10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

T ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

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 or incorporation or organization)	(I.R.S. Employer Identification No.)

116 Huntington Avenue, Boston, MA 02116

(Address of principal executive offices, including zip code)

617-421-5400

(Registrant’s telephone number, including area code)

Securities to be registered pursuant to Section 12 (b) of the Act:

Title of each class	Name of each exchange on which registered
Class A Common Stock	NASDAQ Global Market
$.80 par value per share

Securities registered pursuant to Section 12 (g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes £   No T

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes £   No T

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 T   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.T

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer £ Accelerated filer £ Non-accelerated filer £

Smaller reporting company T

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes £  No T

The aggregate market value of the common stock held by non-affiliates of the registrant as of the close of business on June 30, 2008 was $38,044,933.

The number of shares outstanding of the registrant's common stock as of the close of business on March 20, 2009 was 3,698,230.

Documents incorporated by reference:

1. Portions of the Annual Report to Shareholders for the year ended December 31, 2008 are incorporated by reference into Parts I and II.  The 2008 Annual Report is filed with this Form 10-K as Exhibit 13.

2. Portions of the proxy statement for the 2009 annual meeting of stockholders are incorporated by reference into Part III.

An Index to Exhibits appears on pages 16 through 18 of this Form 10-K.

SONESTA INTERNATIONAL HOTELS CORPORATION

FORM 10-K TABLE OF CONTENTS

FISCAL YEAR ENDED DECEMBER 31, 2008

		Page No.
Part I
Item 1	Business	1
Item 1A	Risk Factors	4
Item 1B	Unresolved Staff Comments	6
Item 2	Properties	6
Item 3	Legal Proceedings	7
Item 4	Submission of Matters to a Vote of Security Holders	7
Part II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	8
Item 6	Selected Financial Data	8
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	8
Item 8	Financial Statements and Supplementary Data	8
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	8
Item 9A (T)	Controls and Procedures	9
Item 9B	Other Information	10
Part III
Item 10	Directors, Executive Officers and Corporate Governance	11
Item 11	Executive Compensation	11
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters	11
Item 13	Certain Relationships and Related Transactions, and Director Independence	12
Item 14	Principal Accountant Fees and Services	12
Part IV.
Item 15	Exhibits and Financial Statement Schedules	14
	Signatures	20

PART I

Item 1. Business

(a) General Development of Business.  The Company, a New York corporation formed in 1923,  is engaged in the operation of hotels that it owns or leases in Boston (Cambridge), Massachusetts; Key Biscayne, Florida (through August 2006); and New Orleans, Louisiana.  It also operates, under management agreements, hotels in Coconut Grove, Florida; Sunny Isles Beach, Florida (through March 2008); and Cairo, Luxor, Port Said, Taba, Hurghada and Sharm el Sheikh (2), Egypt; and five (5) Nile River cruise vessels. The Company has also entered into management agreements to operate new hotels being created in Jaco, Costa Rica; Miami, Florida; and San Carlos, Mexico.  In addition, the Company has franchise agreements for hotels in St. Maarten (2), Brazil (2) and Peru (6).  On January 1, 2008, the Company commenced management of a hotel in Hurghada, Egypt.  In 2007, the Company terminated its management contract for Chateau Sonesta Hotel, in New Orleans and entered into a license agreement for that hotel which terminated in 2008.  In 2008, the Company terminated its management contract for Trump Sonesta Resort, in Sunny Isles, Florida.

The Company owned and operated a hotel in Key Biscayne, Florida.  In April 2005, the Company transferred the land and improvements of Sonesta Beach Resort Key Biscayne to a development partnership, of which it is a 50% owner.  The hotel closed for operations in August 2006.  Detailed information regarding this major transaction is incorporated by reference from Note 3 to the Company’s consolidated financial statements (pages 20 and 21 of the Annual Report to Shareholders, filed herewith as Exhibit 13).

In general, business levels improved during 2008.  Revenues of Royal Sonesta Hotel Boston and Royal Sonesta Hotel New Orleans increased.  In addition, income from management activities increased in 2008 compared to 2007.

(b) Financial Information About Segments.  This information is incorporated by reference from Note 9 to the Company’s consolidated financial statements (page 24 of the 2008 Annual Report to Shareholders, filed herewith as Exhibit 13).

(c) Narrative Description of Business and Competition.  The Company's business is to a great extent dependent upon a high level of economic activity. The hotel business is highly competitive.  In the major markets where we operate, which are New Orleans, Miami and Boston, we compete with many other hotels of the same quality.  A substantial number of these hotels compete in the same market segments as our hotels.  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 refurbishing 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, 2008, the Company made such capital expenditures totaling approximately $7.8 million.

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.

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The Company has approximately 723 employees. The Company considers its relations with its employees to be satisfactory.

Business at the Company’s hotels is seasonal.  At Royal Sonesta Hotel Boston, the first quarter is traditionally the slowest of the year.  The third quarter summer season is Royal Sonesta Hotel New Orleans’ slowest period.  Therefore, the Company generates fewer revenues during the first and third quarters compared to the second and fourth quarters.

The following tables reflects total revenues, annual occupancy percentages, average room rates and room revenues per available room ("REVPAR") for the Company's owned and leased properties for the years 2008, 2007 and 2006.  REVPAR is calculated by dividing annual room revenue by the total number of rooms available during the year.

Hotel		Number of Rooms		Year Built of Acquired		Total Revenues (in thousands)
						2008		2007		2006
Sonesta Beach Resort Key Biscayne	Leased (1)		300	1998		$	--	$	--	$	19,341
Royal Sonesta Hotel Boston	Owned		400		1963/1984		30,778		29,377		26,408
Royal Sonesta Hotel New Orleans	Leased		500	1969			32,795		31,888		27,894

(1) In April 2005 the Company transferred the land and improvements of Sonesta Beach Resort Key Biscayne to a development partnership of which the Company is a 50% owner.  The hotel closed on August 31, 2006.

Hotel	Average Occupancy Percentage									Average Daily Rate
	2008			2007			2006			2008		2007		2006
Sonesta Beach Resort Key Biscayne		--			--			71.4	%	$	--	$	--	$	224
Royal Sonesta Hotel Boston		71.5	%		68.5	%		64.6	%		195		192		177
Royal Sonesta Hotel New Orleans		70.8	%		71.5	%		67.1	%		165		158		154

	“REVPAR”
Hotel	2008		2007		2006
Sonesta Beach Resort Key Biscayne	$	--	$	--	$	160
Royal Sonesta Hotel Boston		139		132		114
Royal Sonesta Hotel New Orleans		117		113		103

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.

For revenues by types of services provided for the three years ended December 31, 2008, reference is made to the Consolidated Statements of Operations which appear on page 13 of the 2008 Annual Report to Shareholders, filed herewith as Exhibit 13.

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(d) Financial Information about Foreign and Domestic Operations. This information is incorporated by reference from Note 9 on page 24 of the 2008 Annual Report to Shareholders, filed herewith as Exhibit 13.

(e) Environmental Compliance.  Our compliance with laws and regulations relating to environmental protection and discharge of hazardous materials has not had a material impact on our capital expenditures or earnings.  We do not anticipate any material impact from such compliance in the future.

(f) Internet Address and Company SEC Filings.  Our internet address is www.Sonesta.com.  On the corporate governance portion of our website, under the Investor Relations section, we provide a link to the U.S. Securities and Exchange Commission website.  Included on this website are our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and any amendments to these reports.  Our website is included as a textual reference only and the information on the website is not incorporated by reference into this annual report on Form 10-K.

The Company’s Executive Officers are:

Name	Present Position	Age	Employment History 2003 to Present
Peter J. Sonnabend	Executive Chairman of the Board	55	Chief Executive Officer and Vice Chairman until January 2009, Vice Chairman and General Counsel until December 2003, Secretary until May 2003
Stephanie Sonnabend	Chief Executive Officer and President	56	President until December 2003
Carol Beggs	Vice President, Technology	48	Vice President, Technology
Felix Madera	Vice President, International	60	Vice President, International
Kathy Rowe	Senior Vice President	50	Vice President, Food and Beverage until December 2003
Philip M. Silberstein	Executive Vice President of Development	56	Vice President Development, Carlson Hotels Worldwide, until September 2008
Jacqueline Sonnabend	Executive Vice President	54	Executive Vice President
Boy van Riel	Vice President and Treasurer	50	Vice President and Treasurer

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Item 1A. Risk Factors

The Company’s business is subject to various risks that could have a negative effect on the Company’s results from operations and its financial condition.  These risks could cause results to differ materially from those expressed in forward-looking statements made by us, including those contained in the Managements’ Discussion and Analysis and the footnotes to the consolidated financial statements appearing in the Company’s 2008 Annual Report, which is filed herewith as Exhibit 13.  These forward-looking statements are based on current expectations and, except as required by law, we assume no obligation to update this information.  The following risk factors are not the only risk factors facing our Company.  Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business.  Our business, financial condition and results of operations could be seriously harmed if any of the events underlying any of these risks or uncertainties actually occurs.  In that event, the price for our common stock could decline, and you may lose all or part of your investment.

The lodging industry is highly competitive.  The Company competes with much larger hotel chains, and its ability to compete successfully depends on its ability to offer business and leisure travelers lodging products and services that are perceived to be of equal of better quality and value than those offered by its competitors.

The Company is subject to a range of operating risks common to the hotel industry.  These operating risks include, but are not limited to:

1) the availability of and demand for hotel rooms in the markets we operate;

2) international, national and regional economic and political conditions; the current economic conditions, which resulted in lower consumer demand for lodging and diminished corporate spending, has affected the Company’s business in the 2008 fourth quarter.  This trend has continued during the first quarter of 2009.

3) the impact of war and terrorist activity (including threats of terrorist activity and other matter that influence and/or limit travel, such as travelers’ fears of contagious diseases (e.g. Bird Flu);

4) the occurrence of natural disasters, such as hurricanes;

5) taxes and government regulations that influence or determine wages, and cost prices of goods and services the Company uses to operate its hotels;

6) the availability and cost of capital to allow us and potential hotel owners and joint venture partners to fund investments;

7) relationships and disputes with owners of our hotels operated under management agreements.

There are certain risks that pose more significant threats to the Company’s future results and financial condition, because of the particular businesses the Company is involved in and the markets in which we operate.

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The Company’s Key Biscayne development partnership may experience increased costs and delays while redeveloping the site.  The Company is a 50% partner in a development partnership, which was created in 2005 to redevelop the site of Sonesta Beach Resort Key Biscayne.  The Company received approximately $60 million in non-refundable proceeds in April 2005 after it contributed the land and improvements of Sonesta Beach Resort Key Biscayne to the development partnership.  In addition, the Company received a priority equity position, valued by the partnership at $60 million.  Future proceeds are dependent on the successful redevelopment of the site, and the sales of real estate at sufficient prices to cover all costs of the development and construction.  Initial partnership plans provided for the development of a luxury condominium hotel and residences, including meeting and function space, a spa and other resort facilities.  Under the partnership agreement the Company was to manage the resort when completed.  These plans met with considerable community opposition, and the partnership instead filed for, and received approvals in 2007 for, a 165 unit residential project.  The project is currently in the preconstruction phase, pending resolution of a claim filed by an abutter of the project.  In addition, current economic conditions and its impact on the South Florida real estate market have delayed the start of the development.  The delays increase development costs, and will impact future proceeds from the partnership.  The Company’s partner in the development partnership is a privately owned realty and development company in South Florida.  Current economic conditions and their effect on the real estate market in South Florida may impact our partner’s ability to fund project costs going forward.

Because the Company’s U.S. hotels are located in only three markets, a decline in market conditions in any of these markets could have an adverse impact on the Company’s results from operations.  A major portion of the Company’s revenues and income is derived from its owned and leased hotels, and from its managed hotel, in the United States.  The three U.S. hotels the Company operated at the end of 2008 are located in Miami, Florida, New Orleans, Louisiana, and Cambridge, Massachusetts.  This means the Company’s future results are heavily dependent on the market conditions and the supply of and demand for hotel rooms in these specific markets.

Hurricanes and other natural disasters can damage our properties and affect our results from operations.  Two of the Company’s three U.S. hotels operating at the end of 2008 are located in New Orleans, Louisiana and in Miami, Florida.  These areas are prone to hurricanes, and the Company’s financial condition will be affected if its hotels suffer damage from hurricanes, as well as from the loss of business due to hurricane activity in these areas.  As a result of the high cost of insurance for these catastrophic risks, damage to hotels and loss of income may only be partially covered by insurance, since the Company, and the owner of the Company’s managed hotel, have significant deductibles, and certain caps on coverages for windstorm and flood.

The Company’s property in New Orleans may continue to be adversely impacted by the loss of business and increased costs due to Hurricane Katrina.  The Company operates the Royal Sonesta Hotel in New Orleans, Louisiana.  The business in this market has historically been heavily dependent on group and convention business.  Hurricane Katrina, which struck New Orleans in August 2005 caused major damage to the city’s convention center and infrastructure, resulting in the cancellation of substantially all group and convention business following the storm.  During the period September 2005 through March 2006, the Royal Sonesta Hotel New Orleans successfully replaced the convention business with government business and other business related to the recovery and rebuilding efforts in New Orleans.  However, from April 2006 forward the hotel’s results declined sharply due to the fact that group and convention business is returning very slowly to New Orleans.  Business in 2008 continued to improve but has not reached pre-Katrina levels.

5

The Company’s fee income from its operations in Egypt may be adversely impacted by terrorism.  During 2008, the Company’s management revenues from its hotels in Egypt totaled approximately $3.5 million ($2.3 million in 2007).  In previous years, Egypt experienced terrorist activity, which affected tourism.  Potential future terrorist incidents will affect tourism to Egypt, and the Company’s management income from this region.

Under its management agreement for Sonesta BayFront Hotel Coconut Grove, the owner is entitled to receive minimum owner returns.  The Company operates Sonesta BayFront Hotel Coconut Grove under a management agreement, under which it is committed to fund net operating losses, and provide the owner with minimum annual returns ($442,000 during 2008).  In addition, the management agreement can be terminated by the owner if the Company elects not to cure shortfalls against a minimum target return ($1,001,000 during 2008).  Both the minimum return and the minimum target return are adjusted annually by increases in the Consumer Price Index.  If the earnings of the hotel are insufficient to meet the minimum return, the Company will have to reduce its fee income from the hotel.  If the shortfall in earnings exceeds the fee income, the Company will incur an expense to cure the shortfall.

Item 1B. Unresolved Staff Comments

None.

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 Royal Sonesta Hotel, Boston (Cambridge), Massachusetts.  Sonesta Beach Resort Key Biscayne was owned by the Company until April 2005, when it transferred the land and assets into a development partnership, of which the Company is a 50% owner.  From April 2005 through August 2006, the Key Biscayne property was operated under a $1 per year lease with the development partnership.  Detailed information regarding this major transaction is incorporated by reference from Note 3 to the Company’s consolidated financial statements (pages 20 through 21 of the Annual Report to Shareholders, filed herewith as Exhibit 13).  Reference is made to Note 5 to the consolidated financial statements of the Company which appears on page 22 of the Company's 2008 Annual Report to Shareholders, filed herewith as Exhibit 13, for details of the mortgage lien on the Boston (Cambridge), Massachusetts property.

The Company operates the Royal Sonesta Hotel, in New Orleans, Louisiana under a long-term lease which expires on September 30, 2024, provided the Company exercises its remaining ten-year extension option.  As of March 20, 2009, the Company has exercised options through September 30, 2014.

The Company also currently operates under management agreements hotels in Coconut Grove (Miami), Florida; and Cairo, Luxor, Port Said, Taba, Hurghada and Sharm el Sheikh (2), Egypt; and five Nile River cruise vessels.  At December 31, 2008, the Company has granted licenses for the use of its name to six hotels in Peru, two hotels in St. Maarten, and two hotels in Brazil.

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.

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Item 3. Legal Proceedings

Trump International Sonesta Beach Resort Sunny Isles

From April 2003 through March 2008, the Company operated Trump International Sonesta Beach Resort Sunny Isles, in Florida, under a management agreement.  In October 2007, the Company exercised a one-time right to cancel the management agreement, upon 6 months notice, and receive repayment of advances it was obligated to make for operating losses and certain minimum returns due to the hotel’s owner.  The amount due upon termination was $7,031,000.  The hotel’s owner disputed the amount of the termination payment, but paid the entire amount into escrow, as required by the agreement.  An arbitration procedure to resolve the dispute commenced in April 2008.  In October 2008, the parties settled the dispute.  The Company received a total of $5,002,000, which included the amount of the settlement of $4,929,000, and its share of the interest earned on the escrow account of $73,000.  Expenses incurred in connection with the arbitration amounted to $515,000.  As part of the settlement agreement, the hotel’s owner agreed to waive any and all claims related to the Company’s management of the hotel.

Other

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.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to security holders during the fourth quarter of the fiscal year ended December 31, 2008.

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PART II

Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Common stock market prices and dividends and the number of shareholders of record are incorporated by reference from page 2 of the 2008 Annual Report to Shareholders, filed herewith as Exhibit 13.

A dividend of $0.10 was paid in July 2007, and a dividend of $0.10 was declared in December 2007, but paid in January 2008.  A special dividend of $1.00 per share was paid in February 2008.  In addition, during 2008 a dividend of $0.10 per share was paid in July, and a dividend of $0.10 and a special dividend of $0.15 were declared in October 2008, but paid in January 2009.  Other information required by this item is incorporated by reference from the Consolidated Statements of Stockholders' Equity which appears on page 16 of the 2008 Annual Report to Shareholders, filed herewith as Exhibit 13.

Item 6. Selected Financial Data

Selected Financial Data, which appears on page 2 of the 2008 Annual Report to Shareholders, filed herewith as Exhibit 13, is incorporated herein by reference.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

This information is incorporated by reference from pages 4 through 12 of the 2008 Annual Report to Shareholders, filed herewith as Exhibit 13.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

This information is incorporated by reference from page 11 of the 2008 Annual Report to Shareholders, filed herewith as Exhibit 13.

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 Vitale, Caturano & Company, Ltd. dated March 25, 2009 are incorporated herein by reference from the 2008 Annual Report to Shareholders, filed herewith as Exhibit 13.

Selected Quarterly Financial Data are incorporated by reference on page 11 of the 2008 Annual Report to Shareholders, filed herewith as Exhibit 13.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There were no disagreements with the Company’s independent auditors on accounting principles or practices or financial statement disclosures during 2008.

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Item 9A.(T) Controls and Procedures

Management’s Report on Internal Control over Financial Reporting.  Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.  Internal Control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America.  Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis.  Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that misstatements of our financial statements would be prevented or detected.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2008, based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  The evaluation included a full scale, documented risk assessment, based on the principles described in the framework, and included identification of key controls.  Based on the evaluation, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2008.

There were no changes in our internal control over financial reporting during the quarter ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.

Evaluation of Disclosure Controls and Procedures.  As of December 31, 2008, Company management carried out an evaluation, under the supervision and with the participation of the Company’s Executive Chairman of the Board, Chief Executive Officer and President, 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(e) and 15d-15(e) of the Securities Exchange Act of 1934.  Based on that evaluation, the Company’s Executive Chairman of the Board, Chief Executive Officer and President, and Vice President and Treasurer concluded that the Company’s disclosure controls and procedures are effective, as of December 31, 2008.  Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to management, including the Executive Chairman of the Board, Chief Executive Officer and President and Vice President and Treasurer, as appropriate, to allow timely decisions regarding required disclosures.

