net result of such conversions is charged or credited to the statement of operations. INVENTORIES: Merchandise and supplies are stated at the lower of cost (first-in/first-out method) or market. REVENUES: Revenues are generally recognized as services are provided. ADVERTISING: The cost of advertising is generally expensed as incurred. PROPERTY AND EQUIPMENT: Depreciation and amortization of items of property and equipment are computed generally on the straight-line method based on the following estimated useful lives: Land and land improvements: Owned properties 20 to 50 years Buildings: Owned properties 20 to 40 years Furniture and equipment: Located in owned properties 5 to 10 years Located in leased properties 5 to 10 years or remaining lease terms Leasehold improvements: Remaining lease terms
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF: The carrying values of long-lived assets, which include property and equipment and intangibles, are evaluated periodically for impairment when impairment indicators are present. Future undiscounted cash flows of the underlying assets are compared to the assets' carrying values. Adjustments to fair value are made if the sum of expected future undiscounted cash flows are less than book value. To date, no adjustments for impairment have been made. INCOME TAXES: Income taxes have been provided using the liability method. The Company and its United States subsidiaries file a consolidated federal income tax return. Where appropriate, federal and foreign income taxes are provided on earnings of foreign subsidiaries that are intended to be remitted to the parent company. FAIR VALUE OF FINANCIAL INSTRUMENTS: The Company's financial instruments consist of cash and cash equivalents, accounts and notes receivable, accounts payable and long-term debt. With the exception of its long-term debt, the Company believes that the carrying value of its financial instruments approximates their fair values. The book balance at December 31, 2003 of the Company's long-term debt, which carries an interest rate of 8.6%, is $69,311,000. The Company estimates the fair value of this debt at approximately $72,418,000, based on current prevailing interest rates for similar mortgage debt. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS: In December 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 46 (R), "Consolidation of Variable Interest Entities" ("Interpretation 46") to clarify the conditions under which assets, liabilities and activities of another entity should be consolidated into the financial statements of a company. Interpretation 46 requires the consolidation of a variable interest entity by a company that bears the majority of the risk of loss from the variable interest entity's activities, is entitled to receive a majority of the variable interest entity's residual returns, or both. The Company is required to adopt the provisions of Interpretation 46 for variable interest entities created prior to January 31, 2003 during the first quarter of 2004. Management believes the management agreements with Trump International Sonesta Beach Resort Sunny Isles and Sonesta Hotel and Suites Coconut Grove may be variable interests. As discussed in Notes 2 and 6, under the terms of the management agreements, the Company is required to fund hotel operating losses and provide the hotel owners with a minimum return. The Company does not believe it bears the majority of the risk or loss from the variable interest entity's activities or is entitled to receive the majority of the variable interest entity's residual returns. Accordingly, the adoption of Interpretation 46 is not expected to have a material impact on the Company's overall financial position and results of operations. The Company adopted FASB Statement No. 132, "Employers' Disclosures about Pensions and Other Post-retirement Benefits", which was issued in December 2003. Statement 132 revises employer's disclosures about pension plans and other post-retirement benefit plans, and requires additional disclosures about the assets, obligations, cash 16 - -------------------------------------------------------------------------------- flows and net periodic benefit costs of defined benefit pension plans and other defined post-retirement benefit plans. USE OF ESTIMATES: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. RECLASSIFICATION: Certain amounts in the 2001 and 2002 financial statements have been reclassified to conform to the 2003 presentation. STATEMENT OF CASH FLOWS: Cash and cash equivalents consists of cash on hand and short-term, highly liquid investments with original maturities of less than 90 days, which are readily convertible into cash. Cash paid for interest in 2003, 2002 and 2001 was approximately $6,136,000, $6,366,000 and $6,718,000, respectively. Net cash refunded for income taxes in 2003 and 2002 was approximately $1,384,000 and $1,253,000. Cash paid for income taxes in 2001 was approximately $456,000. 2. OPERATIONS The Company operates the Sonesta Hotel & Suites Coconut Grove, Miami, which is a condominium hotel that opened in April 2002. The Company loaned $5,000,000 during 2002 and 2001 to the hotel's owner to fund part of the project costs, and for pre-opening costs and working capital (see also Note 3--Long Term Receivables and Advances). Under its agreements, the Company is committed to fund net operating losses, and to provide the hotel's owner with a minimum annual return of $500,000 starting April 1, 2003. During 2003 and 2002, the Company contributed $1,750,000 to fund hotel losses and, in addition, provided $156,000 for working capital. The $156,000 is included in prepaid and other current assets at December 31, 2003, and the Company recorded an expense for the operating losses of $800,000 and $950,000 in 2003 and 2002, respectively. The Company has not accrued the minimum return due for 2003 of $375,000, as the Hotel's owner has agreed that payment of the 2003 minimum return will not be required at this time. The Company operates the Trump International Sonesta Beach Resort, a condominium hotel in Sunny Isles Beach, Florida. This hotel opened in April 2003. Under its agreements, the Company advanced funds for pre-opening costs and working capital. In addition, the Company contributes to the total cost for the hotel's non-guestroom furniture, fixtures and equipment ("FF&E") in excess of $3,000,000, and has guaranteed an equipment lease in the amount of $1,000,000. The Company has also agreed to purchase condominium units in the hotel. Under the same agreements, the Company