9

Item 9B. Other Information

None.

10

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Directors of the Company and Compliance with Section 16 (a).  The information required by this item is incorporated herein by reference from the Company’s proxy statement for the 2009 Annual Meeting of Stockholders, which will be held in May 2009.

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, 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.  The Company intends to disclose on its website any amendments of waivers to its Code of Ethics applicable to its principal executive officer(s), principal financial and accounting officer or any person performing similar functions.

Audit Committee Charter.  The Company’s Audit Committee Charter, which is posted on the Company’s website at www.Sonesta.com, 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 Ms. Jean C. Tempel, 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, and an audit committee financial expert, as defined by SEC 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 2009 Annual Meeting of Stockholders, which will be held in May 2009.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters

This information is incorporated by reference from the Company’s proxy statement for the 2009 Annual Meeting of Stockholders, which will be held in May 2009.

The Company has no equity compensation plans for which disclosure under Item 201(d) of Regulation S-K is required.

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Item 13. Certain Relationships and Related Transactions, and Director Independence

This information is incorporated by reference from the Company’s Proxy Statement for the 2009 Annual Meeting of Stockholders, which will be held in May 2009.

Information regarding related person transactions is also incorporated by reference from Note 11 to the Company’s consolidated financial statements, filed herewith as Exhibit 13.

Item 14. Principal Accountant Fees and Services

Auditors.  Vitale, Caturano & Company, P.C. has served as the Company’s independent registered public accounting firm since 2004.  A representative of Vitale, Caturano & Company P.C. is expected to be present at our Annual Meeting of Stockholders, 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 Vitale, Caturano & Company, P.C. to the Company in the last two fiscal years were as follows:

	FY 2007		FY 2008
Audit Fees	$	130,000	$	137,500
Audit of Pension and 401(k) Benefit Plans		15,000		16,000
Other Fees (1)		2,450		1,850
Total Fees	$	147,450	$	155,350

(1)Other fees include tax advisory fees.

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 continued 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.

All services for which the Company engages the auditors are approved by the Audit Committee.  The total fees the Company paid to Vitale Caturano & Company P.C. for services in 2007 and 2008 are set forth above.

12

The Company’s Audit Committee approved the engagement of Vitale, Caturano & Company P.C. to provide audit related services and tax services in 2007 and 2008, respectively (which include the annual audits of the Company’s Pension Plan and 401(k) Plan) because it determined that for Vitale, Caturano & Company, P.C. to provide these services would not compromise its independence, and that its familiarity with the Company’s record keeping and accounting systems would permit them to provide these services with equal or higher quality, more quickly and at a cost similar to what the Company could obtain these services from other providers.

13

PART IV

Item 15 Exhibits and Financial Statement Schedules

(a) 1. Financial Statements: The financial statements listed in the accompanying Index to Consolidated Financial Statements are incorporated by reference from the 2008 Annual Report to Shareholders, filed herewith as Exhibit 13.

2. Financial Statement Schedules:  The financial statement schedules required to be filed by Item 8 of this form are listed in the accompanying Index to Consolidated Financial Statements, and are included in the notes to the financial statements, incorporated by reference from the 2008 Annual Report to Shareholders, filed herewith as Exhibit 13.

3. A list of Exhibits is included on pages 16 through 18 of this annual report on Form 10-K.

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SONESTA INTERNATIONAL HOTELS CORPORATION

Index to Consolidated Financial Statements

and Financial Statement Schedule

Item 15(a) (1) and (2)	References (Page)
	Form 10-K	2008 Annual Report to Shareholders*
Consolidated Balance Sheets at December 31, 2008 and 2007		14, 15
For the years ended December 31, 2008 and 2007:
Consolidated Statements of Operations		13
Consolidated Statements of Stockholder’s Equity and Comprehensive Income (Loss)		16
Consolidated Statements of Cash Flows		17
Notes to Consolidated Financial Statements		18
Consolidated Financial Statement Schedule II for the year ended December 31, 2008
Consolidated Valuation and QualifyingAccounts	15

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.

_________________________________________________________

*Filed herewith as Exhibit 13

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SONESTA INTERNATIONAL HOTELS CORPORATION

SCHEDULE II

Consolidated Valuation and Qualifying Accounts

Three Years Ended December 31, 2008

	Balance Beginning Of Year		Amounts Charged To Income		Amounts Written Off		Balance End of Year
Year Ended December 31, 2006
Allowance for doubtful accounts	$	93,706	$	2,000	$	9,013	$	86,693
Year Ended December 31, 2007
Allowance for doubtful accounts	$	86,693	$	2,000	$	22,829	$	65,864
Year Ended December 31, 2008
Allowance for doubtful accounts	$	65,864	$	47,705	$	55,050	$	58,519

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SONESTA INTERNATIONAL HOTELS CORPORATION

Index to Exhibits

NUMBER	DESCRIPTION
3.1	Certificate of Incorporation, as amended to date. (6)
3.2	Company By-laws, as amended to date.  (Filed herewith)
3.3	Company By-laws, as amended to date – marked copy.  (Filed herewith)
10.1	Management Agreement, between Sonesta Hotels of Florida, Inc., and Sunny Isles Luxury Ventures L.C., Trustee, dated as of June 21, 2001 (Terminated by the Company April 1, 2008). (4)
10.2	Management Agreement, between Sonesta Coconut Grove, Inc. (“SCG”), and Mutiny on the Park, Ltd. (“Mutiny”), dated December 22, 2000. (3)
10.3	Letter of Amendment of Management Agreement, between SCG and Mutiny, dated January 5, 2001. (3)
10.4	Amendment to Management Agreement between SCG and Mutiny, effective January 1, 2007.  (9)
10.5	Mortgage and Loan Modification Agreement, dated as of March 24, 2004, between SunAmerica, Charterhouse of Cambridge Trust (“Trust”) and Sonesta of Massachusetts, Inc. (“Sonesta Mass”). (5)
10.6	Reaffirmation and Modification of Limited Guaranty Agreement and Environmental Indemnity Agreement, dated as of March 24, 2004, between SunAmerica, Trust and Sonesta Mass. (5)
10.7	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”). (2)
10.8	Mortgage and Loan Modification Agreement, dated as of May 30, 2000, between Trust and Sonesta Mass, and SunAmerica. (2)
10.9	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. (2)
10.10	Deficiency Guaranty Agreement, dated as of May 30, 2000, between Trust, Sonesta Mass, and SunAmerica, as “Escrow Agent”. (2)
10.11	Amendment to Management Agreement for Sonesta Club Sharm El Sheikh, dated January 24, 2008, between Sharm Today S.A.E. and Sonesta International Hotels Limited.  (9)

17

NUMBER	DESCRIPTION
10.12	Amendment to Management Agreement for Sonesta Beach Resort Sharm el Sheikh, dated January 24, 2008, between Masters of Tourism S.A.E. and Sonesta International Hotels Limited.  (9)
10.13	Indenture of Lease, dated March 18, 2002, between ATC Realty, Inc. and Sonesta International Hotels International Hotels Corporation. (4)
10.14	Hotel Lease, dated December 12, 1967, between Chateau Louisiane, Inc., as "Landlord", and The Royal Orleans, Inc., as "Tenant".  (Filed herewith)
10.15	Hotel Lease-Amendment No. 1, dated November 26, 1973, between Chateau Louisiane, Inc. and Louisiana Sonesta Corporation.  (Filed herewith)
10.16	Hotel Lease-Amendment No. 2, dated September 1, 1977, between Chateau Louisiane, Inc. and Royal Sonesta, Inc.  (Filed herewith)
10.17	Restated Employment Agreement, dated January 1, 1992, between Sonesta and Roger P. Sonnabend, together with letter agreement regarding permanent and total disability. (1) (Management contract under Item 601(10)(iii)(A)).
10.18	Amendment to Restated Employment Agreement, dated May 16, 2005, between Sonesta and Roger P. Sonnabend. (8) (Management contract under Item 601(10)(iii)(A)).
10.19	Summary of Director compensation. (8) (Management contract under Item 601(10)(iii)(A)).
10.20	Promissory Note ($1,600,000), dated October 23, 2007, between 800 Canal Street Limited Partnership and Sonesta Louisiana Hotels Corporation.  (9)
10.21	Agreement of Limited Liability Limited Partnership of SBR-Fortune Associates, LLLP, dated as of January 17, 2005, between Fortune KB GP, LLC, General Partner, Fortune KB, LLC, Limited Partner, and Sonesta Beach Resort Limited Partnership, Limited Partner. (6)
10.22	First Amendment to partnership agreement of SBR – Fortune Associates, LLLP, dated as of January 17, 2005.  (6)
10.23	Second Amendment to partnership agreement of SBR - Fortune 199 - 203 Associates, LLLP, dated as of January 17, 2005.  (6)
10.24	Agreement of Merger, dated as of April 2005, by and among SBR-Fortune Associates, LLLP, a Florida limited liability limited partnership (“SBR”), Sonesta Beach Resort LLC, a Delaware limited liability company (the “Company”) and Sonesta Beach Resort Limited Partnership, a Delaware limited partnership (the “Sonesta”).  (7)
10.25	Interim Lease Agreement, dated as of April 19, 2005, by and between SBR-Fortune Associates, LLLP, a Florida limited liability limited partnership (“Landlord”), and Sonesta Beach Resort Limited Partnership, a Delaware limited partnership (“Tenant”).  (7)

18

NUMBER	DESCRIPTION
13	Annual Report to Security Holders for the calendar year ended December 31, 2008.  (Filed herewith)
21	Subsidiaries of the Registrant.  (Filed herewith)
23	Consent of Vitale, Caturano & Company, Ltd. (Filed herewith)
31 (a)	Certification required by Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.  (Filed herewith)
31 (b)	Certification required by Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.  (Filed herewith)
31 (c)	Certification required by Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.  (Filed herewith)
32	Certification required by 18 U.S.C. Section 1350.  (Furnished herewith)
99.1	Audited Financial Statements of SBR-Fortune Associates, LLLP, for the periods ended December 31, 2008 and 2007, pursuant to Rule 3-09 of Regulation S-X.  (Filed herewith)

(1) Incorporated by reference to the Company's 1992 Annual Report on Form 10-K (File No. 0-9032)

(2) Incorporated by reference to the Company’s 2000 Annual Report on Form 10-K (File No. 0-9032)

(3) Incorporated by reference to the Company’s 2001 Annual Report on Form 10-K (File No. 0-9032)

(4) Incorporated by reference to the Company’s 2002 Annual Report on Form 10-K (File No. 0-9032)

(5) Incorporated by reference to the Company’s 2003 Annual Report on Form 10-K (File No. 0-9032)

(6) Incorporated by reference to the Company’s 2004 Annual Report on Form 10-K (File No. 0-9032)

(7) Incorporated by reference to the Company’s Current Report on Form 8-K, filed on April 22, 2005 (File No. 0-9032).

(8) Incorporated by reference to the Company’s Current Report on Form 8-K, filed on May 17, 2005 (File No. 0-9032).

(9) Incorporated by reference to the Company’s 2007 Annual Report on Form 10-K (File No. 0-9032).

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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)

/s/ Boy van Riel	Date: March 23, 2009
Boy van Riel Vice President and Treasurer

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.

/s/ Boy van Riel	Date: March 23, 2009
Boy van Riel Vice President and Treasurer, (Principal Financial and Accounting Officer)

/s/ Peter J. Sonnabend	Date: March 23, 2009
Peter J. Sonnabend Executive Chairman of the Board, Director (Principal Executive Officer)

/s/ Stephanie Sonnabend	Date: March 23, 2009
Stephanie Sonnabend Chief Executive Officer and President, Director (Principal Executive Officer)

/s/ George S. Abrams	Date: March 23, 2009
George S. Abrams Director

/s/ Joseph L. Bower	Date: March 23, 2009
Joseph L. Bower Director

20

/s/ Charles J. Clark	Date: March 23, 2009
Charles J. Clark Director

/s/ Irma Mann	Date: March 23, 2009
Irma Mann Director

/s/ Stephen Sonnabend	Date: March 23, 2009
Stephen Sonnabend Director

/s/ Jean C. Tempel	Date: March 23, 2009
Jean C. Tempel Director

21

EX-3.2

Exhibit 3.2

BY-LAWS

OF

SONESTA INTERNATIONAL HOTELS CORPORATION

(Formerly Hotel Corporation of America)

EFFECTIVE AS OF APRIL 1, 1948

WITH ALL AMENDMENTS TO APRIL 03, 2008

Certified to be a true and correct copy

Peter J. Sonnabend, Secretary

1

BY-LAWS

of

SONESTA INTERNATIONAL HOTELS CORPORATION

ARTICLE I

Offices

Section 1. Principal Office. The location of the principal office of the Corporation shall be at 200 Clarendon Street, Boston, Massachusetts, or at such other place as the Board of Directors may from time to time prescribe.

Section 2. Other Offices. The Corporation may, in addition to its principal office, have offices at such other places, either within or without the State of New York, as the Board of Directors may from time to time appoint.

ARTICLE II

Meetings of Stockholders

Section 1. Annual Meeting. A meeting of all holders of stock of the Corporation entitled to vote shall be held in the month of May each year for the purpose of electing a Board of Directors and for the transaction of such other business as may properly come before the meeting. The meeting shall be called for such day, which shall not be a legal holiday, and for such hour as shall be fixed by the Board of Directors and set forth in the notice of the meeting.

Section 2. Special Meeting. Special meetings of stockholders, other than those regulated by statute, may be called at any time by the Board of Directors, and it shall be the duty of such Board to call such meeting forthwith whenever so requested in writing directed to the Chairman of the Board or the President by the holders of stock entitled to cast at least five percent (5%) of the votes of which the holders of all outstanding stock in the aggregate are entitled, which request shall state the purpose or purposes of the proposed meeting.

Section 3. Place of Meeting. Annual and special meetings of the stockholders shall be held at such place as the Board of Directors may by resolution from time to time determine.

Section 4. Notice of Meetings of Stockholders. A written or printed notice of every meeting of stockholders, signed by the President or a Vice President, or the Secretary or an Assistant Secretary, stating the purpose or purposes for which the meeting is called and the time when and the place within the State whereit is to be held, shall be served either personally or by mail, upon each stockholder of record entitled to vote at such meeting, and upon each stockholder of record, who by reason of any action proposed at such meeting would be entitled to have his stock appraised if such action were taken, not less than ten nor more than forty days before the meeting. If mailed, it shall be directed to a stockholder at his address as it appears on the stock-book unless he shall have filed with the Secretary of the Corporation a written request that notices intended for him be mailed to some other address, in which case it shall be mailed to the address designated in such request. No notice of any adjourned meeting need be given other than by announcement of the time and place of such adjournment at any meeting.

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Section 5. Quorum. Except as otherwise provided by law or in the certificate of incorporation, at all meetings of stockholders, the presence in person or by proxy of the holders of record of stock of the Corporation entitled to cast one-third of the votes to which the holders of all outstanding stock in the aggregate are entitled to cast for any item of business, shall be necessary to constitute a quorum for the transaction of such business. In the absence of a quorum, the holders of stock, present in person or by proxy, entitled to cast a majority of all votes which might be cast at such meeting by the stockholders present in person or by proxy, may adjourn the meeting from time to time, without further notice other than by announcement at the meeting, until the holders of the amount of stock requisite to constitute a quorum shall be present. At any such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called if a quorum had been then present.

In the event that the holders of any class of stock or any series of any class of stock are entitled to vote separately as a class with respect to the transaction of any business, the presence, in person or by proxy, of the holders of record of one-third of the outstanding stock of such class or series, as the case may be, shall be necessary to constitute a quorum of such class or series.

At any meeting for the election of Directors, the absence of a quorum of the Preferred Stock shall not prevent the election of the Directors to be elected by the holders of the Common Stock and the absence of a quorum of the Common Stock shall not prevent the election of the Directors to be elected by the holders of the Preferred Stock, and in the absence of such quorum, either of the Preferred Stock or of the Common Stock, a majority of the holders present, in person or by proxy, of the class of stock which lacks a quorum, shall have power to adjourn the meeting for the election of the Directors which they are entitled to elect, from time to time, without notice other than announcement at the meeting, until a quorum shall be present.

So long as any Preferred Stock remains outstanding, the two directors to be elected by the holders of Preferred Stock (and their successors) shall be designated as Preferred Stock directors and their places on the Board shall be designated as Preferred Stock directorships; the remaining directors (and their successors) shall be designated as Common Stock directors and their places on the Board shall be designated as Common Stock directorships.

Section 6. Order of Business. The order of business at each meeting of stockholders, unless otherwise directed by such meeting by majority vote, shall be determined by the presiding officer.

Section 7. Closing of Stock Transfer Books and Determination of Stockholders of Record. The Board of Directors may from time to time prescribe a period, not exceeding fifty days prior to the date of any meeting of stockholders or prior to the last date on which the consent or dissent of stockholders may be effectively expressed for any purpose without a meeting, or preceding the date fixed for the payment of any dividend, the making of any distribution, or the allotment of rights, or preceding the date when any change, conversion or exchange of capital stock shall go into effect, during which no transfer of stock on the books of the Corporation may be made; or in lieu of prohibiting the transfer of stock may fix a time not more than fifty days prior to the date of any meeting of stockholders or prior to the last date on which the consent or dissent of stockholders may be effectively expressed for any purpose without a meeting or preceding the date fixed for the payment of any dividend, the making of any distribution or the allotment of rights, or preceding the date when any change, conversion or exchange of capital stock shall go into effect, as the time as of which stockholders entitled to notice of and to vote at such a meeting or whose consent or dissent is required or may be expressed for any purpose as the case may be, shall be determined, or as the time for the determination of the stockholders entitled to receive any such dividend, distribution or rights or participate in such change, conversion or exchange of capital stock; and only such persons who are holders of record of voting stock at such time shall be entitled to notice of and to vote at such meeting or to express their consent or dissent as the case may be, and only stockholders of record at the time so fixed shall be entitled to receive such dividend, distribution or rights or participate in such change, conversion or exchange of capital stock.

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Section 8. Voting. (a) Except as otherwise provided by law or in the certificate of incorporation and subject to the provisions of the By-laws with respect to the closing of the transfer books and the fixing of a record date for the determination of stockholders entitled to vote, at each meeting of stockholders of the Corporation, the holders of record of stock entitled to vote shall be entitled to one vote for each share of such stock held by them respectively.

(b) Every stockholder entitled to vote may vote in person or by proxy. All proxies shall be in writing, signed by the stockholder or his duly authorized attorney, but no proxy shall be valid after the expiration of eleven months from the date of its execution unless the person executing it shall have specified therein its duration.

(c) No stock owned by the Corporation shall be voted, nor shall any stock so owned be counted in determining the number necessary to constitute a quorum or whether a quorum is present at any meeting.

(d) The vote for directors, and upon the demand of any stockholder, the vote upon any question before the meeting shall be by ballot; and except as otherwise provided by law or by the certificate of incorporation, or by these By-laws, all elections of directors shall be decided by a plurality of the votes cast and all other matters shall be decided by a majority of the votes cast.

Section 9. Inspectors. At each meeting of the stockholders, the polls shall be opened and closed, the proxies and ballots shall be received and be taken in charge, and all questions touching the qualification of voters, the validity of proxies, and the acceptance or rejection of votes shall be decided by two inspectors. Such inspectors shall be appointed by the Board of Directors before the meeting, or, if no such appointment shall have been made, then by the stockholders present at the meeting, by a per capita vote. If, for any reason, any of the inspectors appointed shall fail to attend, or refuse or be unable to serve, inspectors in place of any so failing to attend, or refusing or unable to serve, shall be appointed in like manner. Such inspectors, before entering upon the discharge of their duties, shall be sworn faithfully to execute the duties of inspectors at such meeting with

strict impartiality, and according to the best of their ability, and the oath so taken shall be subscribed by them.

ARTICLE III

Board of Directors

Section 1. Powers, Number and Term of Office. The property, business and affairs of the corporation shall be managed and controlled by a Board of Directors, nine in number, none of whom need be stockholders; provided, however, that within the limits prescribed in the certificate of incorporation, the number of directors may from time to time be increased, and the additional director or directors may be elected, or the number of directors may from time to time be decreased, in either case by resolution passed by the majority vote of the directors then in office or such number may be increased or decreased by amendment of these by-laws. The directors, except as otherwise provided in the certificate of incorporation or the by-laws, shall be elected by ballot at the annual meeting of the stockholders and shall continue in office until the next annual meeting of stockholders and until their respective successors shall have been elected and shall qualify, or until their death or until they shall resign or be removed in the manner provided in Section 2 of this Article.

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Section 2. Resignations and Removal. (a) Any director may resign at any time by giving written notice of such resignation to either the Board of Directors, the Chairman of the Board, the President, a Vice President, the Secretary or an Assistant Secretary of the Corporation. Unless otherwise specified therein, such resignation shall take effect upon receipt thereof by the Board of Directors or by any such officer.

(b) The stockholders may, at any meeting called for that purpose, remove any director for cause, by majority vote cast at said meeting, and may fill the vacancy created by any such removal; provided, however, that any director elected by a class vote, as provided in the certificate of incorporation, shall be removed, and his vacancy filled, only by vote of the stockholders of the class by which he was elected.

Section 3. Vacancies. Any vacancy occurring in the Board of Directors by reason of death, resignation, or inability to serve, or the failure of the stockholders to fill the vacancy caused by the removal of a director, or for any other cause, may be filled by a majority vote of the remaining directors, provided a quorum is present, at any special meeting called for that purpose or at any regular meeting of the Board of Directors. Any such vacancy may also be filled by the stockholders entitled to vote at any meeting held during the existence of such vacancy, provided that the notice of such meeting shall have mentioned such vacancy or expected vacancy. In the event that, because of a vacancy or vacancies, the remaining directors are insufficient in number to constitute a quorum, such vacancy or vacancies may be filled only by the stockholders entitled to vote at a special meeting which shall be called forthwith by the Board of Directors. If any vacancy shall occur by reason of the death, resignation or otherwise of a director elected by a class vote and if such vacancy is to be filled by vote of the stockholders, such vacancy shall be filled only by vote of the stockholders of such class. If the number of directors at any time authorized by the by-laws shall be increased by the stockholders by amendment of the certificate of incorporation or the by-laws, the additional directors authorized by such increase may be elected by vote of the stockholders at the meeting authorizing such increase, or if not so elected, such additional directors may be elected by unanimous vote of the directors then in office.

Section 4. Organization Meetings of the Board of Directors. After each annual election of Directors, the newly elected directors shall meet as soon as possible for the purpose of organization, the election and appointment of officers and the transaction of other business.

Section 5. Regular Meetings. Regular meetings of the Board of Directors shall be held at such time and place (within or outside the State of New York) as the Board of Directors shall from time to time designate, and the Board, in fixing the time and place for holding such regular meetings, may provide that no notice thereof, except for the first meeting held at such designated time and place, shall be necessary; provided, however, that a copy of every resolution of the Board of Directors fixing the time and place of such regular meetings shall be mailed to every director at least five days prior to the first meeting held in pursuance thereof.

Section 6. Special Meetings. Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board, the Chairman of the Executive Committee, the President, or by three or more of the Directors then in office. Special meetings of the Board of Directors shall be held at such place (within or outside the State of New York) as shall be specified in the notice of meeting.

5

Section 7. Notice of Meeting. The Secretary or an Assistant Secretary of the Corporation shall give notice to each director of each regular meeting unless notice thereof shall be dispensed with as provided in Section 5 of this Article, and of each Special Meeting, by mailing the same, postage prepaid, or by cabling, telegraphing or radioing the same at least five days before such meeting directed to him at his last known address as it appears on the records of the Corporation, or by personally telephoning or personal delivery of the same, not later than two days before the day of such meeting. Such notice shall state the time and place of the meeting.

Section 8. Quorum. The presence of a majority of the number of directors then authorized by the By-laws shall be necessary and sufficient to constitute a quorum for the transaction of business, but a majority of those present at any regular or special meeting, if there be less than a quorum, may adjourn the same from time to time without notice until a quorum be present. The act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise provided by law or by the certificate of incorporation or by the By-laws. Any one or more members of the Board or any Committee thereof may participate in a meeting of such Board or Committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting.

Section 9. Organization. At all meetings of the Board, the Chairman of the Board, or, in his absence, the Chairman of the Executive Committee, the President or a Vice President if he is a member of the Board, in that order, or, in the absence of each such officer, any director chosen by the Board, shall preside. The Secretary or an Assistant Secretary of the Corporation or, in the absence of the Secretary and Assistant Secretary, a person chosen by the meeting shall act as secretary thereof and shall keep a record of the proceedings of the meeting.

Section 10. Order of Business. The order of business at each meeting of the Board of Directors, unless otherwise directed by the affirmative vote of a majority of the members of such Board present at such meeting, shall be determined by the presiding officer.

Section 11. Compensation of Directors. The Board of Directors may determine the compensation to be paid to directors for their services, and, in addition, may provide for reimbursement of their expenses incident thereto. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity as a committee member, officer, agent or otherwise and receiving compensation therefor.

Section 12. Unanimous Written Consent. Any action by the Board or any Committee thereof may be taken without a meeting if the resolution and written consents thereto are signed by all members of the Board or Committee and are filed with the Record of the Meeting. Such consents shall be treated as a vote of the Board or Committee for all purposes.

6

ARTICLE IV

Executive and Other Committees

Section 1. Executive Committee. The Board of Directors, by resolution passed by a majority of the number of directors then authorized by the By-laws, may appoint an Executive Committee of not less than three and not more than seven directors, including the President, to serve at the pleasure of the Board, and may designate one of the members as Chairman of the Committee. The members of the Executive Committee shall hold office until the first meeting of the Board of Directors after the next annual meeting of stockholders and until their successors are elected or until they shall cease to be directors or until their death or until they shall resign or be removed in the manner provided in Section 4 of this Article.

Section 2. Powers. During the intervals between the meetings of the Board of Directors, the Executive Committee shall possess and may exercise all the powers of the Board of Directors in the management of the business, affairs and property of the Corporation, in all cases where specific directions shall not have been given by the Board of Directors, and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it. See Section 712(a) New York Business Corporation Law.

Section 3. Procedure. The Executive Committee shall, subject to any direction by the Board of Directors, fix its own rules of procedure and shall meet where and when provided by such rules. The presence of a majority of the members of the Executive Committee then in office shall be necessary to constitute a quorum and the act of a majority of the members, but not less than two, present at any meeting at which there is a quorum shall be the act of the Executive Committee. All action by the Executive Committee shall be recorded in a minute book and reported to the Board of Directors at the first regular meeting of the Board held following any such action, or at any special meeting if so requested.

Section 4. Resignation and Removal. Any member of the Executive Committee may resign at any time by giving written notice of such resignation to either the Board of Directors, the Chairman of the Board, the Chairman of the Executive Committee, the President, a Vice President, the Secretary or an Assistant Secretary. Unless otherwise specified therein, such resignation shall take effect upon receipt by the Board or by any such officer. Any member of the Executive Committee may be removed, either with or without cause, at any time by the affirmative vote of a majority of the number of directors then authorized by the By-laws at any meeting of the Board of Directors.

Section 5. Vacancies. If any vacancy shall occur in the Executive Committee by reason of death, resignation, removal, disqualification or otherwise, the remaining members, if not less than three, shall continue to act; and such vacancy or vacancies may be filled at any meeting of the Board of Directors by resolution passed by a majority of the number of directors then authorized by the By-laws.

Section 6. Other Committees. The Board of Directors, by the affirmative vote of the majority of the number of directors then authorized by the By-laws, may also appoint other standing committees and special committees for any lawful purpose or purposes. Such committees shall have such powers and duties as shall be specified in the respective resolutions of appointment.

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Section 7. Compensation. The Board of Directors may determine the compensation to be paid for their services to members of any committee authorized by these By-laws, and, in addition, may provide for reimbursement of their expenses incident thereto. Nothing herein contained shall be construed to preclude any committee member from serving the Corporation in any other capacity as a director, officer, agent or otherwise and receiving compensation therefor.

ARTICLE V

Officers

Section 1. Number. The officers of the Corporation shall consist of a Chairman of the Board, a Chairman of the Executive Committee, a President, one or more Vice Presidents (one of whom may be designated the Executive Vice President, if the Board of Directors shall so determine), a Treasurer, a Secretary, and such additional officers as may be elected or appointed in accordance with the provisions of Section 3 of this Article, and may include a Vice Chairman of the Board and/or a Chief Financial Officer (if the Board of Directors shall so determine). The same person may hold concurrently any two or more offices, except those of President and Vice President, but no officer shall sign any documents in more than one capacity. All such officers, in the exercise and discharge of their powers and duties, shall be subject to the control and direction of the Board of Directors and the Executive Committee.

Section 2. Election, Term of Office and Qualifications. Each officer specifically designated in Section 1 of this Article shall be chosen by the Board of Directors and shall hold his office until his successor shall have been duly chosen and qualified or until his death, resignation or removal. The Chairman of the Board, the Vice Chairman of the Board (if any), the Chairman of the Executive Committee and the President shall be and remain directors. No other officer need be a director.

Section 3. Subordinate Officers. The Board from time to time may elect or appoint other officers, including one or more Assistant Treasurers and one or more Assistant Secretaries, each of whom shall hold office for such period, have such authority and perform such duties as are provided in these By-laws, or as the Board from time to time may determine.

Section 4. Removal. All officers shall be subject to removal at any time, with or without cause, by the affirmative vote of a majority of the directors then in office.

Section 5. Resignations. Any officer may resign at any time by giving written notice thereof to either the Board of Directors, the Chairman of the Board or of the Executive Committee, the President, a Vice President, the Secretary, or an Assistant Secretary. Unless otherwise specified therein, such resignation shall take effect upon receipt thereof by the Board of Directors or such officer.

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Section 6. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled for the unexpired portion of the term in the manner prescribed by these By-laws for the regular election or appointment to such office.

Section 7. The Chairman of the Board. The Chairman of the Board shall preside at all meetings of the Board of Directors and at all stockholders' meetings, and shall perform such other and further duties as the Board of Directors may from time to time determine.

Section 8. The Chairman of the Executive Committee. The Chairman of the Executive Committee shall preside at all meetings of the Executive Committee and, in the absence of the Chairman of the Board and a Vice Chairman of the Board, shall preside at all meetings of the Board of Directors and at all stockholders' meetings, and shall perform such other and further duties as the Board of Directors may from time to time determine.

Section 9. The President. The President, in the absence of the Chairman of the Board, a Vice Chairman of the Board (is any) and the Chairman of the Executive Committee, shall preside at all meetings of stockholders and of the Board of Directors at which he is present. He shall have general charge of the property, business and affairs of the Corporation. He shall also do and perform such other duties as from time to time may be assigned to him by the Board of Directors.

Section 10. Vice President. Any Vice President, unless limited in his powers by the Board of Directors, may, in the absence or inability of the President to act, perform the duties and exercise the powers of the President and shall perform such other duties as the President or the Board of Directors shall prescribe.

Section 11. The Treasurer. The Treasurer shall have the custody and control of all of the funds and securities of the Corporation, except as otherwise provided by the Board of Directors, and shall be responsible for all monies and other property of the Corporation in his custody, and shall perform all duties incident to the office of Treasurer, and such other duties as may from time to time be assigned to him by the Board of Directors. He shall render to the Chairman of the Board, the Chairman of the Executive Committee, the President, the Chief Financial Officer (if any), and directors at all regular meetings of the Board of Directors or whenever any such officer or the Board of Directors may so require a full statement of the financial condition of the Corporation.

Section 12. Assistant Treasurers. Any Assistant Treasurer shall, in the absence or inability of the Treasurer to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as the President or the Board of Directors shall prescribe.

Section 13. The Secretary. The Secretary shall keep minutes of all proceedings of the Board of Directors and the Executive Committee and the minutes of all meetings of the stockholders and shall record all the votes of the stockholders, directors and members of the Executive Committee in books provided and kept for that purpose; he shall extend to the giving and serving of all notices for the Corporation; he shall have charge of the books and records of the Corporation; he shall have custody of the seal of the Corporation and shall affix the same to any instrument or document which requires the seal of the Corporation; and he shall perform all the duties incident to the office of Secretary and such other duties as may be assigned to him from time to time by the Board of Directors.

Section 14. Assistant Secretary. Any Assistant Secretary shall, in the absence or inability of the Secretary to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties as the President or the Board of Directors shall prescribe.

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Section 15. Salaries. The salaries of the officers shall from time to time be fixed by the Board of Directors. No officer, employee or agent shall be prevented from receiving a salary or other compensation by reason of the fact that he is also a director of the Corporation.

Section  16.  Surety  Bonds.  The  Board  of  Directors  may  require  any officer,  agent or employee of the Corporation to give security for the faithful performance of his duties.

Section 17. Honorary Chairman of the Board. In addition to the Officers hereinbefore provided for, the Board of Directors may appoint an Honorary Chairman of the Board, who shall have such duties and authority consistent with his title, as shall be assigned to him from time to time by the Board of Directors.

Section 18. Vice Chairman of the Board. The Vice Chairman of the Board shall, in the absence or inability of the Chairman of the Board to act, perform the duties and exercise the powers of the Chairman of the Board and shall perform such other duties as the Board of Directors shall prescribe.

Section 19. Chief Financial Officer. The Chief Financial Officer shall supervise the performance of the Treasurer's duties and be responsible for the financial affairs of the Corporation, and otherwise perform such duties as may from time to time be assigned to him by the Board of Directors.

ARTICLE VI

Reimbursement and Indemnification of Directors,

Officers and Employees

Section 1. Reimbursement. Each director, officer and employee of the Corporation shall be entitled to reimbursement for his reasonable expenses incurred in connection with his attention to the affairs of the Corporation, including attendance at meetings.

Section 2. (a) Indemnification. The Corporation shall indemnify any person made, or threatened to be made, a party to an action or proceeding, whether civil or criminal, including an action by or in the right of any corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, which any director or officer of the Corporation served in any capacity at the request of the Corporation (such requests to serve an employee benefit plan being further described in the Business Corporation Law of the State of New York), by reason of the fact that he, his testator or intestate, was a director or officer of the Corporation, or served such other corporation, partnership, joint venture, trust employee benefit plan or other enterprise in any capacity, against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees actually and necessarily incurred as a result of such action or proceeding, or any appeal thereof, if such director or officer acted, in good faith, for a purpose which he reasonably believed to be in, or, in the case of service for any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, not opposed to, the best interests of the Corporation and, in criminal actions or proceedings, in addition, had not reasonable cause to believe that his conduct was unlawful, such indemnification be made to the full extent permitted under the Business Corporation Law of the State of New York ("Business Corporation Law").

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(b) Expenses incurred in defending a civil or criminal action or proceeding may be paid by the Corporation in advance of the final disposition of such action or proceeding, subject to the provisions of the Business Corporation Law regarding the repayment of such advances where the person receiving such advancement or allowance is ultimately found not to be entitled to indemnification or, where indemnification is granted, to the extent the expenses so advanced by the Corporation or allowed by the court exceed the indemnification to which he is entitled.

(c) If, under this article, any expenses or other amounts are paid by way of indemnification, otherwise than by court order or action by the shareholders, the Corporation shall, not later than the next annual meeting of shareholders unless such meeting is held within three months from the date of such payment, and, in any event, within fifteen months from the date of such payment, mail to its shareholders of record at the time entitled to vote for the election of directors a statement specifying the persons paid, the amounts paid, and the nature and status at the time of such payment of the litigation or threatened litigation.

(d) Subject to limitations or restrictions described in the Business Corporation Law, the Corporation shall have the power to purchase and maintain insurance:

(1) To indemnify the Corporation for any obligation which it incurs as a result of the indemnification of directors and officers under the provisions of this article, and

(2) To indemnify directors and officers in instances in which they may be indemnified by the Corporation under the provisions of this article, and

(3) To indemnify directors and officers in instances in which they may not otherwise be indemnified by the Corporation under the provisions of this article provided the contract of insurance covering such directors and officers provides, in a manner acceptable to the superintendent of insurance of the State of New York, for a retention amount and for co insurance.

(e) The Corporation shall, within the time and to the persons provided in paragraph (c), above, mail a statement in respect of any insurance it has purchased or renewed under section (d) specifying the insurance carrier, date of the contract, cost of the insurance, corporate positions insured, and a statement explaining all sums, not previously reported in a statement to shareholders, paid under any indemnification insurance contract.

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ARTICLE VII

Capital Stock

Section 1. Certificates of Stock. Every stockholder of the Corporation shall be entitled to a certificate or certificates, signed by the President or a Vice President and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary and sealed with the seal of the Corporation, certifying the number and class of shares of the stock of the Corporation owned by him; provided, however, that where such certificates are signed by a transfer agent or a transfer clerk and by a registrar, the signature of any President, Vice President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary may be facsimile. In case any such officer who has signed or whose facsimile signature has been placed upon any such certificate shall have ceased to be such officer before such certificate is issued, such certificate may be issued by the Corporation with the same effect as if such officer had not ceased to be such at the date of its issue. The seal of the Corporation on the certificate may be a printed or engraved facsimile thereof. The certificates of shares of the stock of the Corporation, whether temporary or definitive, shall be in such form as shall be approved by the Board of Directors. The certificates for shares of stock shall be consecutively numbered and the names and addresses of all persons owning shares of capital stock of the corporation, with the number of shares owned by each and the date or dates of issue of the shares of stock held by each, shall be entered in books kept for that purpose by the proper officers or agents of the Corporation.

Section 2. Lost or Destroyed Certificates. Any person claiming that a certificate of stock has been lost or destroyed shall make an affidavit or affirmation of that fact, and shall, if required by the Board of Directors, advertise the same in such manner as the Board of Directors may require, and shall give the corporation and its transfer agents and registrars, if any, a bond of indemnity, in an amount and form approved by the Board of Directors and with one or more sureties satisfactory to the Board of Directors, to indemnify the Corporation and its transfer agents and registrars, if any, against any liability or expense which may be incurred by reason of the original certificate remaining outstanding; whereupon a new certificate may be issued of the same tenor and for the same number of shares as the one alleged to have been lost or destroyed; but always subject to the approval of the Board of Directors and, if required by the Board, a final order or decree of a court of competent jurisdiction adjudicating the right of any such person to receive a new certificate shall be obtained by such person. A new certificate may be issued without requiring any bond when, in the judgment of the Board of Directors, it is proper so to do.