committed to advance 50% of the hotel's net operating losses for the period from the opening of the hotel until November 1, 2004. After November 1, 2004 the Company is committed to advance funds for operating losses and to provide the hotel's owner with an annual minimum return of $800,000. Amounts advanced for losses and minimum return payments, as well as amounts advanced for pre-opening costs, are subject to repayment out of excess profits in subsequent years. The Company and the hotel's owner are in dispute regarding two contract provisions. The first pertains to the amount of the Company's contribution to the hotel's FF&E, and the second issue pertains to the amount of the contribution by the condominium association (which is controlled by the hotel's owner) to the condominium hotel's operating expenses. The Company's cash commitment, excluding funds for its share of the hotel's losses, is approximately $5,572,000, of which $4,538,000 was funded at December 31, 2003. The remaining $1,034,000 consists of a $315,000 liability towards the cost of the excess FF&E, which the Company estimates at $2,000,000, and $719,000 for a contract to acquire two condominium units in the hotel. The Company has refused to fund these amounts, and to complete the purchase of the two units, until the hotel owner has funded its share of the losses, and the condominium association's share of the operating expenses of the condominium hotel. In addition to the $4,538,000, the Company advanced $2,675,000 at December 31, 2003, of which $1,172,000 is owed by the hotel owner for its share of the hotel's losses and for the condominium association's share of the condominium hotel operating expenses. The remaining $1,503,000 represents the Company's advances for its share of the losses. The Company expects to recover part of the $2,675,000 in 2004 out of rents due to the hotel owner on unsold condominium units, and from the owner's share of the profits during the first quarter of 2004. The owner of Chateau Sonesta Hotel New Orleans has initiated an arbitration to resolve a dispute regarding Sonesta's performance under its management agreement. The arbitration is currently on-going (see Note 10--Legal Proceedings). At December 31, 2003, the Company had paid expenses totaling $104,000, and had set up a provision for costs and expenses of $743,000. The Company reached agreements with its lender to restructure its mortgage debt on Royal Sonesta Hotel Boston (Cambridge) and Sonesta Beach Resort Key Biscayne (see Note 4--Borrowing Arrangements). The restructuring did not affect debt service payments during 2003, but will provide for lower interest payments, and the deferral of principal payments, starting January 1, 2004. The Company sold Sonesta Beach Resort Anguilla in September 2002 for $10,450,000. Net proceeds, before taxes, were $5,739,000, after payment of the remaining balance of $4,216,000 of the mortgage loan which encumbered the resort, and after payment of commissions and expenses related to the sale of $495,000. Gross revenues for hotels operated by the Company under management contracts, by geographic area, for the three years ended December 31, 2003, are summarized below:
(in thousands) (unaudited) ------------------------------------ 2003 2002 2001 -------- -------- -------- United States $26,296 $15,158 $12,855 Bermuda 16,105 20,594 23,393 Egypt 25,710 26,872 27,847 ------- ------- ------- $68,111 $62,624 $64,095 ======= ======= =======
17 - -------------------------------------------------------------------------------- Costs and operating expenses for owned and leased hotels for the three years ended December 31, 2003 are summarized below:
(in thousands) ------------------------------------ 2003 2002 2001 -------- -------- -------- Direct departmental costs: Rooms $12,761 $13,516 $14,142 Food and beverage 19,391 19,453 20,125 Heat, light and power 2,975 2,861 3,153 Other 4,268 4,496 4,487 ------- ------- ------- $39,395 $40,326 $41,907 ======= ======= =======
Direct departmental costs include payroll expense and related payroll burden, the cost of food and beverage consumed and other departmental costs. The Company experienced losses in 2003, 2002 and 2001 as a result of declines in business and leisure travel since September 2001. The Company has agreed with its lender to restructure the long term debt on Sonesta Beach Resort Key Biscayne and Royal Sonesta Hotel Boston (Cambridge). Under the terms of this restructuring, interest and principal payments will be reduced for a four year period starting on January 1, 2004. Management believes that the reduced principal and interest payments, combined with some or all of the Company's efforts to contain or reduce costs and its ability to borrow under its lines of credit will be sufficient for the Company to meet its working capital needs, operating expenses, rent and capital expenditures in the normal course of its business for the foreseeable future. 3. LONG-TERM RECEIVABLES AND ADVANCES
(in thousands) ------------------------------- December 31, December 31, 2003 2002 -------------- -------------- Sharm El Sheikh, Egypt (a) $ 678 $ 821 Sonesta Hotel & Suites Coconut Grove (b) 5,483 5,285 Trump International Sonesta Beach Resort (c) 3,900 1,003 Other 275 283 ------- ------ Total long-term receivables 10,336 7,392 Less: current portion 305 245 ------- ------ Net long-term receivables $10,031 $7,147 ======= ======
(a) This loan, in the original amount of $1,000,000, was made in 1996 and 1997 to the owner of the Sonesta Beach Resort, Sharm El Sheikh. The loan bears interest at the prime rate (4% at December 31, 2003) and is adjusted semi-annually. Currently this loan is being repaid in 42 monthly installments and the maturity date is June 2006. The Company has agreed to loan the hotel's owner an additional $300,000 in 2004 to help finance the construction of additional hotel facilities, and once these amounts have been funded, the maturity date will be extended through October 2007. (b) This loan is made to the owner of the Sonesta Hotel & Suites Coconut Grove, Miami, which opened in April 2002. The Company has loaned $4,000,000 to fund construction and furniture, fixtures and equipment ("FF&E") costs, and, in addition, has loaned $1,000,000 for pre-opening costs and working capital. The loan for construction and FF&E costs bears interest at the prime rate (4% at December 31, 2003) plus 0.75%. No interest is being charged on the loan for pre-opening costs. These loans will be repaid, the loan for pre-opening costs first, out of annual minimum return payments due to the owner of the hotel under the management agreement, and out of excess profits that would otherwise be available for distribution to the owner. (c) This amount represents advances made to the owner of Trump International Sonesta Beach Resort Sunny Isles for pre-opening costs ($2,397,000) and for the Company's share of the losses of the resort from the opening in April 2003 through December 31, 2003 ($1,503,000). No interest will be charged on these advances, which will be repaid out of future available profits generated by the hotel. 4. BORROWING ARRANGEMENTS CREDIT LINES The Company has a $2,000,000 line of credit, which expires December 31, 2004. This line bears interest at the prime rate (4% at December 31, 2003). The terms of the line require the bank's approval for additional borrowings by the Company, restrict dividends, and require that no amounts are outstanding under the line during the two consecutive months of November and December. No amounts were outstanding under this line of credit at December 31, 2003. A subsidiary of the Company has a $3,000,000 line of credit, which expires on February 28, 2005. The loan is secured by a mortgage on the Company's leasehold interest in the Royal Sonesta Hotel New Orleans, and by a Company guaranty. The terms of the line require a certain minimum level of income, a minimum net worth and a maximum defined debt to net worth ratio for Royal Sonesta Hotel New Orleans. The interest rate is LIBOR plus 3% (4.1% at December 31, 2003), and the commitment fee on the unused portion of the line is 0.65% per annum. No amounts were outstanding under this line of credit at December 31, 2003. During 2003, average short-term borrowings were $227,000 at average interest rates of 4.1%. The maximum amount of short-term borrowings during 2003 was $2,119,000. There were no short-term borrowings during 2002 and 2001. LONG-TERM DEBT
(in thousands) ------------------------------- December 31, December 31, 2003 2002 -------------- -------------- Charterhouse of Cambridge Trust and Sonesta of Massachusetts Inc.: First mortgage note (a) $39,469 $39,886 Sonesta Beach Resort Limited Partnership: First mortgage note (b) 29,842 30,157 ------- ------- 69,311 70,043 Less current portion of long-term debt -- 946 ------- ------- Total long-term debt $69,311 $69,097 ======= =======
(a) This loan is secured by a first mortgage on the Royal Sonesta Hotel Boston (Cambridge) property. This property is included in fixed assets at a net book value of $21,717,000 at December 31, 2003. The interest rate on this loan is 8.6% for the term of the loan. Amortization of the principal balance through December 2003 was based 18 - -------------------------------------------------------------------------------- on a 25 year schedule, and monthly payments of principal and interest were $332,911. The mortgage loan matures in July 2010, and prepayment of this loan is subject to early payment penalties, based on prevailing interest rates at the time of the prepayment. This mortgage loan, and the mortgage loan on Sonesta Beach Resort Key Biscayne (see (b), below) are provided by the same lender, and are cross-collateralized. (b) This loan is secured by a first mortgage on the Sonesta Beach Resort Key Biscayne property. This property is included in fixed assets at a net book value of $41,621,000 at December 31, 2003. The interest rate on this loan is 8.6% for the term of the loan. Amortization of the principal balance through December 2003 was based on a 25 year schedule, and monthly payments of principal and interest were $251,713. The mortgage loan matures in July 2010, and prepayment of this loan is subject to early payment penalties, based on prevailing interest rates at the time of the prepayment. This mortgage loan, and the mortgage loan on Royal Sonesta Hotel Boston (Cambridge) (see (a), above) are provided by the same lender, and are cross-collateralized. RESTRUCTURING OF LONG-TERM DEBT The Company and the Lender have agreed to restructure the mortgage loans for a four year period as of January 1, 2004, as follows: starting January 1, 2004, and through December 1, 2006, the Company is required to make payments of interest only at 5% per annum, and starting on January 1, 2007 and through December 1, 2007, the Company will be required to make payments of interest only at 8.6% per annum. Starting on January 1, 2008, payments will resume at the original amounts mentioned in (a) and (b) above. Interest will continue to accrue at 8.6%, and unpaid interest will be added to the principal balance of the loans at the end of each year. During each year of the restructuring, combined cash flow from the two hotels remaining after payment of interest is required to be paid into escrow, and may be used solely for the future payment of hotel expenses or capital expenditures, or to reduce the amount of the accrued and unpaid interest. Aggregate principal payments for the years subsequent to December 31, 2003, are as follows:
Year (in thousands) - ---- -------------- 2004 $ -- 2005 -- 2006 -- 2007 -- 2008 1,442 Thereafter 67,869
5. STOCKHOLDERS' EQUITY BASIC EARNINGS (LOSSES) PER SHARE As the Company has no dilutive securities, there is no difference between basic and diluted earnings per share of common stock. The following table sets forth the computation of basic earnings (losses) per share (in thousands, except for per share data):
2003 2002 2001 -------- -------- -------- Numerator: Loss from continuing operations $(6,431) $(2,723) $(1,690) Preferred stock dividends -- -- (7) ------- ------- ------- Loss from continuing operations (6,431) (2,723) (1,697) Loss from discontinued operations -- (1,273) (207) ------- ------- ------- Numerator for earnings per share $(6,431) $(3,996) $(1,904) ======= ======= ======= Denominator: Weighted average number of shares outstanding 3,698 3,698 3,700 ======= ======= ======= Loss per share of common stock: Continuing operations $ (1.74) $ (0.74) $ (0.45) Discontinued operations -- (0.34) (0.06) ------- ------- ------- Loss per share of common stock $ (1.74) $ (1.08) $ (0.51) ======= ======= =======