Section 3. Transfers of Shares of Stock. Shares of stock shall be transferable on the books of the Corporation by the holder of record thereof or by his attorney thereunto duly authorized but only upon the surrender and cancellation of the certificate or certificates therefor. Except in cases of lost or destroyed certificates, and in such cases only after conforming to the requirements of Section 2 of this Article, no new certificates shall be issued until the former certificates for the shares represented thereby shall have been surrendered and cancelled. The corporation, and its transfer agents or clerks and registrars, if any, shall be entitled to treat the owner of record of any share or shares of stock as the owner in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in, such share or shares on the part of any other person, whether or not it has actual or other notice thereof, except as expressly provided by the laws of the State of New York.

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Section 4. Regulations. Subject to the provisions of this Article, the Board of Directors shall have the power and authority to make such regulations as it may deem expedient concerning the issue, transfer and registration of a stock.

Section 5. Transfer Agent and Registrar. The Board of Directors may appoint one or more transfer agents or one or more registrars, or both, and may require all certificates to bear the signature of either or both. The Corporation may, if so provided by the Board of Directors, act as its own transfer agent or registrar.

ARTICLE VIII

Dividends

Section 1. Dividends. Subject to the provision of the laws of the State of New York and the certificate of incorporation, the Board of Directors in its discretion from time to time may declare dividends upon the stock of the Corporation out of the surplus of the Corporation.

ARTICLE IX

Contracts, Instruments, Checks, etc.

Section 1. Execution of checks, drafts, etc. All checks, drafts, orders for the payment of money, notes or other evidence of indebtedness shall be signed by such officer or officers or other persons as the Board of Directors may from time to time designate.

Section 2. Loans. No loan shall be contracted on behalf of the Corporation and no negotiable paper shall be issued in its name unless authorized by the vote of the Board of Directors. When authorized by the Board of Directors so to do, any officer or agent of the Corporation may effect loans and advances at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual, and for such loans and advances may make, execute and deliver promissory notes, bonds or other certificates or evidences of indebtedness of the Corporation. Such authority may be general or confined to specific instances.

Section 3. Proxies. Proxies to vote with respect to shares of stock of other corporations owned by or standing in the name of this Corporation may be executed and delivered from time to time on behalf of this Corporation by the Chairman of the Board, the President or a Vice President and the Secretary or an Assistant Secretary of this Corporation or by any person or persons thereunto authorized by the Board of Directors.

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ARTICLE X

[Eliminated by approval of stockholders at Meeting held November 9, 2004]

.

ARTICLE XI

Notices and Waivers

Section 1. Notices. Unless otherwise in these By-laws provided, any notice required to be given under these By-laws may be given by mailing the same, postage prepaid, or by prepaid telegram, radiogram or cable, addressed to the person entitled thereto at his last known address as it appears on the books of the Corporation, unless such person shall have designated in writing some other address to which such notices are to be sent, in which case such notice shall be directed to him at the address so designated. Such notice shall be deemed to be given at the time of such mailing, telegraphing, radiographing or cabling.

Section 2. Waiver of Notice. Whenever under the provisions of any law or under the provisions of the certificate of incorporation or these By-laws, the Corporation or the Board of Directors or any committee thereof is authorized to take any action after notice to its stockholders or members or after the lapse of a prescribed period of time, such action may be taken without notice and without the lapse of any period of time, if at any time before or after such action be completed, such requirements be waived in writing (which shall include telegraphing, radioing and cabling) by the person or persons entitled to said notice or entitled to participate in the action to be taken or, in the case of a stockholder, by his attorney thereunto authorized.

ARTICLE XII

Miscellaneous

Section 1. The seal of the Corporation shall be circular in form, with the words "Sonesta International Hotels Corporation" in the circumference thereof and in the center of said seal the words "Incorporated in New York". Said seal shall be in the charge of the Secretary, to be used as directed by the Board of Directors so far as may be permitted by law, and shall be subject to change by the Board of Directors.

Section 2. Fiscal  Year.  The fiscal  year of the  Corporation  shall  begin and end on such dates as shall be determined by the Board of Directors.

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Section 3. Books of the Corporation. The books of the Corporation (except as otherwise at any time may be required by law) shall be kept at such place or places within or without the State of New York as the Board of Directors may from time to time determine.

Section 4. Inspection of Books. The Board of Directors may from time to time determine whether and to what extent and at what times and places, and under what conditions and regulations, the accounts and books of the Corporation, or any of them, shall be open to the inspection of the stockholders, and no stockholder shall have any right to inspect any document, book or account of the Corporation except as conferred by statute, unless authorized by resolution of the stockholders or the Board of Directors.

Section 5. Definitions. In these By-laws, the term "certificate of incorporation" shall mean the certificate of consolidation forming Hotel Corporation of America, as amended by any certificates filed pursuant to law, and the term "By-laws" shall mean these By-laws and any amendments thereof.

ARTICLE XIII

Amendments

The Board of Directors, by vote of a majority of the number of directors then authorized by the By-laws, shall have power to make, alter, amend and rescind any By-law or By-laws, and any By-laws made by the Board of Directors may be altered, amended or rescinded by the stockholders at any annual meeting or at any special meeting of stockholders, provided that notice of any proposed By-laws or the proposed alteration, amendment, or rescission be contained in the notice of the stockholders' meeting. The annual report to stockholders, or any proxy statement in connection with any annual meeting, shall include a concise statement of all changes in the By-laws made by the Board of Directors since the preceding annual meeting.

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EX-3.3

Exhibit 3.3

BY-LAWS

OF

SONESTA INTERNATIONAL HOTELS CORPORATION

(Formerly Hotel Corporation of America)

EFFECTIVE AS OF APRIL 1, 1948

WITH ALL AMENDMENTS TO MAY 10, 2007 APRIL 03, 2008

Certified to be a true and correct copy

Peter J. Sonnabend, Secretary

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BY-LAWS

of

SONESTA INTERNATIONAL HOTELS CORPORATION

ARTICLE I

Offices

Section 1. Principal Office. The location of the principal office of the Corporation shall be at 200 Clarendon Street, Boston, Massachusetts, or at such other place as the Board of Directors may from time to time prescribe.

Section 2. Other Offices. The Corporation may, in addition to its principal office, have offices at such other places, either within or without the State of New York, as the Board of Directors may from time to time appoint.

ARTICLE II

Meetings of Stockholders

Section 1. Annual Meeting. A meeting of all holders of stock of the Corporation entitled to vote shall be held in the month of May each year for the purpose of electing a Board of Directors and for the transaction of such other business as may properly come before the meeting. The meeting shall be called for such day, which shall not be a legal holiday, and for such hour as shall be fixed by the Board of Directors and set forth in the notice of the meeting.

Section 2. Special Meeting. Special meetings of stockholders, other than those regulated by statute, may be called at any time by the Board of Directors, and it shall be the duty of such Board to call such meeting forthwith whenever so requested in writing directed to the Chairman of the Board or the President by the holders of stock entitled to cast at least five percent (5%) of the votes of which the holders of all outstanding stock in the aggregate are entitled, which request shall state the purpose or purposes of the proposed meeting.

Section 3. Place of Meeting. Annual and special meetings of the stockholders shall be held at such place as the Board of Directors may by resolution from time to time determine.

Section 4. Notice of Meetings of Stockholders. A written or printed notice of every meeting of stockholders, signed by the President or a Vice President, or the Secretary or an Assistant Secretary, stating the purpose or purposes for which the meeting is called and the time when and the place within the State whereit is to be held, shall be served either personally or by mail, upon each stockholder of record entitled to vote at such meeting, and upon each stockholder of record, who by reason of any action proposed at such meeting would be entitled to have his stock appraised if such action were taken, not less than ten nor more than forty days before the meeting. If mailed, it shall be directed to a stockholder at his address as it appears on the stock-book unless he shall have filed with the Secretary of the Corporation a written request that notices intended for him be mailed to some other address, in which case it shall be mailed to the address designated in such request. No notice of any adjourned meeting need be given other than by announcement of the time and place of such adjournment at any meeting.

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Section 5. Quorum. Except as otherwise provided by law or in the certificate of incorporation, at all meetings of stockholders, the presence in person or by proxy of the holders of record of stock of the Corporation entitled to cast one-third of the votes to which the holders of all outstanding stock in the aggregate are entitled to cast for any item of business, shall be necessary to constitute a quorum for the transaction of such business. In the absence of a quorum, the holders of stock, present in person or by proxy, entitled to cast a majority of all votes which might be cast at such meeting by the stockholders present in person or by proxy, may adjourn the meeting from time to time, without further notice other than by announcement at the meeting, until the holders of the amount of stock requisite to constitute a quorum shall be present. At any such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called if a quorum had been then present.

In the event that the holders of any class of stock or any series of any class of stock are entitled to vote separately as a class with respect to the transaction of any business, the presence, in person or by proxy, of the holders of record of one-third of the outstanding stock of such class or series, as the case may be, shall be necessary to constitute a quorum of such class or series.

At any meeting for the election of Directors, the absence of a quorum of the Preferred Stock shall not prevent the election of the Directors to be elected by the holders of the Common Stock and the absence of a quorum of the Common Stock shall not prevent the election of the Directors to be elected by the holders of the Preferred Stock, and in the absence of such quorum, either of the Preferred Stock or of the Common Stock, a majority of the holders present, in person or by proxy, of the class of stock which lacks a quorum, shall have power to adjourn the meeting for the election of the Directors which they are entitled to elect, from time to time, without notice other than announcement at the meeting, until a quorum shall be present.

So long as any Preferred Stock remains outstanding, the two directors to be elected by the holders of Preferred Stock (and their successors) shall be designated as Preferred Stock directors and their places on the Board shall be designated as Preferred Stock directorships; the remaining directors (and their successors) shall be designated as Common Stock directors and their places on the Board shall be designated as Common Stock directorships.

Section 6. Order of Business. The order of business at each meeting of stockholders, unless otherwise directed by such meeting by majority vote, shall be determined by the presiding officer.

Section 7. Closing of Stock Transfer Books and Determination of Stockholders of Record. The Board of Directors may from time to time prescribe a period, not exceeding fifty days prior to the date of any meeting of stockholders or prior to the last date on which the consent or dissent of stockholders may be effectively expressed for any purpose without a meeting, or preceding the date fixed for the payment of any dividend, the making of any distribution, or the allotment of rights, or preceding the date when any change, conversion or exchange of capital stock shall go into effect, during which no transfer of stock on the books of the Corporation may be made; or in lieu of prohibiting the transfer of stock may fix a time not more than fifty days prior to the date of any meeting of stockholders or prior to the last date on which the consent or dissent of stockholders may be effectively expressed for any purpose without a meeting or preceding the date fixed for the payment of any dividend, the making of any distribution or the allotment of rights, or preceding the date when any change, conversion or exchange of capital stock shall go into effect, as the time as of which stockholders entitled to notice of and to vote at such a meeting or whose consent or dissent is required or may be expressed for any purpose as the case may be, shall be determined, or as the time for the determination of the stockholders entitled to receive any such dividend, distribution or rights or participate in such change, conversion or exchange of capital stock; and only such persons who are holders of record of voting stock at such time shall be entitled to notice of and to vote at such meeting or to express their consent or dissent as the case may be, and only stockholders of record at the time so fixed shall be entitled to receive such dividend, distribution or rights or participate in such change, conversion or exchange of capital stock.

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Section 8. Voting. (a) Except as otherwise provided by law or in the certificate of incorporation and subject to the provisions of the By-laws with respect to the closing of the transfer books and the fixing of a record date for the determination of stockholders entitled to vote, at each meeting of stockholders of the Corporation, the holders of record of stock entitled to vote shall be entitled to one vote for each share of such stock held by them respectively.

(b) Every stockholder entitled to vote may vote in person or by proxy. All proxies shall be in writing, signed by the stockholder or his duly authorized attorney, but no proxy shall be valid after the expiration of eleven months from the date of its execution unless the person executing it shall have specified therein its duration.

(c) No stock owned by the Corporation shall be voted, nor shall any stock so owned be counted in determining the number necessary to constitute a quorum or whether a quorum is present at any meeting.

(d) The vote for directors, and upon the demand of any stockholder, the vote upon any question before the meeting shall be by ballot; and except as otherwise provided by law or by the certificate of incorporation, or by these By-laws, all elections of directors shall be decided by a plurality of the votes cast and all other matters shall be decided by a majority of the votes cast.

Section 9. Inspectors. At each meeting of the stockholders, the polls shall be opened and closed, the proxies and ballots shall be received and be taken in charge, and all questions touching the qualification of voters, the validity of proxies, and the acceptance or rejection of votes shall be decided by two inspectors. Such inspectors shall be appointed by the Board of Directors before the meeting, or, if no such appointment shall have been made, then by the stockholders present at the meeting, by a per capita vote. If, for any reason, any of the inspectors appointed shall fail to attend, or refuse or be unable to serve, inspectors in place of any so failing to attend, or refusing or unable to serve, shall be appointed in like manner. Such inspectors, before entering upon the discharge of their duties, shall be sworn faithfully to execute the duties of inspectors at such meeting with

strict impartiality, and according to the best of their ability, and the oath so taken shall be subscribed by them.

ARTICLE III

Board of Directors

Section 1. Powers, Number and Term of Office. The property, business and affairs of the corporation shall be managed and controlled by a Board of Directors, ten nine in number, none of whom need be stockholders; provided, however, that within the limits prescribed in the certificate of incorporation, the number of directors may from time to time be increased, and the additional director or directors may be elected, or the number of directors may from time to time be decreased, in either case by resolution passed by the majority vote of the directors then in office or such number may be increased or decreased by amendment of these by-laws. The directors, except as otherwise provided in the certificate of incorporation or the by-laws, shall be elected by ballot at the annual meeting of the stockholders and shall continue in office until the next annual meeting of stockholders and until their respective successors shall have been elected and shall qualify, or until their death or until they shall resign or be removed in the manner provided in Section 2 of this Article.

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Section 2. Resignations and Removal. (a) Any director may resign at any time by giving written notice of such resignation to either the Board of Directors, the Chairman of the Board, the President, a Vice President, the Secretary or an Assistant Secretary of the Corporation. Unless otherwise specified therein, such resignation shall take effect upon receipt thereof by the Board of Directors or by any such officer.

(b) The stockholders may, at any meeting called for that purpose, remove any director for cause, by majority vote cast at said meeting, and may fill the vacancy created by any such removal; provided, however, that any director elected by a class vote, as provided in the certificate of incorporation, shall be removed, and his vacancy filled, only by vote of the stockholders of the class by which he was elected.

Section 3. Vacancies. Any vacancy occurring in the Board of Directors by reason of death, resignation, or inability to serve, or the failure of the stockholders to fill the vacancy caused by the removal of a director, or for any other cause, may be filled by a majority vote of the remaining directors, provided a quorum is present, at any special meeting called for that purpose or at any regular meeting of the Board of Directors. Any such vacancy may also be filled by the stockholders entitled to vote at any meeting held during the existence of such vacancy, provided that the notice of such meeting shall have mentioned such vacancy or expected vacancy. In the event that, because of a vacancy or vacancies, the remaining directors are insufficient in number to constitute a quorum, such vacancy or vacancies may be filled only by the stockholders entitled to vote at a special meeting which shall be called forthwith by the Board of Directors. If any vacancy shall occur by reason of the death, resignation or otherwise of a director elected by a class vote and if such vacancy is to be filled by vote of the stockholders, such vacancy shall be filled only by vote of the stockholders of such class. If the number of directors at any time authorized by the by-laws shall be increased by the stockholders by amendment of the certificate of incorporation or the by-laws, the additional directors authorized by such increase may be elected by vote of the stockholders at the meeting authorizing such increase, or if not so elected, such additional directors may be elected by unanimous vote of the directors then in office.

Section 4. Organization Meetings of the Board of Directors. After each annual election of Directors, the newly elected directors shall meet as soon as possible for the purpose of organization, the election and appointment of officers and the transaction of other business.

Section 5. Regular Meetings. Regular meetings of the Board of Directors shall be held at such time and place (within or outside the State of New York) as the Board of Directors shall from time to time designate, and the Board, in fixing the time and place for holding such regular meetings, may provide that no notice thereof, except for the first meeting held at such designated time and place, shall be necessary; provided, however, that a copy of every resolution of the Board of Directors fixing the time and place of such regular meetings shall be mailed to every director at least five days prior to the first meeting held in pursuance thereof.

Section 6. Special Meetings. Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board, the Chairman of the Executive Committee, the President, or by three or more of the Directors then in office. Special meetings of the Board of Directors shall be held at such place (within or outside the State of New York) as shall be specified in the notice of meeting.

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Section 7. Notice of Meeting. The Secretary or an Assistant Secretary of the Corporation shall give notice to each director of each regular meeting unless notice thereof shall be dispensed with as provided in Section 5 of this Article, and of each Special Meeting, by mailing the same, postage prepaid, or by cabling, telegraphing or radioing the same at least five days before such meeting directed to him at his last known address as it appears on the records of the Corporation, or by personally telephoning or personal delivery of the same, not later than two days before the day of such meeting. Such notice shall state the time and place of the meeting.

Section 8. Quorum. The presence of a majority of the number of directors then authorized by the By-laws shall be necessary and sufficient to constitute a quorum for the transaction of business, but a majority of those present at any regular or special meeting, if there be less than a quorum, may adjourn the same from time to time without notice until a quorum be present. The act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise provided by law or by the certificate of incorporation or by the By-laws. Any one or more members of the Board or any Committee thereof may participate in a meeting of such Board or Committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting.

Section 9. Organization. At all meetings of the Board, the Chairman of the Board, or, in his absence, the Chairman of the Executive Committee, the President or a Vice President if he is a member of the Board, in that order, or, in the absence of each such officer, any director chosen by the Board, shall preside. The Secretary or an Assistant Secretary of the Corporation or, in the absence of the Secretary and Assistant Secretary, a person chosen by the meeting shall act as secretary thereof and shall keep a record of the proceedings of the meeting.

Section 10. Order of Business. The order of business at each meeting of the Board of Directors, unless otherwise directed by the affirmative vote of a majority of the members of such Board present at such meeting, shall be determined by the presiding officer.

Section 11. Compensation of Directors. The Board of Directors may determine the compensation to be paid to directors for their services, and, in addition, may provide for reimbursement of their expenses incident thereto. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity as a committee member, officer, agent or otherwise and receiving compensation therefor.

Section 12. Unanimous Written Consent. Any action by the Board or any Committee thereof may be taken without a meeting if the resolution and written consents thereto are signed by all members of the Board or Committee and are filed with the Record of the Meeting. Such consents shall be treated as a vote of the Board or Committee for all purposes.

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ARTICLE IV

Executive and Other Committees

Section 1. Executive Committee. The Board of Directors, by resolution passed by a majority of the number of directors then authorized by the By-laws, may appoint an Executive Committee of not less than three and not more than seven directors, including the President, to serve at the pleasure of the Board, and may designate one of the members as Chairman of the Committee. The members of the Executive Committee shall hold office until the first meeting of the Board of Directors after the next annual meeting of stockholders and until their successors are elected or until they shall cease to be directors or until their death or until they shall resign or be removed in the manner provided in Section 4 of this Article.

Section 2. Powers. During the intervals between the meetings of the Board of Directors, the Executive Committee shall possess and may exercise all the powers of the Board of Directors in the management of the business, affairs and property of the Corporation, in all cases where specific directions shall not have been given by the Board of Directors, and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it. See Section 712(a) New York Business Corporation Law.

Section 3. Procedure. The Executive Committee shall, subject to any direction by the Board of Directors, fix its own rules of procedure and shall meet where and when provided by such rules. The presence of a majority of the members of the Executive Committee then in office shall be necessary to constitute a quorum and the act of a majority of the members, but not less than two, present at any meeting at which there is a quorum shall be the act of the Executive Committee. All action by the Executive Committee shall be recorded in a minute book and reported to the Board of Directors at the first regular meeting of the Board held following any such action, or at any special meeting if so requested.

Section 4. Resignation and Removal. Any member of the Executive Committee may resign at any time by giving written notice of such resignation to either the Board of Directors, the Chairman of the Board, the Chairman of the Executive Committee, the President, a Vice President, the Secretary or an Assistant Secretary. Unless otherwise specified therein, such resignation shall take effect upon receipt by the Board or by any such officer. Any member of the Executive Committee may be removed, either with or without cause, at any time by the affirmative vote of a majority of the number of directors then authorized by the By-laws at any meeting of the Board of Directors.

Section 5. Vacancies. If any vacancy shall occur in the Executive Committee by reason of death, resignation, removal, disqualification or otherwise, the remaining members, if not less than three, shall continue to act; and such vacancy or vacancies may be filled at any meeting of the Board of Directors by resolution passed by a majority of the number of directors then authorized by the By-laws.

Section 6. Other Committees. The Board of Directors, by the affirmative vote of the majority of the number of directors then authorized by the By-laws, may also appoint other standing committees and special committees for any lawful purpose or purposes. Such committees shall have such powers and duties as shall be specified in the respective resolutions of appointment.

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Section 7. Compensation. The Board of Directors may determine the compensation to be paid for their services to members of any committee authorized by these By-laws, and, in addition, may provide for reimbursement of their expenses incident thereto. Nothing herein contained shall be construed to preclude any committee member from serving the Corporation in any other capacity as a director, officer, agent or otherwise and receiving compensation therefor.

ARTICLE V

Officers

Section 1. Number. The officers of the Corporation shall consist of a Chairman of the Board, a Chairman of the Executive Committee, a President, one or more Vice Presidents (one of whom may be designated the Executive Vice President, if the Board of Directors shall so determine), a Treasurer, a Secretary, and such additional officers as may be elected or appointed in accordance with the provisions of Section 3 of this Article, and may include a Vice Chairman of the Board and/or a Chief Financial Officer (if the Board of Directors shall so determine). The same person may hold concurrently any two or more offices, except those of President and Vice President, but no officer shall sign any documents in more than one capacity. All such officers, in the exercise and discharge of their powers and duties, shall be subject to the control and direction of the Board of Directors and the Executive Committee.

Section 2. Election, Term of Office and Qualifications. Each officer specifically designated in Section 1 of this Article shall be chosen by the Board of Directors and shall hold his office until his successor shall have been duly chosen and qualified or until his death, resignation or removal. The Chairman of the Board, the Vice Chairman of the Board (if any), the Chairman of the Executive Committee and the President shall be and remain directors. No other officer need be a director.

Section 3. Subordinate Officers. The Board from time to time may elect or appoint other officers, including one or more Assistant Treasurers and one or more Assistant Secretaries, each of whom shall hold office for such period, have such authority and perform such duties as are provided in these By-laws, or as the Board from time to time may determine.

Section 4. Removal. All officers shall be subject to removal at any time, with or without cause, by the affirmative vote of a majority of the directors then in office.

Section 5. Resignations. Any officer may resign at any time by giving written notice thereof to either the Board of Directors, the Chairman of the Board or of the Executive Committee, the President, a Vice President, the Secretary, or an Assistant Secretary. Unless otherwise specified therein, such resignation shall take effect upon receipt thereof by the Board of Directors or such officer.

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Section 6. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled for the unexpired portion of the term in the manner prescribed by these By-laws for the regular election or appointment to such office.

Section 7. The Chairman of the Board. The Chairman of the Board shall preside at all meetings of the Board of Directors and at all stockholders' meetings, and shall perform such other and further duties as the Board of Directors may from time to time determine.

Section 8. The Chairman of the Executive Committee. The Chairman of the Executive Committee shall preside at all meetings of the Executive Committee and, in the absence of the Chairman of the Board and a Vice Chairman of the Board, shall preside at all meetings of the Board of Directors and at all stockholders' meetings, and shall perform such other and further duties as the Board of Directors may from time to time determine.

Section 9. The President. The President, in the absence of the Chairman of the Board, a Vice Chairman of the Board (is any) and the Chairman of the Executive Committee, shall preside at all meetings of stockholders and of the Board of Directors at which he is present. He shall have general charge of the property, business and affairs of the Corporation. He shall also do and perform such other duties as from time to time may be assigned to him by the Board of Directors.

Section 10. Vice President. Any Vice President, unless limited in his powers by the Board of Directors, may, in the absence or inability of the President to act, perform the duties and exercise the powers of the President and shall perform such other duties as the President or the Board of Directors shall prescribe.

Section 11. The Treasurer. The Treasurer shall have the custody and control of all of the funds and securities of the Corporation, except as otherwise provided by the Board of Directors, and shall be responsible for all monies and other property of the Corporation in his custody, and shall perform all duties incident to the office of Treasurer, and such other duties as may from time to time be assigned to him by the Board of Directors. He shall render to the Chairman of the Board, the Chairman of the Executive Committee, the President, the Chief Financial Officer (if any), and directors at all regular meetings of the Board of Directors or whenever any such officer or the Board of Directors may so require a full statement of the financial condition of the Corporation.

Section 12. Assistant Treasurers. Any Assistant Treasurer shall, in the absence or inability of the Treasurer to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as the President or the Board of Directors shall prescribe.

Section 13. The Secretary. The Secretary shall keep minutes of all proceedings of the Board of Directors and the Executive Committee and the minutes of all meetings of the stockholders and shall record all the votes of the stockholders, directors and members of the Executive Committee in books provided and kept for that purpose; he shall extend to the giving and serving of all notices for the Corporation; he shall have charge of the books and records of the Corporation; he shall have custody of the seal of the Corporation and shall affix the same to any instrument or document which requires the seal of the Corporation; and he shall perform all the duties incident to the office of Secretary and such other duties as may be assigned to him from time to time by the Board of Directors.

Section 14. Assistant Secretary. Any Assistant Secretary shall, in the absence or inability of the Secretary to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties as the President or the Board of Directors shall prescribe.

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Section 15. Salaries. The salaries of the officers shall from time to time be fixed by the Board of Directors. No officer, employee or agent shall be prevented from receiving a salary or other compensation by reason of the fact that he is also a director of the Corporation.

Section  16.  Surety  Bonds.  The  Board  of  Directors  may  require  any officer,  agent or employee of the Corporation to give security for the faithful performance of his duties.

Section 17. Honorary Chairman of the Board. In addition to the Officers hereinbefore provided for, the Board of Directors may appoint an Honorary Chairman of the Board, who shall have such duties and authority consistent with his title, as shall be assigned to him from time to time by the Board of Directors.

Section 18. Vice Chairman of the Board. The Vice Chairman of the Board shall, in the absence or inability of the Chairman of the Board to act, perform the duties and exercise the powers of the Chairman of the Board and shall perform such other duties as the Board of Directors shall prescribe.

Section 19. Chief Financial Officer. The Chief Financial Officer shall supervise the performance of the Treasurer's duties and be responsible for the financial affairs of the Corporation, and otherwise perform such duties as may from time to time be assigned to him by the Board of Directors.

ARTICLE VI

Reimbursement and Indemnification of Directors,

Officers and Employees

Section 1. Reimbursement. Each director, officer and employee of the Corporation shall be entitled to reimbursement for his reasonable expenses incurred in connection with his attention to the affairs of the Corporation, including attendance at meetings.

Section 2. (a) Indemnification. The Corporation shall indemnify any person made, or threatened to be made, a party to an action or proceeding, whether civil or criminal, including an action by or in the right of any corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, which any director or officer of the Corporation served in any capacity at the request of the Corporation (such requests to serve an employee benefit plan being further described in the Business Corporation Law of the State of New York), by reason of the fact that he, his testator or intestate, was a director or officer of the Corporation, or served such other corporation, partnership, joint venture, trust employee benefit plan or other enterprise in any capacity, against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees actually and necessarily incurred as a result of such action or proceeding, or any appeal thereof, if such director or officer acted, in good faith, for a purpose which he reasonably believed to be in, or, in the case of service for any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, not opposed to, the best interests of the Corporation and, in criminal actions or proceedings, in addition, had not reasonable cause to believe that his conduct was unlawful, such indemnification be made to the full extent permitted under the Business Corporation Law of the State of New York ("Business Corporation Law").

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(b) Expenses incurred in defending a civil or criminal action or proceeding may be paid by the Corporation in advance of the final disposition of such action or proceeding, subject to the provisions of the Business Corporation Law regarding the repayment of such advances where the person receiving such advancement or allowance is ultimately found not to be entitled to indemnification or, where indemnification is granted, to the extent the expenses so advanced by the Corporation or allowed by the court exceed the indemnification to which he is entitled.

(c) If, under this article, any expenses or other amounts are paid by way of indemnification, otherwise than by court order or action by the shareholders, the Corporation shall, not later than the next annual meeting of shareholders unless such meeting is held within three months from the date of such payment, and, in any event, within fifteen months from the date of such payment, mail to its shareholders of record at the time entitled to vote for the election of directors a statement specifying the persons paid, the amounts paid, and the nature and status at the time of such payment of the litigation or threatened litigation.

(d) Subject to limitations or restrictions described in the Business Corporation Law, the Corporation shall have the power to purchase and maintain insurance:

(1) To indemnify the Corporation for any obligation which it incurs as a result of the indemnification of directors and officers under the provisions of this article, and

(2) To indemnify directors and officers in instances in which they may be indemnified by the Corporation under the provisions of this article, and

(3) To indemnify directors and officers in instances in which they may not otherwise be indemnified by the Corporation under the provisions of this article provided the contract of insurance covering such directors and officers provides, in a manner acceptable to the superintendent of insurance of the State of New York, for a retention amount and for co insurance.

(e) The Corporation shall, within the time and to the persons provided in paragraph (c), above, mail a statement in respect of any insurance it has purchased or renewed under section (d) specifying the insurance carrier, date of the contract, cost of the insurance, corporate positions insured, and a statement explaining all sums, not previously reported in a statement to shareholders, paid under any indemnification insurance contract.

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ARTICLE VII

Capital Stock

Section 1. Certificates of Stock. Every stockholder of the Corporation shall be entitled to a certificate or certificates, signed by the President or a Vice President and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary and sealed with the seal of the Corporation, certifying the number and class of shares of the stock of the Corporation owned by him; provided, however, that where such certificates are signed by a transfer agent or a transfer clerk and by a registrar, the signature of any President, Vice President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary may be facsimile. In case any such officer who has signed or whose facsimile signature has been placed upon any such certificate shall have ceased to be such officer before such certificate is issued, such certificate may be issued by the Corporation with the same effect as if such officer had not ceased to be such at the date of its issue. The seal of the Corporation on the certificate may be a printed or engraved facsimile thereof. The certificates of shares of the stock of the Corporation, whether temporary or definitive, shall be in such form as shall be approved by the Board of Directors. The certificates for shares of stock shall be consecutively numbered and the names and addresses of all persons owning shares of capital stock of the corporation, with the number of shares owned by each and the date or dates of issue of the shares of stock held by each, shall be entered in books kept for that purpose by the proper officers or agents of the Corporation.

Section 2. Lost or Destroyed Certificates. Any person claiming that a certificate of stock has been lost or destroyed shall make an affidavit or affirmation of that fact, and shall, if required by the Board of Directors, advertise the same in such manner as the Board of Directors may require, and shall give the corporation and its transfer agents and registrars, if any, a bond of indemnity, in an amount and form approved by the Board of Directors and with one or more sureties satisfactory to the Board of Directors, to indemnify the Corporation and its transfer agents and registrars, if any, against any liability or expense which may be incurred by reason of the original certificate remaining outstanding; whereupon a new certificate may be issued of the same tenor and for the same number of shares as the one alleged to have been lost or destroyed; but always subject to the approval of the Board of Directors and, if required by the Board, a final order or decree of a court of competent jurisdiction adjudicating the right of any such person to receive a new certificate shall be obtained by such person. A new certificate may be issued without requiring any bond when, in the judgment of the Board of Directors, it is proper so to do.

Section 3. Transfers of Shares of Stock. Shares of stock shall be transferable on the books of the Corporation by the holder of record thereof or by his attorney thereunto duly authorized but only upon the surrender and cancellation of the certificate or certificates therefor. Except in cases of lost or destroyed certificates, and in such cases only after conforming to the requirements of Section 2 of this Article, no new certificates shall be issued until the former certificates for the shares represented thereby shall have been surrendered and cancelled. The corporation, and its transfer agents or clerks and registrars, if any, shall be entitled to treat the owner of record of any share or shares of stock as the owner in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in, such share or shares on the part of any other person, whether or not it has actual or other notice thereof, except as expressly provided by the laws of the State of New York.

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Section 4. Regulations. Subject to the provisions of this Article, the Board of Directors shall have the power and authority to make such regulations as it may deem expedient concerning the issue, transfer and registration of a stock.

Section 5. Transfer Agent and Registrar. The Board of Directors may appoint one or more transfer agents or one or more registrars, or both, and may require all certificates to bear the signature of either or both. The Corporation may, if so provided by the Board of Directors, act as its own transfer agent or registrar.

ARTICLE VIII

Dividends

Section 1. Dividends. Subject to the provision of the laws of the State of New York and the certificate of incorporation, the Board of Directors in its discretion from time to time may declare dividends upon the stock of the Corporation out of the surplus of the Corporation.

ARTICLE IX

Contracts, Instruments, Checks, etc.

Section 1. Execution of checks, drafts, etc. All checks, drafts, orders for the payment of money, notes or other evidence of indebtedness shall be signed by such officer or officers or other persons as the Board of Directors may from time to time designate.

Section 2. Loans. No loan shall be contracted on behalf of the Corporation and no negotiable paper shall be issued in its name unless authorized by the vote of the Board of Directors. When authorized by the Board of Directors so to do, any officer or agent of the Corporation may effect loans and advances at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual, and for such loans and advances may make, execute and deliver promissory notes, bonds or other certificates or evidences of indebtedness of the Corporation. Such authority may be general or confined to specific instances.

Section 3. Proxies. Proxies to vote with respect to shares of stock of other corporations owned by or standing in the name of this Corporation may be executed and delivered from time to time on behalf of this Corporation by the Chairman of the Board, the President or a Vice President and the Secretary or an Assistant Secretary of this Corporation or by any person or persons thereunto authorized by the Board of Directors.

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ARTICLE X

[Eliminated by approval of stockholders at Meeting held November 9, 2004]

.

ARTICLE XI

Notices and Waivers

Section 1. Notices. Unless otherwise in these By-laws provided, any notice required to be given under these By-laws may be given by mailing the same, postage prepaid, or by prepaid telegram, radiogram or cable, addressed to the person entitled thereto at his last known address as it appears on the books of the Corporation, unless such person shall have designated in writing some other address to which such notices are to be sent, in which case such notice shall be directed to him at the address so designated. Such notice shall be deemed to be given at the time of such mailing, telegraphing, radiographing or cabling.

Section 2. Waiver of Notice. Whenever under the provisions of any law or under the provisions of the certificate of incorporation or these By-laws, the Corporation or the Board of Directors or any committee thereof is authorized to take any action after notice to its stockholders or members or after the lapse of a prescribed period of time, such action may be taken without notice and without the lapse of any period of time, if at any time before or after such action be completed, such requirements be waived in writing (which shall include telegraphing, radioing and cabling) by the person or persons entitled to said notice or entitled to participate in the action to be taken or, in the case of a stockholder, by his attorney thereunto authorized.

ARTICLE XII

Miscellaneous

Section 1. The seal of the Corporation shall be circular in form, with the words "Sonesta International Hotels Corporation" in the circumference thereof and in the center of said seal the words "Incorporated in New York". Said seal shall be in the charge of the Secretary, to be used as directed by the Board of Directors so far as may be permitted by law, and shall be subject to change by the Board of Directors.

Section 2. Fiscal  Year.  The fiscal  year of the  Corporation  shall  begin and end on such dates as shall be determined by the Board of Directors.

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Section 3. Books of the Corporation. The books of the Corporation (except as otherwise at any time may be required by law) shall be kept at such place or places within or without the State of New York as the Board of Directors may from time to time determine.

Section 4. Inspection of Books. The Board of Directors may from time to time determine whether and to what extent and at what times and places, and under what conditions and regulations, the accounts and books of the Corporation, or any of them, shall be open to the inspection of the stockholders, and no stockholder shall have any right to inspect any document, book or account of the Corporation except as conferred by statute, unless authorized by resolution of the stockholders or the Board of Directors.

Section 5. Definitions. In these By-laws, the term "certificate of incorporation" shall mean the certificate of consolidation forming Hotel Corporation of America, as amended by any certificates filed pursuant to law, and the term "By-laws" shall mean these By-laws and any amendments thereof.

ARTICLE XIII

Amendments

The Board of Directors, by vote of a majority of the number of directors then authorized by the By-laws, shall have power to make, alter, amend and rescind any By-law or By-laws, and any By-laws made by the Board of Directors may be altered, amended or rescinded by the stockholders at any annual meeting or at any special meeting of stockholders, provided that notice of any proposed By-laws or the proposed alteration, amendment, or rescission be contained in the notice of the stockholders' meeting. The annual report to stockholders, or any proxy statement in connection with any annual meeting, shall include a concise statement of all changes in the By-laws made by the Board of Directors since the preceding annual meeting.

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EX-10.14

Exhibit 10.14

HOTEL  LEASE

Between

CHATEAU LOUISIANE, INC.

and

THE ROYAL ORLEANS, INC.