6. COMMITMENTS AND CONTINGENCIES The Company operates the Sonesta Hotel & Suites Coconut Grove, Miami, which is a condominium hotel that opened in April 2002, and the Trump International Sonesta Beach Resort, a condominium hotel in Sunny Isles Beach, Florida, which opened in April 2003. Under the management agreements for these hotels, the Company is committed to fund certain operating losses and minimum returns to the owners of the hotels. These commitments are described, in detail, in Note 2-- Operations. The Company operates the Royal Sonesta Hotel, New Orleans, Louisiana, under a lease. In 2003 the Company exercised the second of three 10-year options to extend the lease. The lease requires payment of percentage rent based on net profits, as defined. The Company leases space for its executive offices in Boston, Massachusetts, which lease will expire in May 2012. The Company provides for rent expense on a straight line basis over the term of the lease. The Company is also committed, under various operating leases, for certain other property and real estate. Minimum fixed rentals under operating leases, principally on real estate, payable subsequent to December 31, 2003 (exclusive of real estate taxes, insurance and other occupancy costs) are as follows:
(in thousands) -------------- Operating Period leases - ------ -------------- 2004 $ 669 2005 668 2006 642 2007 581 2008 530 Thereafter 1,834 ------- $ 4,924 =======
19 - -------------------------------------------------------------------------------- Rentals charged to operations are as follows:
(in thousands) ------------------------------ 2003 2002 2001 -------- -------- -------- Real Estate: Fixed rentals $ 739 $ 825 $ 992 Percentage rentals based on defined operating profits 5,019 5,000 5,759 Other rentals 20 41 216 ------ ------ ------ $5,778 $5,866 $6,967 ====== ====== ======
The Company has incentive compensation plans for management under which hotel profit bases, as established annually, must be achieved before any incentive compensation may be earned. The incentive compensation charged to operations was $208,000 in 2003, $689,000 in 2002 and $354,000 in 2001. 7. PENSION AND BENEFIT PLANS PENSION PLAN The Company maintains a non-contributory defined benefit pension plan (the Plan) for certain employees of Sonesta International Hotels Corporation and its subsidiaries. Benefits are based on the employee's years of service and the highest average monthly salary during any 60 consecutive months of employment. The Company's funding policy is to contribute annually at least the minimum contribution required by ERISA. The Company does not offer any other post-retirement benefit plans. OBLIGATIONS AND FUNDED STATUS The following table sets forth the funded status of the Plan at December 31, 2003 and 2002:
(in thousands) ---------------------- 2003 2002 -------- -------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $23,923 $26,830 Service cost 1,211 1,425 Interest cost 1,672 1,732 Plan amendments -- 31 Actuarial (gain) loss 2,130 (4,206) Benefits paid (1,262) (1,889) ------- ------- Benefit obligation at end of year 27,674 23,923 CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year 17,298 19,381 Actual return on plan assets 2,644 (35) Employer contribution 1,203 -- Benefits paid (1,262) (1,889) Administrative expenses (156) (159) ------- ------- Fair value of plan assets at end of year 19,727 17,298 Projected benefit obligation in excess of Plan assets 7,947 6,625 Unrecognized actuarial loss (3,726) (2,747) Unrecognized prior service cost (638) (726) Unrecognized transition asset 176 264 ------- ------- Accrued pension liability $ 3,759 $ 3,416 ======= =======
The Company recognized accrued benefit costs of $3,759,000 and $3,416,000 in its statement of financial position at December 31, 2003 and 2002, respectively. The following table presents the projected and accumulated benefit obligation compared to plan assets:
(in thousands) ---------------------- December 31, 2003 2002 -------- -------- Projected benefit obligation $27,674 $23,923 Accumulated benefit obligation 22,125 19,362 Fair value of plan assets 19,727 17,298
The components of the Company's net periodic pension cost for the Plan were as follows:
(in thousands) ------------------------------ 2003 2002 2001 -------- -------- -------- Service cost $ 1,211 $ 1,425 $ 1,300 Interest cost 1,672 1,732 1,610 Expected return on plan assets (1,558) (1,684) (1,503) Amortization of prior service cost 88 90 88 Amortization of transition asset (88) (88) (88) Recognized actuarial loss 221 223 69 ------- ------- ------- Net periodic benefit cost $ 1,546 $ 1,698 $ 1,476 ======= ======= =======
Weighted-average assumptions used to determine benefit obligations at each of the three years ending December 31 were:
2003 2002 2001 -------- -------- -------- Discount rate 6.25% 6.75% 6.75% Rate of compensation increase 3.00% 3.00% 4.00%
Weighted-average assumptions used to determine net periodic pension costs for each of the three years ended December 31 were:
2003 2002 2001 -------- -------- -------- Discount rate 6.75% 6.75% 7.00% Expected return on plan assets 8.50% 8.50% 8.50% Rate of compensation increase 3.00% 4.00% 4.00%
The assumed rate of return on plan assets has remained unchanged since 1988. Management believes 8.50% is a realistic long-term rate of return. The balanced retirement fund into which plan assets have been invested since 1987 has provided a composite average annual rate of return of 11% since 1987. PLAN ASSETS The Plan's weighted-average asset allocations at December 31, 2003 and 2002, by asset category, were as follows:
Plan assets at December 31, 2003 2002 -------------- -------------- Cash & money market investments 1% 4% Government debt securities 24% 37% Corporate debt securities 5% 12% Equity securities 70% 47% --- --- 100% 100% === ===
The Plan's assets have been invested in a balanced retirement investment fund managed by a Boston-based investment management company since 1987. The investment objective of the fund is to achieve capital growth over the long- term through a broadly diversified, actively managed blend of stocks, bonds and money market instruments. In order to moderate the Fund's risk and volatility, a mix of assets is selected for the Fund with the dual objective of providing the 20 - -------------------------------------------------------------------------------- opportunity to participate in favorable economic environments, and also moderating downside risk in the event economic conditions deteriorate. To further balance risk and return, individual investments are held across a wide range of economic sectors. Specific equity selections focus on financially sound companies with strong competitive positions in their industry. Bond holdings are primarily of higher quality issuers. CASH FLOWS The Company will not make a contribution to its Plan in 2004. The following table sets forth estimated future benefit payments from the Plan. These estimated payments include expected future service.