Dated

December 12, 1967

TABLE OF CONTENTS

Section		Page
1.	Use of Premises	3
2.	Basic Rent	3
3.	Percentage Rent and Net Profits	6
4.	Adjustments	10
5.	Options to Extend	10
6.	Net Rental	13
7.	Construction and Costs of Hotel and Furnishings	13
8.	Maintenance of Furnishings	16
9.	Taxes	16
10.	Apportionment upon Termination	17
11.	Tenant's Right to Contest	17
12.	Maintenance of Premises	17
13.	Indemnification of Landlord	19
14.	Assignment and Subletting	20
15.	Covenant of Quiet Possession	20
16.	Landlord May Inspect	20
17.	Parties Not Partners	20
18.	Remedies on Default	21
19.	Amendments	23
20.	Tenant Holding Over	23
21.	Fire and Other Insurance	23
22.	Damage or Destruction by Fire, etc.	24
23.	Condemnation	26
24.	Mortgages	26
25.	Alterations by Tenant	26
26.	Surrender on Termination	27
27.	Arbitration	27
28.	Successors and Assigns	27
29.	Notices	27
30.	Covenant to Perform	28
	Guaranty by Hotel Corporation of America	28

  LEASE BY CHATEAU LOUISIANE, INC.   IN FAVOR OF THE ROYAL ORLEANS, INC.     UNITED STATES OF AMERICA     STATE OF LOUISIANA     PARISH OF ORLEANS     CITY OF NEW ORLEANS  

BE IT KNOWN that on this 12th day of the month of December in the year one thousand, nine hundred and sixty-seven,

BEFORE ME, BARTHOLOMEW P. SULLIVAN, JR., a Notary Public, duly commissioned, qualified and sworn, within and for the Parish of Orleans, State of Louisiana, therein residing, and in the presence of the witnesses hereinafter named and undersigned:

PERSONALLY CAME AND APPEARED:

CHATEAU LOUISIANE, INC. (hereinafter called "Landlord"), a Louisiana corporation, herein represented by Lester E. Kabacoff, its duly authorized Vice President, herein appearing by virtue of resolution of the Directors of said Corporation duly adopted at a meeting held at the office of the Corporation at its domicile in the City of New Orleans, on the 7th day of December, 1967, a certified copy of which is hereunto annexed; and

THE ROYAL ORLEANS, INC. (hereinafter called "Tenant"), a Louisiana corporation, herein represented by James A. Nassikas, its duly authorized Vice President, therein appearing by virtue of resolution of the Directors of said Corporation duly adopted at a meeting held at an office of the Corporation in the City of New York, on the 21st day of November, 1967, a certified copy of which is hereunto annexed,

WHO DECLARED that the Landlord represents that it is the owner of the following described property, to-wit:

A certain piece or portion of ground, together with all of the improvements thereon, and all of the rights, ways, privileges, servitudes, advantages and appurtenances thereunto belonging or in anywise appertaining, situated in the Second Municipal District of the City of New Orleans, Louisiana, in Square 64, bounded by Bourbon, Conti, Royal and Bienville Streets, comprising the entire frontage of said Square 64 on Bourbon Street, and being composed of lots formerly designated as lots 1, 2, 16 and 88, another lot 2 and lot X, of a former alley fronting on Conti Street, and of ten unnumbered and undesignated lots, which piece or portion of ground, according to a survey of Adloe Orr, Jr. & Associates, dated April 13, 1962, recertified June 7, 1963, a print of which is annexed to an act passed before Ewell P. Walther, Jr., Notary Public, on June 10, 1963, measures 325 feet, 6 inches and 2 lines (325 feet, 11 inches and 5 lines, as per title) in frontage on Bourbon Street running from the corner of Bourbon and Bienville Streets to the corner of Bourbon and Conti Streets, thence 231 feet, 3 inches and 1 line in frontage on Conti Street running from said corner of Conti and Bourbon Streets in the direction of Royal Street, thence on a line parallel to Royal Street and running from said point on Conti Street in the direction of Bienville Street a first depth of 116 feet, 6 inches and 4 lines, thence narrowing on a line parallel to Conti Street and running from the direction of Royal Street in the direction of Bourbon Street 38 feet, 2 inches and 5 lines, thence on a line parallel to Royal Street and running from the direction of Conti Street a second depth of 208 feet, 9 inches and 7 lines to Bienville Street, thence from said point on Bienville Street 193 feet and 2 lines (192 feet, 3 inches and 3 lines, as per title) in frontage on Bienville Street to the corner of Bienville and Bourbon Streets, and which piece or portion of ground, according to a survey of Gandolfo, Kuhn & Associates, dated October 3, 1967, a print of which is hereunto annexed for reference, measures 325 feet, 8 inches and 2 lines in frontage on Bourbon Street running from the corner of Bourbon and Bienville Streets to the corner of Bourbon and Conti Streets, thence 230 feet, 8 inches and 7 lines in frontage on Conti Street running from said corner of Conti and Bourbon Streets in the direction of Royal Street, thence on a line parallel to Royal Street running from said point on Conti Street in the direction of Bienville Street a first depth of 116 feet, 8 inches and 6 lines, thence narrowing on a line parallel to Conti Street and running from the direction of Royal Street in the direction of Bourbon Street 38 feet, 2 inches and 5 lines, thence on a line parallel to Royal Street and running from the direction of Conti Street a second depth of 207 feet, 11 inches and 4 lines to Bienville Street, thence from said point on Bienville Street 192 feet, 4 inches and 3 lines in frontage on Bienville Street to the corner of Bienville and Bourbon Streets.  Being the same property acquired by Chateau Louisiane, Inc. from The French Quarter Corporation by act passed before the undersigned Notary Public of even date herewith.

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AND the said Appearers did further declare that the Landlord, for and in consideration of the rent reserved and of the covenants and agreements herein contained on the part of the Tenant to be kept, observed, and performed, has demised and leased, and by these presents does demise and lease unto the Tenant, for the term hereinafter stated, the above described property, together with the hotel to be constructed thereon as described in Exhibit A annexed hereto, the said property, including the said hotel, being herein referred to as the "demised premises".

TO HAVE AND TO HOLD the premises hereby demised unto the Tenant for a term of twenty-five years from the "Date of Commencement" as hereinafter defined. The Date of Commencement shall be the first day of the calendar month next succeeding the expiration of ninety days after completion of construction of the hotel as hereinafter set forth.

AND the said Appearers did further declare that their contract of lease with respect to the above described premises does read in words and figures as follows, to-wit:

1.             During the continuance of this lease, the demised premises may be occupied and used only for general hotel purposes and such other purposes as are normally and usually incident to such business. Tenant covenants and agrees that it will operate the demised premises during each day of this lease in a lawful manner as a first class hotel to be known under such name as shall be selected by Tenant with Landlord's approval which approval shall not be unreasonably withheld, abiding by all laws, rules and regulations applicable to the demised premises.

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2.           (a) Tenant shall pay to Landlord, at such place in the United States as Landlord may designate from time to time by notice to Tenant in writing, as rental for the demised premises, an annual net rental (hereinafter called the "Basic Rent"), computed nevertheless on a monthly basis in accordance with the provisions of subparagraph (b).  Basic Rent shall be payable in monthly installments in advance on the first day of each calendar month, commencing on the Date of Commencement, and the amount of Basic Rent payable for any fraction of a Calendar Month between the first day of the Calendar Month in which termination of this lease occurs and the date of such termination shall be a pro rata portion of the full amount of Basic Rent which would otherwise be payable for the full Calendar Month in which the date of termination occurs. As used in this lease, the term "lease year" means a calendar year commencing January 1 and wholly included within the term of this lease, and the term "fractional year" means that portion of a calendar year between the Date of Commencement and December 31 next following and that portion of a calendar year between January 1 of the year in which this lease terminates and the date of termination.

(b) Basic Rent shall be:

(i) for each of the first 180 calendar months of the term of this lease, $833.33; plus

(ii)           (A) for each calendar month from the Date of Commencement through the thirty-sixth full calendar month after the date of this lease, $9,333.33;

(B) for 143 calendar months commencing upon the expiration of the period described in (A) above, $16,500, followed by one payment in the amount of the then remaining interest and principal on the note or notes of Landlord in favor of The French Quarter Corporation of even date herewith in the aggregate initial principal amount of $1,600,000; plus

(iii) throughout the primary term of this lease, an amount equal to the principal and interest payments due by Landlord pursuant to its first mortgage indebtedness to The Equitable Life Assurance Society of the United States (hereinafter sometimes called "Equitable") attributable to the demised premises. The amount of rent due pursuant to this subparagraph (iii) shall be determined at the time of the advance of funds by Equitable following the Date of Commencement, and the indebtedness attributable to the demised premises shall be the difference between the principal amount of the mortgage note then executed by Landlord and Royal St. Louis, Inc., and the then unpaid principal balance of the note described in the Act of Mortgage by Royal St. Louis, Inc., to Equitable dated May 27, 1965, recorded in M.O.B. 2071, folio 666. The rent payable pursuant to this subparagraph (iii) shall be payable monthly beginning on the first day of the calendar month next succeeding the advance of funds by Equitable as described above, and each monthly payment shall consist of

(A) for each of the 180 months next succeeding such advance of funds by Equitable, an amount equal to one-twelfth (1/12) of eight and nine-tenths per cent (8.9 % ) of the first mortgage indebtedness attributable to the demised premises;

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(B) for each month during the remainder of the primary term, an amount equal to one-twelfth (1/12) of thirteen and eighty-four one-hundredths per cent (13.84%) of forty-four and nine-tenths per cent (44.9%) of the first mortgage indebtedness attributable to the demised premises.

Upon the expiration of the primary term, Tenant shall pay Landlord an amount equal to the product of the monthly rent pursuant to subpart (B) of this subparagraph (iii) times the difference between the number of months for which such rental has in fact been paid and 120. Landlord covenants that the amount of the first mortgage indebtedness attributable to the demised premises shall not be less than $12,000,000, and that the entire proceeds thereof shall have been used for the purposes set forth in Section 7 hereof, or to replace interim borrowings previously used for such purposes. In the event that the advance of funds by Equitable contemplated herein does not take place prior to April 1, 1970, then in lieu of the other payments required pursuant to this subparagraph (iii), Tenant shall pay Landlord monthly the sum of $83,840, and shall pay on April 1, 1970, the additional sum of $83,840 for each month from the Date of Commencement through the month of March, 1970;

(iv) for each of the first 60 calendar months of the term of this lease, an amount equal to one-twelfth of the annual interest and amortization payments required to be made by the Landlord in repayment of any borrowings by Landlord (other than borrowings described in the succeeding subparagraph (v) ) for any of the purposes set forth in Section 7 hereof, provided that the aggregate principal amount of such loans shall not exceed $1,500,000 and the annual rate of interest thereon shall not exceed 7-1/4%; plus

(v) for each calendar month of the term of this lease, an amount equal to eight and one-third tenths of one percent (.833-1/3%) of the total funds advanced to Landlord by Royal St. Louis, Inc. for any of the purposes set forth in Section 7 hereof prior to the Date of Commencement, whether such funds are advanced as contributions to the Landlord's capital or as loans; plus

(vi) in the event that Tenant's Net Profits during any lease year exceed 1.66 times Basic Rent for such lease year, then on the first day of May next succeeding such lease year and on May 1 of the next two years, Tenant shall pay additional Basic Rent of $116,666.67. Only three such payments of additional Basic Rent shall be required, but all three payments shall be due without regard to Tenant's Net Profits subsequent to the lease year during which such Net Profits exceeded 1.66 times Basic Rent.

The parties each agree, upon request from the other, to execute from time to time a written instrument setting forth the dollar amounts of rent as determined pursuant to the provisions of the foregoing subparagraphs (iii), (iv), and (v), in order that the same may be relied upon by any then existing or prospective creditor of either of them, and by any prospective successor to the interest of either of them. Anything in this lease to the contrary notwithstanding, the Basic Rent shall in no event be less than: $1,310,000.00 for the first year of the term of this lease; $1,396,000.00 for each of the next twelve years of the term of this lease; $1,198,000.00 for each of the next two years of the term of this lease; and $855,700.00 for each of the last ten years of the term of this lease; provided, however, that the provisions of this paragraph shall not apply in the event that the advance of funds by Equitable contemplated herein does not take place prior to April 1, 1970.

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3.              In addition to the Basic Rent, Tenant shall pay with respect to each lease year of the original twenty-five year term hereof, as additional rent, the Percentage Rent as herein defined and herein called "Percentage Rent".

(a)            Percentage Rent with respect to each lease year shall be a sum equal to 20% of the "Net Profits", (as hereinafter defined) derived by the Tenant from the operation of the demised premises for such lease year up to an amount equal to 1.66 times Basic Rent for such lease year, plus 40% of any Net Profits in excess of 1.66 times Basic Rent for such lease year. The payments provided for in this subparagraph (a) are subject to refunds and credits as set forth in subparagraphs (b) and (c).

(b)            If in any lease year, Tenant shall sustain a Net Loss, and if Tenant shall have paid any Percentage Rent with respect to the next preceding lease year, Tenant shall be entitled to a refund from Landlord in an amount equal to (i) the amount of such Net Loss or (ii) the Percentage Rent paid with respect to such next preceding lease year or (iii) the largest amount which, after giving effect to such refund, will not reduce the total of all prior payments on account of Percentage Rent since the commencement of the term of the lease below a sum equal to 20% of the aggregate Net Profit computed for the period from the commencement of the term to the end of the lease year in which said Net Loss occurred, whichever of (i), (ii) or (iii) is the smallest.

(c)            If in any lease year or years, Tenant shall sustain a Net Loss, then, to the extent that such Net Losses are not refunded as provided in subparagraph (b) above, the same shall be accumulated and carried forward as a credit against and deduction from Net Profits thereafter earned. No Percentage Rent shall be payable with respect to any subsequent Net Profits until the aggregate of such subsequent Net Profits exceeds the accumulated Net Losses carried forward. If the Landlord's interest in this sublease shall, by reason of foreclosure of any mortgage given by Landlord to The Equitable Life Assurance Society of the United States, pass to anyone other than Landlord, then thereafter, instead of refunding Net Losses as provided in subparagraph (b) above, the same shall be accumulated and carried forward and applied as a credit and deduction from Percentage Rent thereafter payable hereunder. Nothing in this or the preceding subparagraph shall give to the Tenant any right to a refund of or credit against the Basic Rent before the 90th day following the last day of such lease year; and not later than such 90th day the Tenant, in addition to such payment, shall furnish the Landlord with a report by independent public accountants, who may be the independent public accountants regularly retained by the Tenant setting forth (i) the Net Profit or Net Loss for the preceding lease year, (ii) any refund or credit claimed by Tenant under the provisions of subdivisions (b) and (c) above, and (iii) the amount of any Percentage Rent payable with respect to such lease year; which report shall be in such detail as will reasonably disclose the basis on which the determination was made.

Should this lease terminate before the end of any lease year, the Net Profit or Net Loss for such lease year to the date of such termination shall be determined in the manner hereinabove provided on a pro rata basis and the Percentage Rent or refund, if any, payable hereunder based on such determination for the period ending with such termination shall be paid within 90 days thereafter. Similarly, the Net Profit or Net Loss for the period from the Date of Commencement to the first day of January next succeeding shall be determined for such period on a pro rata basis, and the Percentage Rent, if any, with respect to such period shall be paid within 90 days after the expiration of such period. In the event that Tenant exercises its option to extend this lease at the conclusion of the primary term pursuant to the provisions of Section 5 (a) hereof, then a computation of Net Profit or Net Loss shall be made both for the fractional year (if any) at the conclusion of the primary term and for any fractional year at the beginning of the first extended term; and a similar computation shall be made with respect to any fractional year (s) arising at the expiration of one extended term and the commencement of the succeeding extended term, unless the same rental formula (as set forth in Section 5 (b) hereof) applies to both the term then expiring and the term then commencing.

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The Tenant shall furnish the Landlord with a balance sheet and statement of profit and loss of the Tenant and of Hotel Corporation of America, in each case certified by independent public accountants, such report to be furnished within 150 days after the end of the respective fiscal years of said corporations.

(e)            "Net Profit" and "Net Loss" for any lease year shall mean respectively the net earnings or net loss, as the case may be, derived by the Tenant from the operation of the demised premises for such lease year, after deducting from gross revenue for such lease year (i) all amounts (including Basic Rent but excluding Percentage Rent) payable by the Tenant which have accrued during such lease year pursuant to any of the terms and conditions of this lease and (ii) all other amounts paid or incurred during such lease year on account of costs and expenses relating to the operation of the demised premises and the hotel, including but not limited to any amounts incurred or accrued for pre-opening expenses (which shall be treated as having been incurred on the Date of Commencement), insurance premiums, repairs, replacements, maintenance, alterations, depreciation or amortization but without any deductions for taxes based on or measured by Tenant's income or for corporate franchise taxes or for interest.

All salaries, fees or compensation for services rendered exclusively for the benefit of the leased hotel shall be wholly deductible in determining "Net Profit" or "Net Loss". Should Tenant operate the demised premises in affiliation with other establishments, there may be included in the costs and expenses a share of the salaries, fees or compensation for services rendered for the benefit of the hotel and such other establishments and a pro-rata share of the costs and expenses of procurement, advertising, sales and central office expenses of the group, which share shall be a sum equal to 3% of Tenant's gross revenues from the demised premises. All travelling expenses of the Tenant or its executives or employees in connection with the operation of the hotel shall, however, be included in the costs and expenses.

There shall be taken into account in determining Net Profit or Net Loss for any lease year, any income adjustments (including refunds or credits in respect of amounts previously deducted in computing Net Profit or Net Loss) made in such lease year although applicable to income of a prior lease year. If any such income adjustments are made after the termination of the lease, they shall be accounted for as if made immediately prior to such termination.

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(f)             Tenant covenants and agrees that it will keep accurate books and records of all income, costs and expenses of the demised premises, including all income from sub-rentals by it in connection with the operation of the Hotel or incident thereto, in accordance with generally accepted principles of accounting customary in the hotel business; and not later than twenty working days after the end of each month a written report, which need not be audited, showing in reasonable detail the income and expenses for the month so ended shall be made and delivered to Landlord. Said reports shall be delivered and received subject to the annual reports by independent public accountants to be delivered pursuant to subparagraph (d) above.

Tenant agrees, upon request of Landlord in writing, to give Landlord's agents or any certified public accountant employed by Landlord access at all reasonable times during normal working hours to the books and records of Tenant in relation to its business at the demised premises and to permit Landlord's agents or such certified public accountant to examine and audit the same. Any such examination and/or audit shall be at the sole expense of Landlord provided that if such examination and/or audit by a certified public accountant employed by Landlord correctly results in a variance in Landlord's favor of 10% or more in the Percentage Rent theretofore submitted to Landlord by Tenant, then the cost of such examination and/or audit shall be borne by Tenant.

4.             Adjustments between Landlord and Tenant as of the Date of Commencement and as of the date of termination of this lease for taxes on any real or personal property, premiums on insurance policies, and other charges, expenses, rents, receipts and receivables shall be pro-rated. Such adjustments shall likewise be taken into account in determining the results of operations for the first and last years of the term for the purpose of calculating Percentage Rent.

5.             (a)  Tenant, if not in default in the performance of its obligations hereunder, shall have the option to extend the term of this lease for an additional period of ten years from the expiration of the original term; and if it shall have exercised said option, Tenant shall have an additional option to extend the term for an additional ten years from the expiration of the first ten year extension period; and if it shall have exercised said second option, Tenant shall have an additional option to extend the term for an additional ten years from the expiration of the second ten year extension period, but without any further option of extension. Should Tenant elect to exercise its option to extend the lease, it shall give Landlord written notice of such election not later than one year before the end of the original twenty-five year term, in the case of the first option, and not later than one year prior to the end of the first extended term in the case of the second option, and not later than one year prior to the end of the second extended term in the case of the third option.

(b)           Should Tenant exercise its first option to extend the term, then in lieu of the Basic Rent and Percentage Rent as above provided, there shall be payable with respect to each lease year during the first extended term either (i) a sum each year equal to 6631% of the Net Profits for such year but not less than $300,000.00 per an:- num (herein called Formula A) , or (ii) a sum each year equal to 75% of the Net Profits for such year but without any minimum annual rent (herein called Formula B). Not later than 18 months prior to the end of the original twenty-five year term, Landlord shall notify Tenant in writing whether it elects to have rental payments made during the first option period on the basis of Formula A or Formula B and such election shall be binding on Landlord and Tenant. If Landlord does not so notify Tenant within the period above provided, then the determination of whether Formula A or Formula B shall be applicable during the first extended period shall be made by Tenant in its notice of exercise of the first option to extend. Should Tenant exercise its second option to extend the term, then in lieu of Basic Rent and Percentage Rent as herein provided and in lieu of the rent which was payable during the first extended period, there shall be payable with respect to each lease year during the second extended term either Formula A or Formula B as hereinabove provided. Not later than 18 months prior to the end of the first extended term, Landlord shall notify Tenant in writing whether it elects to have rental payments made during the second option period on the basis of Formula A or Formula B and such election shall be binding on Landlord and Tenant. If Landlord does not so notify Tenant within the period above provided, then the determination of whether Formula A or Formula B shall be applicable during the second extended period shall be made by Tenant in its notice of exercise of the second option to extend. Should Tenant exercise its third option to extend the term, then in lieu of Basic Rent and Percentage Rent as herein provided and in lieu of the rent which was payable during the prior extended periods, there shall be payable with respect to each lease year during the third extended term either Formula A or Formula B as hereinabove provided. Not later than 18 months prior to the end of the second extended term, Landlord shall notify Tenant in writing whether it elects to have rental payments made during the third option period on the basis of Formula A or Formula B and such election shall be binding on Landlord and Tenant. If Landlord does not so notify Tenant within the period above provided, then the determination of whether Formula A or Formula B shall be applicable during the third extended period shall be made by Tenant in its notice of exercise of the third option to extend.

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(c)            Net Profits for Formula A or Formula B shall be computed and reports furnished in the same manner as provided in Section 3 hereof; provided, however, that (i) the sums payable to Landlord shall not constitute an expense for the purpose of computing Net Profits, (ii) the provisions of Sections 3 (b) and 3 (c) shall apply during the extended term (s) only during such periods when Formula A is in effect, and then only to the extent of any rent paid or payable in excess of the minimum payments required to be made by Tenant, and (iii) during the extended term (s), Tenant shall not, without Landlord's consent, which shall not be unreasonably withheld, in any one lease year expend more than Two (2% ) Per Cent of revenues for furniture and equipment and for structural repairs, alterations and remodeling of the demised premises.

In the event that this lease terminates during or following any 'extended term, and Tenant's expenditures for furnishings and equipment and for structural repairs, alterations and remodeling of the demised premises during the three (3) years immediately preceding such termination shall have been less than Two (2% ) Per cent of the revenues of the demised premises for such three (3) year period, then Tenant shall pay to Landlord, within 90 days following such termination, Twenty-five (25% ) Per Cent of the difference between the amounts so expended by Tenant and Two (2% ) Per Cent of such revenues.

6.              The rentals hereinbefore provided to be paid by Tenant hereunder, whether during the original or any extended term, shall be net to the Landlord; and in addition thereto, Tenant shall pay, as the same become due and payable, all expenses and other charges applicable to the demised premises, including taxes, assessments and other governmental charges, general and special, ordinary and extraordinary, of every kind and nature, which may be levied, assessed or imposed upon the demised premises or any improvements thereon, and charges of every character arising from the operation of the hotel and incidental operations on the demised premises; provided, however, that nothing herein contained shall be deemed to impose on Tenant any obligations with respect to any of Landlord's income taxes, corporate franchise taxes or inheritance taxes or any taxes which do not directly relate to the property or its operation.

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7.             (a)  Landlord agrees at its cost and expense to construct on the demised premises a first class hotel of approximately 489 rooms, as described in the construction contract passed by act before the undersigned Notary Public of even date herewith between Landlord and Henry C. Beck Company, and costing not more than $16,000,000. In the event that the total cost of construction is less than $16,000,000, Landlord shall pay the difference between the total cost of construction and $16,000,000 to Tenant, to the extent expended by Tenant, for the reimbursement of (i) Tenant's pre-opening expenses and (ii) Tenant's cost of stocking the hotel on the demised premises with consumable inventory. In the event that the total cost of construction is greater than $16,000,000, then Tenant shall pay such excess to Landlord, and shall be permitted to amortize any sum so paid over a period of the first ten lease years, together with interest at the rate of 6% per annum on the unamortized portion, such amortization and interest to be treated as an expense in the calculation of Net Profits in computing Percentage Rent. Payments made pursuant to the provisions of this paragraph shall be due on the Date of Commencement, or on such later date as statements therefor may be submitted.

Such costs of construction shall include only items which under generally accepted principles of accounting are properly includible in the costs of construction, including without limiting the generality of the foregoing, all sums paid or payable by Landlord pursuant to its agreement with The French Quarter Corporation dated September 21, 1967, as amended, with respect to the acquisition of the demised premises (other than (i) interest accruing subsequent to the Date of Commencement and (ii) payment of the debentures referred to in Exhibit N to said agreement) , the cost of furnishing and equipping the demised premises, the cost of interim financing, commitment fees of Equitable Life Assurance Society of the United States, soil testing, travel and entertainment expenses, auditing expense, promotional and public relations expense, preliminary drawings, brochures and photographs, legal expense, premiums on necessary bonds and, up to $24,000, any amounts becoming due to Lester E. Kabacoff for services in connection with the acquisition, leasing, financing, and construction of the demised premises prior to the Date of Commencement. Any expenses for the above-enumerated purposes which were expended prior to the execution of this lease shall be properly includible in costs of construction. Within six months after the Date of Commencement, Landlord shall furnish Tenant with a detailed written statement of such construction costs signed by a responsible officer of the Landlord.

Landlord agrees, upon request of Tenant in writing, to give Tenant's agents or any certified public accountant employed by Tenant access at all reasonable times to Landlord's books and records in relation to the costs of construction and to permit Tenant's agents and/or such certified public accountant to examine and/or audit the same. Any such examination and/or audit shall be at the sole expense of the Tenant provided that if such examination and/or audit by a certified public accountant employed by Tenant correctly results in a variance in Tenant's favor of 10% or more in the costs of construction theretofore submitted to Tenant by Landlord, then the cost of such examination and/or audit shall be borne by Landlord.

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(b)            Landlord agrees to commence the work of construction promptly upon the execution of this lease, and thereafter to continue such work of construction in a diligent and expeditious manner and complete the same not later than 427 days following the date of this lease (as extended for any of the causes enumerated in paragraph (e) of this Section 7), all in accordance with the plans and specifications aforesaid and the terms hereof.

(c)            The Landlord shall provide all furniture, appliances, linens, carpets, draperies, silverware, china, glassware, kitchen utensils, fixtures and movable equipment for the bars, kitchen, restaurants, butcher and bakery shops, pantries and other movable fixtures and equipment required for the operation of the hotel, (herein called "furnishings and equipment"), together with air conditioning, including refrigeration and kitchen air conditioning. The furnishings and equipment to be supplied and installed by Landlord shall be purchased by Landlord pursuant to the Specifications of Tenant; such specifications shall be subject to the approval of Landlord, which approval Landlord agrees not to unreasonably withhold.

(d)            Completion of construction for the purpose of fixing the Date of Commencement shall be deemed to occur on the date certified by the individual construction supervisor as the first day the hotel is furnished and available for occupancy and operation, provided all required governmental certificates and permits permitting occupancy shall have been obtained. The Tenant may occupy the demised premises from the time of completion to the Date of Commencement; such occupancy shall be on all the terms hereof except the payment of rent; provided, however, that if the Tenant commences to do business prior to the Date of Commencement, it shall pay a pro rata portion of the Basic Rent for the period it does business prior to the Date of Commencement.

(e)            Performance of the obligation of the Landlord to diligently construct the hotel and to provide the furnishings and equipment may be excused for the period or aggregate of periods during which the same is delayed by strikes, boycotts, weather, shortages of materials, supplies or labor, war, governmental restrictions, other cause or causes, or force majeure beyond the control of Landlord.

(f)             Landlord warrants that the hotel will be constructed in accordance with all applicable building and zoning laws and requirements of insurance underwriters. Acceptance by the Tenant of the demised premises shall not relieve Landlord of responsibility for faulty materials or workmanship and Landlord will remedy any defects due thereto and pay for any damage resulting therefrom which shall appear within a period of one year from the completion of construction; provided, however, that in the event of foreclosure under the mortgage to be granted by Landlord to The Equitable Life Assurance Society of the United States or in the event of a deed being executed to the holder of the Mortgage Note secured by said mortgage in lieu of foreclosure, the transferee of the property at foreclosure or under said deed shall be under no obligation to remedy such defects or pay for any damage resulting therefrom except to the extent that such defects shall be remedied, or damage resulting therefrom satisfied, out of insurance proceeds or from a recovery by said transferee from , any party other than Tenant. The provisions of this subparagraph (f) shall not be deemed waived or cancelled by any other provisions of this lease relating to the operation or maintenance of the demised premises or any indemnity or otherwise by the Tenant. Tenant shall be subrogated [to all] rights of warranty of Landlord against contractors and suppliers of the leased premises, and Landlord agrees to execute any instruments that may be required to evidence such subrogation.

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8.              Tenant shall at its own expense maintain all of the furnishings and equipment in first class condition, replacing the same when necessary for such purpose, (except where prevented from so doing by material or labor shortages, strikes, war restrictions or governmental restrictions), the cost whereof shall be deductible as an expense in computing Net Profit hereunder. All furnishings installed in the demised premises by Tenant, whether as replacements or additions, shall forthwith become the property of Landlord and a portion of the property leased to Tenant.

9.              During the term hereof, the Tenant covenants and agrees to pay and discharge or cause to be discharged, as additional rent reserved hereby, when the same may become due and payable, all taxes, including all charges for water and sewer rents, that may be assessed upon said demised premises or any part thereof, including furniture, furnishings, fixtures and equipment located therein, and any building or improvements at any time situated thereon, in respect of any period included within the term of this lease, whether the said taxes shall be levied, assessed or imposed for city, county, state or federal purposes, and also all special assessments for improvements which may hereafter be due and payable against said demised premises during the period aforesaid, and will from time to time exhibit to the Landlord on request evidence satisfactory to it of such payments within thirty days after the same shall have become due and payable, and in any event before the time when any penalty would attach for non-payment of the same.

10.            Upon termination of the lease there shall be an apportionment of all such taxes or assessments between Landlord and Tenant.

11.            The Tenant shall have the right (but not the obligation) in its own name or in the name of the Landlord, to contest or review by legal proceedings or in such other manner as it may deem suitable (which, if instituted, shall be conducted diligently) any such tax, assessment, or charges. The legal proceedings herein referred to may include appropriate appeals from any judgments, decrees or orders and certiorari proceedings and appeals from orders therein, but all such proceedings shall be begun without undue delay after the imposition or levying of any contested items and shall be prosecuted to final adjudication with due diligence. In the event of any reduction, cancellation or discharge, the Tenant shall pay the amount that shall be finally levied or assessed or adjudicated to be due and payable on any such item, and any refund shall belong to Tenant. If demanded by Landlord, provision shall be made by adequate bond or in other manner satisfactory to the Landlord for the payment of such claim or demand in the event the contest should prove unsuccessful, and for the protection of the Landlord and any mortgagee of the demised premises from all cost, loss, liability or damage resulting from any such contest and to assure the Landlord against tax sale or forfeiture.

12.            (a)  The Tenant will at all times keep and maintain the demised premises and all buildings and improvements at any time situated thereon in good rentable order and condition, reasonable wear and tear excepted, and shall take good care of the personal property used in connection with the operation thereof, renewing, repairing and supplementing the same as may be necessary in the proper conduct of the hotel (except where unavailable due to circumstances beyond the Tenant's control). Tenant shall at its own expense pay for all utilities furnished to the demised premises during the term of this lease as the same shall become due and payable.

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(b)            During each period of three lease years during the original term only of this lease, Tenant covenants to expend upon the demised premises, the building and fixtures therein, and the furniture, furnishings, equipment, trade fixtures and other chattel property of every kind, nature and description located and used in the conduct of the hotel business therein, for repairs, decoration and redecoration, replacements, renewals, alterations, additions, and/or improvements, whether by way of capital improvements or otherwise, not less than the sum of $600,000.00, inclusive both of such expenditures through direct labor on Tenant's payroll for carpenters, masons, electricians and other craftsmen and employees, and of such expenditures made through independent contractors or subcontractors, and/or also through the purchase and acquisition of materials and of any such chattel property and installation thereof. If the Tenant should be prevented or prohibited by government regulations or controls, unavoidable casualty, strike, civil commotion, war, or other force majeure from making such expenditures or any part thereof, then the period during which the Tenant is so prevented shall be added to the period during which such expenditure would otherwise by this provision be required to be made.

Each such three-year period is herein referred to as a Triennial Period. If at the end of any Triennial Period during the original term of this lease Tenant shall not so have expended the full amount of $600,000.00 as aforesaid, Tenant shall within 90 days thereafter deposit the deficiency with The Equitable Life Assurance Society of the United States, as escrow agent, who shall at any time during the term of this lease make the amounts so deposited available to Tenant to be applied by Tenant towards the cost of making structural repairs or alterations to the demised premises which Tenant may desire to make and upon the expiration of the term of this lease, any amounts not so applied shall be retained by Landlord as additional rent.

Should the original term of this lease terminate less than three years after the expiration of any Triennial Period, Tenant's obligation under this subdivision (b) shall be proportionately reduced.

(c)            The Tenant will neither commit nor permit waste upon the demised premises, and will use the buildings situated on the premises to maintain and operate a first class hotel, and shall not use or suffer or permit any person or party to use said premises or any buildings upon said premises for any use' or purpose in violation of the laws of Louisiana, or of the United States, or in violation of any lawful ordinance of the City of New Orleans, or in violation of any valid enactment or order of any duly constituted authority having jurisdiction over the same and will comply with all ordinances and orders in respect of the demised premises.

13.            (a)  Tenant covenants and agrees to protect, save and keep Landlord harmless and indemnified against and from, any loss, claims, penalties, costs, damages, expenses, or judgments arising from injury or damage to any person (including employees, subtenants, patrons and invitees of Tenant), or due to any failure of Tenant, its agents, employees or subtenants to keep, fulfill or perform any of the covenants, agreements, undertakings, obligations and conditions contained in this lease on the part of Tenant to be kept, fulfilled and performed, or due to any use, occupancy, management, operation or possession by the Tenant of the demised premises.

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During the term of this lease and any extension thereof, Landlord shall be held harmless by Tenant from any and all liability or claims for damages to any person or property arising from the operation of or in or upon the demised premises or the sidewalks immediately adjoining the same, including Tenant's agents, invitees, employees, and its and their property; and Tenant agrees to pay any and all attorneys' fees, costs, expenses, losses and damages that Landlord may incur because of the failure, if any, of Tenant to fulfill the covenants and agreements set out herein.

(b)            Tenant shall, during the term of this lease and any extension thereof, keep in full force and effect a policy or policies of public liability and elevator liability insurance with respect to the demised premises and the business therein operated by Tenant in which both Landlord and Tenant shall be named as parties covered thereby and in which the limits of the liability shall not be less than $200,000.00 for one person and $1,000,000.00 for more than one person in any single accident, and not less than $300,000.00 for property damage. Tenant shall also maintain Workmen's Compensation Insurance in such amount as is usually carried by persons engaged in the same or similar business.

14.            Neither this lease nor the term hereby demised nor any part thereof shall at any time be assigned or transferred by the Tenant without the prior written consent of the Landlord which the Landlord agrees not to unreasonably withhold, nor without such consent shall the same be encumbered or mortgaged by the Tenant, which consent the Landlord agrees not to unreasonably withhold; provided, however, that without the consent of Landlord, the Tenant may assign this lease to any corporation with which the Tenant may hereafter merge or consolidate, or to any corporation the majority of whose outstanding voting stock is owned or controlled by the Tenant, if such assignee shall assume in writing, all of the terms and provisions of this lease. The Tenant may, however, sublet any room or rooms in the hotel and may also sublet the stores and other space in the buildings not used for hotel purposes, but shall not otherwise make any sub-lease without the Landlord's consent which Landlord agrees not to unreasonably withhold. Notwithstanding anything contained in this paragraph, the right of the Tenant to assign or sublet is expressly subject to the condition that in any and all such events, the Tenant and Hotel Corporation of America as guarantor shall continue to remain liable upon all of the terms and provisions of this lease, including the provisions for the payment of rent and for the other payments provided for herein. No sub-lease shall be made for a term extending beyond the expiration of the term of this lease and any extension thereof.

15.            The Landlord covenants and agrees with the Tenant that it has full power and authority to make this lease and that upon the Tenant's paying said rent, and performing all the covenants and conditions aforesaid on the Tenant's part to be observed and performed, the Tenant shall and may peaceably and quietly have, hold and enjoy the premises hereby demised, for the term aforesaid.

16             Landlord and Landlord's mortgagee shall have the right to enter upon the demised premises at all reasonable times during normal business hours for the purpose of inspection.

17.            It is understood that the parties hereto are neither partners nor engaged in a joint undertaking; that neither party has any authority to act for or in behalf of the other and that they are distinct entities in every way; and that the relationship hereby created is solely that of Landlord and Tenant.

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18.            (1)  In case default be made by Tenant at any time in the due payment of any installment of Basic Rent or in the due payment of any Percentage Rent or other sum payable by Tenant to Landlord under the provisions hereof, and such default shall continue for a period of thirty days, or (2) a petition for voluntary or involuntary bankruptcy or for a respite or for the appointment of a receiver or syndic or for a reorganization shall be filed by or with respect to Tenant and not dismissed within 60 days following the filing thereof, or (3) there shall be a default by The Royal Orleans, Inc. pursuant to its lease from Royal St. Louis, Inc. dated October 14, 1957, (as amended and as the same may hereafter be amended) the result of which default is to permit Royal St. Louis, Inc. to enforce the remedies specified in Section 18 of said agreement and Royal St. Louis, Inc., does in fact terminate said lease, or (4) if default shall be made by Tenant in the due observance and performance of any other covenant, condition, or stipulation herein agreed by Tenant to be by it observed or performed, and such default shall continue for a period of thirty days after written notice by Landlord to Tenant detailing the particulars of such default and requiring it to make good any such last mentioned default, then and in any such event described in (1), (2), (3), or (4) hereinabove, Landlord at any time thereafter shall have the full right, at its election, upon giving thirty days written notice of such election, and provided Tenant is still in default at the end of such thirty day period, to enter in, into and upon the demised premises and take possession of the same together with all buildings and improvements thereon, and from the time of such entry this lease shall become void and of no effect, and Landlord may enter upon, take possession, hold and retain the said premises and all buildings and improvements thereon as of its first or former estate, and this lease shall be forfeited to Landlord, and Landlord may bring suit for and collect all the rents, taxes, assessments, charges, liens, penalties and damages, including damages to Landlord by reason of such breach or default on the part of Tenant which shall have accrued up to the time of such entry, or the Landlord may, if it elects so to do, with or without entering the premises, re-lease the same upon the best terms and conditions which it may be able to procure, and Tenant shall be obligated to pay Landlord all damages which it may sustain by reason of Tenant's default, including the difference between the rents obtainable upon a re-lease and the rents herein provided for, together with reasonable attorneys' fees and other costs. If the Landlord does not re-lease the premises, or if the Landlord does relet and deficiencies accrue or arise, it may demand and sue for the rent payable under this lease as the same accrues from time to time and at one or more times, together with reasonable attorneys' fees and other costs. The foregoing provisions are cumulative and without prejudice to any remedy which might otherwise be had under the law of Louisiana for arrears of rent or breaches of covenant, or any lien to which the Landlord may be entitled. Provided, however, that any mortgagee of any interest under this lease, or any trustee under any mortgage or deed of trust of any interest under this lease, may avoid forfeiture of this lease as herein provided by satisfying and curing, prior to the expiration of the applicable period of grace aforesaid at the termination of which the right of forfeiture may be exercised by the Landlord, the default consequent whereon such right of forfeiture shall accrue.