(in thousands) ------------------ Estimated Pension Benefits ------------------ 2004 $ 1,078 2005 1,054 2006 1,095 2007 1,143 2008 1,125 2009 through 2013 5,251
SAVINGS PLAN The Company has an employee savings plan (the Savings Plan) that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the Savings Plan, participating U.S. employees may defer a portion of their pre-tax earnings up to the Internal Revenue Service annual contribution limit. All U.S. employees of the Company are eligible to participate in the Savings Plan. Participating employees may choose to invest their contributions in each one of nineteen mutual funds, which include equity funds, balanced funds and a money market fund. The Savings Plan does not provide for contributions by the Company. The Company does bear the cost of administering the Plan, which were $25,000 for each of the years 2003, 2002 and 2001. 8. SEGMENT INFORMATION The Company has two reportable segments: Owned and Leased Hotels, and Management Activities. The Owned and Leased Hotels segment consists of the operations of the Company's owned hotels in Boston (Cambridge) and Key Biscayne, and the operation of its leased property in New Orleans. Revenues for this segment are derived mainly from rooms, food and beverage, parking and telephone receipts from hotel guests. The Management Activities segment includes the operations of hotels and resorts under management agreements, and also includes fees from hotels to which the Company has granted licenses. Revenues from this segment are derived mainly from management, marketing, license and service fees charged to the third party owners of these properties. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. The segments' operating income or losses and pretax profit or losses are after giving effect to management, marketing and service fees to the Company's owned and leased properties. Segment data for the three years ended December 31, 2003 follows: Year ended December 31, 2003
(in thousands) ----------------------------------------- Owned & Leased Management Hotels Activities Consolidated --------- ------------- ------------- Revenues $ 81,419 $ 3,477 $ 84,896 Operating income (loss) before depreciation and amortization expense 11,573 (4,194) 7,379 Depreciation and amortization (8,004) (566) (8,570) Interest income (expense), net (6,137) 301 (5,836) Other income 590 40 630 -------- -------- --------- Segment pre-tax loss (1,978) (4,419) (6,397) Segment assets 87,532 22,587 110,119 Segment capital additions 6,228 296 6,524
Year ended December 31, 2002
(in thousands) ----------------------------------------- Owned & Leased Management Hotels Activities Consolidated --------- ------------- ------------- Revenues $ 85,931 $ 4,200 $ 90,131 Operating income (loss) before depreciation and amortization expense 13,592 (3,027) 10,565 Depreciation and amortization (7,839) (450) (8,289) Interest income (expense), net (6,201) 402 (5,799) Other income -- 10 10 -------- -------- --------- Segment pre-tax loss (448) (3,065) (3,513) Segment assets 89,967 28,483 118,450 Segment capital additions 6,666 1,417 8,083
Year ended December 31, 2001
(in thousands) ------------------------------------------- Owned & Leased Management Hotels Activities Consolidated --------- --------------- ------------- Revenues $ 89,274 $ 4,189 $ 93,463 Operating income (loss) before depreciation and amortization expense 13,069 (2,618) 10,451 Depreciation and amortization (7,139) (454) (7,593) Interest income (expense), net (6,348) 1,237 (5,111) Other income 218 12 230 -------- -------- --------- Segment pre-tax loss (200) (1,823) (2,023) Segment assets 89,702 26,268 115,970 Segment capital additions 12,927 370 13,297
Segment assets for Management Activities in the information above include cash held in corporate accounts, and loans 21 - -------------------------------------------------------------------------------- to and receivables from properties under management and license agreements. Segment data by geographic area of the Company's revenues, operating income and long-lived assets follows:
(in thousands) Revenues -------------------------------------------- 2003 2002 2001 -------- --------- --------- United States $ 83,031 $ 87,938 $ 91,027 Other 1,865 2,193 2,436 -------- -------- -------- Consolidated $ 84,896 $ 90,131 $ 93,463 ======== ======== ========
Operating income (loss) ------------------------------------------- 2003 2002 2001 -------- -------- --------- United States $ (2,364) $ 858 $ 1,516 Other 1,173 1,418 1,342 -------- ------- -------- Consolidated $ (1,191) $ 2,276 $ 2,858 ======== ======= ========
Long-lived Assets ------------------------------------------- 2003 2002 2001 -------- -------- --------- United States $ 80,034 $82,329 $ 83,333 Other 815 842 11,796 -------- ------- -------- Consolidated $ 80,849 $83,171 $ 95,129 ======== ======= ========
9. DISCONTINUED OPERATIONS In September 2002, the Company sold the Sonesta Beach Resort Anguilla for $10,450,000. The financial statements for the 2002 and 2001 periods have been reclassified to present the operations and sale of the resort as a discontinued operation. Following is a summary of the loss reported on the sale of the resort, as well as the operating results for the years 2002 and 2001:
(in thousands) ------------------- 2002 2001 -------- -------- Sale price $ 10,450 $ -- Book value of assets sold (11,245) -- Costs and expenses, including commission to broker (495) -- -------- ------- Loss on sale of property before income tax benefit (1,290) -- Revenues from operations 2,545 4,750 Expenses (3,183) (5,865) Gain from casualty -- 801 -------- ------- Loss from operations before income tax benefit (638) (314) -------- ------- Loss from discontinued operations, before income tax benefit (1,928) (314) Income tax benefit (655) (107) -------- ------- Loss from discontinued operations $ (1,273) $ (207) ======== =======
10. LEGAL PROCEEDINGS In November 2003, the Company's subsidiary, Sonesta Louisiana Hotels Corporation ("SLHC"), which operates Chateau Sonesta Hotel, in New Orleans (the "Hotel"), received notice from the owner of the Hotel ("Owner"), that it was initiating an arbitration pursuant to the terms of the Amended and Restated Management Agreement between Owner and SLHC (the "Management Agreement"). In its arbitration demand, Owner alleges that SLHC has failed to perform certain obligations under the Management Agreement, specifically its obligations to (A) "use all reasonable efforts to operate the Hotel...in a manner that achieves a high level of guest satisfaction and profitability", and (B) exercise all reasonable efforts to assure that Sonesta Hotels' corporate services "are billed to the Hotel and to the Royal Sonesta Hotel, New Orleans on a fair and equitable basis". Consistent with the provisions of the Management Agreement, the parties have designated their respective arbiters, who failed to resolve the parties' dispute. Therefore, pursuant to the Management Agreement, they have engaged a third arbiter who will decide the dispute by selecting the position of one arbiter or the other, without compromise. The position established by Owner's arbiter claims damages of $2,952,000, whereas SLHC's arbiter has established that no more than $268,000 in damages should be awarded. Pending the completion of the arbitration, and based on the Company's confidence that it will prevail in the arbitration, the Company has provided for damages to be paid of $268,000 in its statement of financial position, in addition to an estimated $475,000 for legal and consulting fees related to the arbitration. This is in addition to $104,000 of expenses already incurred and paid in 2003. The Company is also from time to time subject to routine litigation incidental to its business, and generally covered by insurance. The Company believes that the results of such litigation will not have a materially adverse effect on the Company's financial condition. 22 - -------------------------------------------------------------------------------- 11. INCOME TAXES The table below allocates the Company's income tax expense (benefit) based upon the source of income:
(in thousands) 2003 2002 2001 -------------------- -------------------- -------------------- Domestic Foreign Domestic Foreign Domestic Foreign --------- -------- --------- -------- --------- -------- Income (loss) before income taxes $(7,688) $ 1,291 $(4,876) $ 1,363 $(3,457) $1,434 ======= ======= ======= ======= ======= ====== Federal, foreign and state income tax provision (benefit): Current federal income tax (benefit) $(2,799) $ 626 $(1,383) $ (24) $(1,299) $ 444 State and foreign taxes, principally current 262 168 326 260 380 103 Deferred federal income tax (benefit) (310) (2) (367) 398 28 11 Federal tax valuation allowance 2,713 (624) -- -- -- -- ------- ------- ------- ------- ------- ------ $ (134) $ 168 $(1,424) $ 634 $ (891) $ 558 ======= ======= ======= ======= ======= ======
The Company recorded a tax expense of $34,000 in 2003 despite its pre-tax loss of approximately $6.4 million. A valuation allowance was recorded against the 2003 federal income tax benefit since it is uncertain when the Company will realize a future benefit for the losses incurred in 2003. The Company provided for state taxes on its income from Royal Sonesta Hotel New Orleans, and foreign taxes primarily on the Company's management income from it Egyptian operations. This provision was reduced by the reversal of a general provision for federal taxes which carried forward from previous years. A reconciliation of net tax expense (benefit) applicable to income before extraordinary items at the statutory rate follows:
(in thousands) ------------------------------------------ 2003 2002 2001 -------- -------- -------- Expected benefit for taxes at statutory rate $(2,175) $(1,194) $ (688) Valuation allowance 2,089 -- -- State income taxes, net of federal benefit 173 215 251 Foreign income taxes, net of federal benefit 111 172 68 Other (164) 17 36 ------- ------- ------- $ 34 $ (790) $ (333) ======= ======= =======
Deferred tax expense (benefits) result from temporary differences in the recognition of revenues and expenses for tax and financial reporting purposes. The source of these differences and their tax effects are as follows:
(in thousands) ------------------------------------------ 2003 2002 2001 -------- -------- -------- Tax depreciation more than book depreciation $ 447 $ 1,284 $ 433 Alternative minimum tax and general business credits carried forward (69) (1,221) (59) Pension contribution less than pension expense (502) (168) (492) Valuation allowance 439 -- -- Other temporary differences (188) 136 157 ------- ------- ------- $ 127 $ 31 $ 39 ======= ======= =======
Temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities that give rise to significant portions of deferred income taxes at December 31, 2003 and 2002 relate to the following:
(in thousands) ------------------------- 2003 2002 -------- -------- Current deferred tax asset Expenses accrued but deferred for tax purposes $ -- $ 311 ------- ------- Current deferred tax asset $ -- $ 311 ======= ======= Long-term deferred tax liabilities (assets) Depreciation book tax difference $ 8,002 $ 7,555 Alternative minimum tax and general business credits carried forward (1,349) (1,280) Pension expense in excess of contributions (1,250) (748) Expenses accrued but deferred for tax purposes (531) (38) Charitable contributions not currently deductible (157) (146) Valuation allowance 439 -- State tax benefits of $1,230,000 ($900,000 in 2002) from net operating loss carry-forwards, net of valuation allowance -- -- Federal tax benefits of $1,630,000 (none in 2002) from net operating loss carry-forwards, net of valuation allowance -- -- Other (63) (68) ------- ------- Deferred tax liability $ 5,091 $ 5,275 ======= =======
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. 23 - -------------------------------------------------------------------------------- At December 31, 2003, the Company had state net operating loss carry-forwards of approximately $18,900,000 for income tax purposes. Of the total carry-forwards available at December 31, 2003, approximately $2,100,000 expires in 2006, $3,300,000 expires in 2007, $4,800,000 expires in 2008, $4,200,000 expires in 2009, $700,000 expires in 2017, $2,300,000 expires in 2018 and $1,500,000 expires in 2019. For financial reporting purposes, valuation allowances of $1,230,000 and $900,000 have been recognized at December 31, 2003 and 2002, respectively, to offset the deferred tax assets related to those carry-forwards. At December 31, 2003, the Company had federal net operating loss carry-forwards of approximately $4,800,000 for income tax purposes. All of the carry-forwards available at December 31, 2003 expire in 2024. For financial reporting purposes, a valuation allowance of $1,630,000 has been recognized at December 31, 2003 to offset the deferred tax assets related to those carry- forwards. 24 SONESTA INTERNATIONAL HOTELS CORPORATION Executive Offices, 116 Huntington Avenue Boston, Massachusetts 02116 Telephone (617) 421-5400 Fax 421-5402 - -------------------------------------------------------------------------------- SONESTA DIRECTORS George S. Abrams(2) Winer & Abrams Attorneys at Law Vernon R. Alden(2)(3) Director and Trustee of several organizations Joseph L. Bower(1)(2)(3) PROFESSOR, Harvard Business School Charles J. Clark(2) DIRECTOR OF CORPORATE RELATIONS, YouthBuild USA Paul Sonnabend(1) CHAIRMAN OF THE EXECUTIVE COMMITTEE and EXECUTIVE VICE PRESIDENT, Sonesta International Hotels Corporation Peter J. Sonnabend CHIEF EXECUTIVE OFFICER AND VICE CHAIRMAN, Sonesta International Hotels Corporation Stephanie Sonnabend CHIEF EXECUTIVE OFFICER AND PRESIDENT, Sonesta International Hotels Corporation Roger P. Sonnabend(1) EXECUTIVE CHAIRMAN OF THE BOARD, Sonesta International Hotels Corporation Stephen Sonnabend SENIOR VICE PRESIDENT, Sonesta International Hotels Corporation Jean C. Tempel(3) MANAGING DIRECTOR First Light Capital, LLC (1)Member Executive Committee (2)Member Audit Committee (3)Member Compensation Committee - -------------------------------------------------------------------------------- SONESTA OFFICERS Roger P. Sonnabend EXECUTIVE CHAIRMAN OF THE BOARD Peter J. Sonnabend CHIEF EXECUTIVE OFFICER AND VICE CHAIRMAN Stephanie Sonnabend CHIEF EXECUTIVE OFFICER AND PRESIDENT Paul Sonnabend CHAIRMAN OF THE EXECUTIVE COMMITTEE AND EXECUTIVE VICE PRESIDENT Stephen Sonnabend SENIOR VICE PRESIDENT Carol C. Beggs VICE PRESIDENT-TECHNOLOGY Felix Madera VICE PRESIDENT-INTERNATIONAL Boy A. J. van Riel VICE PRESIDENT AND TREASURER Kathy S. Rowe SENIOR VICE PRESIDENT Jacqueline Sonnabend EXECUTIVE VICE PRESIDENT Hans U. Wandfluh VICE PRESIDENT Karen K. Pettiford CORPORATE SECRETARY AND LEGAL/FINANCIAL ADMINISTRATOR David Rakouskas ASSISTANT SECRETARY AND CORPORATE CONTROLLER - -------------------------------------------------------------------------------- SONESTA HOTELS AND OTHER OPERATIONS Royal Sonesta Hotel Boston (Cambridge), Massachusetts(1) Royal Sonesta Hotel New Orleans, Louisiana(1) Sonesta Beach Resort Key Biscayne, Florida(1) Chateau Sonesta Hotel New Orleans, Louisiana(2) Sonesta Beach Resort Southampton, Bermuda(2) Sonesta Hotel & Suites Coconut Grove Miami, Florida(2) Trump International Sonesta Beach Resort Sunny Isles Miami, Florida(2) Sonesta Beach Resort Sharm el Sheikh, Egypt(2) Sonesta Club Sharm el Sheikh, Egypt(2) Sonesta Hotel Cairo, Egypt(2) Sonesta Hotel Port Said, Egypt(2) Sonesta Nile Goddess Cruise Ship Cairo, Egypt(2) Sonesta Sun Goddess Cruise Ship Cairo, Egypt(2) Sonesta Moon Goddess Cruise Ship Cairo, Egypt(2) Sonesta St. George Hotel Luxor, Egypt(2) Sonesta Resort & Country Club Tuscany, Italy(3) Sonesta Castello di Santa Maria Novella Tuscany, Italy(3) Sonesta Relais & Residences Tuscany, Italy(3) Sonesta Relais Villa Tavolese Tuscany, Italy(3) Sonesta Posada del Inca San Isidro Lima, Peru(3) Sonesta Posada del Inca El Olivar Lima, Peru(3) Sonesta Posada del Inca Yucay, Peru(3) Sonesta Posada del Inca Puno, Peru(3) Sonesta Posada del Inca Cuzco, Peru(3) Sonesta Posada del Inca Miraflores, Peru(3) Sonesta Posada del Inca Arequipa, Peru(3) Sonesta Hotel Iberepuera Sao Paulo, Brazil(3) (Opening 2004) Under development: Ras Sudr and Hurghada, Egypt. (1)Owned or Leased (2)Operated under Management Agreement (3)Licensed For reservations, call toll free 800-SONESTA (800-766-3782), or visit us at: www.sonesta.com - -------------------------------------------------------------------------------- INDEPENDENT AUDITORS Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116 TRANSFER AGENT AND REGISTRAR American Stock Transfer, 400 Wall Street, 46th Floor, New York, NY 10005 EX-21 13 a2132289zex-21.txt EX-21 Exhibit 21 ALPHABETICAL LIST OF WHOLLY-OWNED SUBSIDIARIES Anguilla Hotel Management, Inc. Brewster Wholesale Corporation Charterhouse of Cambridge Trust Florida Sonesta Corporation Hotel Corporation of America Hotel Corporation of Georgia Key Biscayne Land Corporation Newo Aruba N.V. P.R. By Design, Inc. Royal Sonesta, Inc. S.I.A. Advertising, Inc. Sonesta Beach Resort Limited Partnership Sonesta Charitable Foundation, Inc. Sonesta Coconut Grove, Inc. Sonesta Costa Rica, S.A. Sonesta Curacao Hotel Corporation, N.V. Sonesta Hotels of Anguilla Limited Sonesta Hotels of Florida, Inc. Sonesta Hotels of Mississippi, Inc. Sonesta International Hotels Limited: Hotel Corporation of America (Bermuda) Limited Port Royal Company, Limited Sonesta Licensing Corporation Sonesta Louisiana Hotels Corporation Sonesta of Massachusetts, Inc. Sonesta Middle East Hotel Corporation TBD, Inc. 112 EX-23.1 14 a2132289zex-23_1.txt EXHIBIT 23.1 Exhibit 23.1 Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of Sonesta International Hotels Corporation of our report dated March 12, 2004, included in the 2003 Annual Report to Shareholders of Sonesta International Hotels Corporation. Our audits also included the financial statement schedule of Sonesta International Hotels Corporation listed in Item 15(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP ----------------------- Ernst & Young LLP Boston, Massachusetts March 29, 2004 EX-31.(A) 15 a2132289zex-31_a.txt EXHIBIT 31(A) EXHIBIT 31 Exhibit 31(a) I, Boy A. J. van Riel, certify that: 1. I have reviewed the Annual Report on Form 10-K of Sonesta International Hotels Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the Audit Committee of registrant's Board Directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 29, 2004 /S/ Boy Van Riel ---------------------- Name: Boy A.J. van Riel Title: Vice President and Treasurer 22 EX-31.(B) 16 a2132289zex-31_b.txt EXHIBIT 31(B) EXHIBIT 31 Exhibit 31(b) I, Peter J. Sonnabend, certify that: 1. I have reviewed the Annual Report on Form 10-K of Sonesta International Hotels Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 6. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the Audit Committee of registrant's Board Directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 29, 2004 /S/ Peter J. Sonnabend ------------------------------- Name: Peter J. Sonnabend Title: Chief Executive Officer and Vice Chairman 23 EX-31.(C) 17 a2132289zex-31_c.txt EXHIBIT 31(C) EXHIBIT 31 Exhibit 31(c) I, Stephanie Sonnabend, certify that: 1. I have reviewed the Annual Report on Form 10-K of Sonesta International Hotels Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the Audit Committee of registrant's Board Directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 29, 2004 /S/ Stephanie Sonnabend ---------------------------------------- Name: Stephanie Sonnabend Title: Chief Executive Officer and President 24 EX-32 18 a2132289zex-32.txt EXHIBIT 32 EXHIBIT 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the filing of the Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (the "Report") by Sonesta International Hotels Corporation (the "Company"), we, Peter J. Sonnabend, Stephanie Sonnabend and Boy A. J. van Riel, in our respective positions of CEO & Vice Chairman, CEO & President and Treasurer, hereby certify pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that, to the best of our knowledge: 1. The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Boston, March 29, 2004 /S/ Peter J. Sonnabend ---------------------------------------- Name: Peter J. Sonnabend Title: Chief Executive Officer and Vice Chairman /S/ Stephanie Sonnabend ---------------------------------------- Name: Stephanie Sonnabend Title: Chief Executive Officer and President /S/ Boy van Riel ---------------------------------------- Name: Boy A. J. van Riel Title: Vice President and Treasurer 25 -----END PRIVACY-ENHANCED MESSAGE-----