Such default, if of a character which cannot be satisfied or cured within the period of grace provided therefor, shall be deemed satisfied or cured within such period if, within such period, Tenant commences to cure or satisfy the same and continues the same with due diligence and expedition until such default is satisfied or cured.

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In the event of a dispute between Landlord and Tenant as to whether or not Tenant is in default in the due observance or performance of any covenant, condition or stipulation herein agreed by Tenant to be by it observed or performed, or in the due payment of any sum payable by Tenant to Landlord under the provisions hereof, either party may apply for arbitration of such dispute in the manner hereinafter provided.

Nothing herein contained shall be construed to prevent Tenant from contesting any action which it believes to be illegal, and pending the final outcome of such action, Tenant shall not be considered in default hereunder. If demanded by Landlord, provision shall be made by adequate bond or in other manner satisfactory to the Landlord for the payment of such claim or demand in the event the contest should prove unsuccessful, and for the protection of the Landlord from all costs, loss, liability or damage resulting from any such contest.

19.            No alteration, change, amendment or modification of any kind or character shall be made in the terms, conditions, covenants and agreements contained herein, except by an instrument and in writing executed by both parties.

20.            If Tenant remains in possession of the demised premises after the expiration of this lease or any extension thereof and without the execution of a new lease, it shall be deemed to be occupying said premises as a Tenant from month to month subject to all of the conditions, provisions and obligations of this lease so far as the same are applicable to a month to month tenancy.

21.            Tenant shall at all times maintain fire and extended coverage insurance in approved insurance companies, licensed to do business in Louisiana, on the hotel building, furnishings, and equipment in an amount equal to the full replacement value thereof and also as required by the terms of any mortgage to which this lease is subject, provided, however, that Tenant shall not be required to insure in any amounts in the aggregate exceeding the full replacement value of the property insured; provided, further, however, that provision shall be made for the application of the proceeds of the insurance to the repair, replacement or reconstruction of the insured property; provided, further, that such mortgage may provide that if at the time of receipt by the trustee of any insurance proceeds the mortgagor is in default in the performance of any of its obligations thereunder, so much only of such insurance proceeds as may be necessary to bring the mortgage payments up to date without acceleration shall be paid to the mortgagee; provided, further, that any mortgage which may be given to obtain interim financing for the construction of the hotel may provide that the insurance proceeds be payable to the mortgagee up to the sum necessary to satisfy the indebtedness to it, and that any surplus over such amount shall be payable to Landlord and Tenant as their interests may appear. In the event that any insurance proceeds are paid to any mortgagee and if at the time Tenant be not in default hereunder, Landlord shall make an equivalent amount available for the costs of repair, replacement or reconstruction of the damaged property. All such policies shall be made payable to and deposited with a trustee as may be required by the terms of the Equitable Life Assurance Society mortgage above mentioned, otherwise held by Landlord. Premiums for such insurance shall be an expense in computing Net Profits hereunder. Tenant shall comply with all requirements and regulations necessary to keep all such insurance fully in force. Tenant shall also maintain war damage insurance when and if the same is obtainable from governmental sources or in the regular market at reasonable rates.

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Tenant shall also maintain rent insurance in a sum equal to one year's Basic Rent the premiums for which shall be an expense in computing Net Profits hereunder, policies for which shall be by approved insurance companies licensed to do business in Louisiana and shall be delivered to the Landlord.

22.            If any building or buildings or improvements standing or erected on the demised premises and/or any furniture, furnishings, fixtures or equipment located on or used in connection with the demised premises shall be destroyed or damaged by fire or any other casualty covered by insurance, the Landlord, shall cause the restoration or rebuilding thereof and shall apply the proceeds of any insurance to such restoration or rebuilding; in the event the insurance proceeds shall be insufficient to pay the cost of such restoration or rebuilding in full, the Tenant shall supply the deficiency. If there is any balance of insurance proceeds remaining after such restoration or rebuilding, such balance shall subject, however, to the rights of the mortgagees, if any, belong to the Tenant. Payments made by or to Tenant as specified in the two preceding sentences shall be considered as expenses or revenues of Tenant for the purpose of computing Net Profits. The Basic Rent, the Percentage Rent, and all other payments due from the Tenant to the Landlord shall abate to the extent and in the proportion that the demised premises cannot be used by the Tenant for hotel purposes during such period as may be required for such repair and restoration.

In the event that the building is damaged or destroyed to the extent of 50% or more of its then value by an uninsurable peril such as flood or war damage, the Landlord shall have the option either to declare this lease terminated, or to proceed with reasonable diligence to reconstruct the building or repair the damage, as the case may be, at Landlord's cost and expense. In the event that such damage is less than 50% of the then value, the Landlord shall repair the damage if requested by Tenant and if Tenant shall agree to pay its proportionate share of the cost of such repair. Such proportionate share shall be determined by the relative values of the fee and of the leasehold estate then remaining unexpired, to be determined by agreement of the parties, or if they are unable to agree, by arbitration. In the events aforestated, the Tenant shall be entitled to a proportionate abatement of the rental during the period of reconstruction or repair on an equitable basis.

Should fewer than three years remain of the term hereby demised, or of any extended term, at the time of such destruction or of any damage required to be restored or rebuilt by Landlord as above provided, Landlord may give notice to Tenant of its election not to restore or rebuild, in which event this lease shall terminate unless within ninety days after such notice, Tenant, if it shall have an unexercised option to extend this lease as provided in paragraph 5 hereof, gives notice of exercise of such option, in which event Landlord's obligation as hereinabove set forth to restore or rebuild shall remain in full force and effect. In the event of termination of this lease as provided in this paragraph, Tenant shall have no responsibility with respect to any deficiency in insurance proceeds as provided in the first paragraph of this Section 22.

At the time that the Landlord gives notice as above provided to the Tenant of its intention not to restore or rebuild, it shall set forth in such notice the rental formula (Formula A or Formula B) which it desires to have applicable in the event the Tenant should elect to extend the lease, if such rental formula has not been previously elected. If Landlord does not so designate the formula, Tenant shall designate one of such formulas in its notice of election to extend the lease.

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23.            In the event of the condemnation of any essential portion of the demised premises, this lease shall terminate. An essential portion of the demised premises shall be deemed to have been taken when the remaining portion could not be efficiently operated for hotel purposes. In the event that the portion taken by condemnation does not prevent the efficient operation of the remainder for hotel purposes, the lease shall not terminate and the rent to be paid shall be subject to proportionate reduction, which if not agreed upon by the parties, shall be determined by arbitration in the manner hereinafter provided. The Landlord shall, in such case, at its sole cost and expense, cause the remaining portion to be enclosed so as to make an architectural unit of the portion of the premises not so taken by condemnation so as to make the same usable and satisfactory for hotel purposes.

Any condemnation award covering the land or building and furnishings and equipment shall belong entirely to the Landlord and any condemnation award for loss of business shall belong to the Tenant.

In the event the use of the demised premises or a portion thereof, as distinct from the fee, is taken by Governmental authority on a temporary basis, this lease shall not be terminated or modified thereby, but shall continue in full force and effect and the rights of the parties shall be construed as if the Tenant had executed a sublease with Landlord's consent to the public authority.

24.            The parties take note of that certain collateral mortgage by Landlord and Royal St. Louis, Inc., passed by act of even date herewith before the undersigned Notary Public to secure a promissory note in the principal amount of $12,100,000, which mortgage may be placed of record prior to recordation of this lease. Tenant agrees, upon the request of Landlord from time to time, to intervene in any mortgage executed by Landlord for the sole purpose of mortgaging Tenant's interest in the name of the hotel operated on the leased premises, and Tenant's interest in any property thereon used for the operation of such hotel.

25.            The Tenant shall have the right from time to time during the term of this lease to make such alterations, additions or improvements in or to the demised premises as it shall deem advisable, the cost whereof shall be deducted in the year incurred in determining Net Profits hereunder. The cost of ordinary repairs shall be a proper deduction in determining Net Profits. The cost of structural repairs shall be paid for by the Tenant, and the amount required for the annual amortization of such cost shall be included as a deductible expense in the determination of Net Profits. There shall be no abatement of rent during the time required for the making of any structural repairs or changes.

26.            Upon the termination or expiration of this lease, Tenant shall surrender to Landlord the demised premises in good condition and repair, ordinary wear and tear and injury by fire or other casualty or by acts of God excepted.

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27.            In the event of any dispute between Landlord and Tenant as to any provision of this lease, such dispute shall be settled by arbitration by three arbitrators under the rules then obtaining of the American Arbitration Association.

28.            The covenants, conditions and agreements contained in this lease shall bind and inure to the benefit of Landlord and Tenant and respective heirs, distributees, executors, administrators, successors and, except as otherwise provided in this lease, their assigns.

29.            Notice, wherever provided for herein, shall be in writing and be given either by personal service or by registered mail at the address below specified of the party to whom such notice is to be given, unless a different address has been furnished by such person to the person giving such notice, in which case the latter address shall be used:

With respect to Landlord, to:

Chateau Louisiane, Inc.

c/o Lester E. Kabacoff

1440 National Bank of Commerce Building

New Orleans, Louisiana 70112

With respect to Tenant, to the Tenant at the demised premises, with a copy to:

Hotel Corporation of America

390 Commonwealth Avenue

Boston, Massachusetts 02215

Attention:  Office of the Secretary

Upon written request of the other the parties hereby obligate themselves to send a copy of any notice to any mortgagee of the demised premises.

30.            This lease is granted and accepted upon the foregoing terms, covenants and conditions, all of which in accordance with the provisions thereof each of the parties hereto expressly covenants and agrees to perform and observe.

AND NOW TO THESE PRESENTS comes HOTEL CORPORATION OF AMERICA, a New York corporation represented by Harry R. Hauser its Secretary, duly authorized by virtue of resolutions adopted at a meeting of the Board of Directors of said corporation held in New York City, on the 11th day of December 1967, a certified copy of which is annexed hereto, who declared that HOTEL CORPORATION OF AMERICA, as the owner of all of the issued and outstanding capital stock of The Royal Orleans, Inc., in consideration for and as an inducement to Landlord entering into the above and foregoing lease, does hereby guarantee to Landlord and to Landlord's successors and assigns the full performance and observation of all of the covenants, conditions, and agreements herein provided to be performed and observed by Tenant, and expressly agrees that the validity of this agreement and the obligations of HOTEL CORPORATION OF AMERICA hereunder shall in no way be terminated, affected, or impaired by reason of the assertion by Landlord against Tenant of any of the rights or remedies reserved to Landlord pursuant to the provisions hereof. Said HOTEL CORPORATION OF AMERICA expressly waives notice of default except as provided herein, and agrees that it shall remain liable in solido with Tenant and that such liability shall continue in full force and effect as to any amendment or modification of this instrument and during any renewal or extension provided for herein.

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THUS DONE AND PASSED in duplicate originals at my office in the City of New Orleans in the presence of Stephen B. Lemann and Joseph P. Ficurelli, competent witnesses and me, Notary, after due reading of the whole.

WITNESSES:		CHATEAU LOUISIANE, INC.
/s/ Stephen B. Lemann			By /s/ Lester E. Kabacoff
	Stephen B. Lemann		Lester E. Kabacoff
			Vice President
/s/ Joseph P. Ficurelli		THE ROYAL ORLEANS, INC.
	Joseph P. Ficurelli
		By /s/	James A. Nassikas
			James A. Nassikas
			Vice President
		HOTEL CORPORATION OF AMERICA
		By /s/	Harry R. Hauser
			Harry R. Hauser.
			Secretary

/s/ Bartholomew P. Sullivan, Jr.
	Bartholomew P. Sullivan, Jr.
	Notary Public
		[SEAL]

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EX-10.15

Exhibit 10.15

HOTEL LEASE

Amendment No. 1

AGREEMENT dated as of the 26th day of November, 1973, by and between CHATEAU LOUISIANE, INC., a Louisiana corporation hereinafter called "Landlord", and LOUISIANA SONESTA CORPORATION (formerly The Royal Orleans, Inc.), a Louisiana corporation hereinafter called "Tenant";

W I T N E S S E T H    T H A T  :

WHEREAS, by act dated December 12, 1967, registered COB 683-D, Folio 40-43 (the "Lease"), Landlord did lease to Tenant certain properties located in the City of New Orleans, and

WHEREAS, certain events have transpired subsequent to that date that make it in the interest of both Landlord and Tenant to amend the Lease;

NOW, THEREFORE, the parties hereby agree that the Lease between them shall be and the same is hereby amended as follows:

1.              Effective January 1, 1980, the amount of any accumulated Net Loss of Tenant shall be reduced by the total amount of amortization and interest charged by Tenant as an expense, pursuant to the provisions of Section 7(a); provided, however/that such reduction shall not operate to require the payment of any Percentage Rent with respect to any lease years ending prior to January 1, 1980 nor to create any Net Profits as of December 31, 1979.

2.              For the purposes of Section 14 of the Lease any transaction, whether sale, pledge, or otherwise, the effect of which is to cause direct or indirect control and beneficial ownership of the majority of Tenant to cease to be vested in Sonesta International Hotels Corporation shall be treated as an assignment of, the Lease; provided, however, that the consent of Landlord shall not be required to any pledge or other encumbrance in favor of a bank, trust company, savings and loan association, or life insurance company in order to secure a bona fide indebtedness of Tenant or any guarantor of the Lease, where the same is made in good faith and not in an effort to effect a change in the Tenant of the demised premises without the consent of Landlord.  No such pledge or other encumbrance shall operate to diminish any rights of Landlord or to confer on the pledgee or other assignee any right to transfer the leasehold interest of Tenant (whether by transfer of the obligation secured by the encumbrance of the leasehold interest or otherwise) except as provided in Section 14 of the Lease.

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3.              (a)  Notwithstanding the provisions of Section 18(3) of the Lease, Landlord agrees that Tenant shall not be in default hereunder as a result of the termination of the lease of the Royal Orleans Hotel from Royal St. Louis, Inc. ("Royal" which term shall refer to any then lessor of the lease of the Royal Orleans Hotel) to Lex Hotels (New Orleans), Inc. ("Lex"), being the lease originally dated October 14, 1957 from Royal to Hotel Corporation of Louisiana (said lease and all amendments previously entered into and all subsequent amendments being hereafter called the 'Royal Lease"), provided that, within fourteen (14) days following delivery to Tenant of notice of termination of the Royal Lease from Landlord, Tenant

(i) agrees to perform all of the obligations of' the Tenant thereunder,

(ii) pays to Landlord an amount equal to all sums that may be due and owing to Royal by Lex, whether, as rent or otherwise (but not as a result of acceleration or damages (except out-of-pocket expenditures by Royal required to protect its interests) coming due solely as a result of the default by Lex) pursuant to the Royal Lease, together with interest on each installment thereof at the rate of 8% per annum from the date upon which such installment became due until the date of payment, and

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(iii) if the default by Lex is of a nature that cannot be cured by the payment of money, promptly undertakes such steps as maybe necessary to cure such default, and prosecutes the same with due diligence to timely completion.

Upon the performance by Tenant of the foregoing Tenant shall have the right and obligation to enter into a lease on the same terms and conditions as the Royal Lease at the time of its termination, and Landlord agrees to use its best efforts to cause Royal to execute such lease in favor of Tenant.

(b)  Notwithstanding the provisions of subparagraph (a) of this Section 3 if the Royal Lease shall have been amended after the date hereof but prior to its termination after a default, as described in said paragraph (a), and either

(i) the Tenant shall have reasonably denied its consent thereto after such consent was requested in writing by Landlord prior to the making of such amendment, or

(ii) such consent was not requested in writing, by Landlord prior to the making of such amendment, then notwithstanding the Provisions of clause (3) of Section 18 of the Lease, Tenant shall not be in default hereunder as a result of the termination of the Royal Lease, provided that, within fourteen (14) days following delivery of notice of termination of the Royal Lease from Landlord, Tenant

(x) agrees to perform all of the obligations of the Tenant as they existed thereunder excluding any amendment to which Tenant reasonably did not, or was not requested to, consent,

(y) pays to Landlord an amount equal to all sums that would have been due and owing to Royal by Lex had the Royal Lease not been so amended, whether as rent or otherwise (but not as a result of acceleration or damages (except out-of-pocket expenditures by Royal required to protect its interests) coming due solely as a result of the default by Lex) pursuant to the Royal Lease, together with Interest on each installment thereof at the rate of 8% per annum from the date upon which such installment became due until the payment, and

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(z) if the default by Lex is of a nature that cannot be cured by the payment of money and did not arise out of obligations created by such amendment, promptly undertakes such steps as may be necessary to cure such default, and prosecute the same with due diligence to timely completion.

Upon the performance by Tenant of the foregoing, Tenant shall have the right and obligation to enter into a lease on the same terms and conditions as the Royal Lease at the date hereof (and as subsequently amended, but excluding any amendment to which Tenant reasonably did not, or was not requested to consent), and Landlord agrees to use its best efforts to cause Royal to execute such lease in favor of Tenant; or, at its option, Tenant may cause the Royal Lease to be reassigned to it by the tenant thereof.  In the event that Tenant elects to have the Royal Lease reassigned to it and the Royal Lease shall have been amended subsequent to the date hereof without the consent of Tenant, and Tenant's lack of consent shall have been reasonable, or if Tenant's consent was not requested in writing by Landlord prior to making such amendment, then Landlord agrees to use its best efforts to cause Royal to amend the Royal Lease to eliminate those provisions to which 'Tenant reasonably did not consent, or was not so requested to consent prior to the making of such amendment.

(c)  In the event that the consent of Tenant to a proposed amendment of the Royal Lease is requested, Tenant shall have the right promptly following such request to cause the reasonableness of its requested consent to be the subject matter of arbitration invoked pursuant to Section 27 of the Lease. In the event that Tenant shall fail to consent to a proposed amendment of the Royal Lease (having been requested to do so by Landlord prior to making such amendment) without invoking arbitration, then Landlord shall similarly have the right to invoke an arbitration. In the event that neither party has invoked such an arbitration and the Royal Lease has been amended without the consent of Tenant, then Tenant shall at any time thereafter (but prior to the time of a default by the Tenant under the Royal Lease) have the right to invoke such an arbitration.

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(d)  Landlord shall request the consent of The Equitable Life Assurance Society of the United States ("Equitable"), or other mortgagee, as hereinafter provided, to the granting of the lease, as described in Sections 3(a) and 3(b) above, to Tenant if there then remains outstanding and undischarged the debt of Landlord secured by the real estate mortgage held by Equitable and dated 15 October 1969, or any debt incurred by Landlord in substitution of such indebtedness to Equitable and upon substantially similar terms and conditions. Equitable or such other mortgagee shall have the right to withhold its consent to such granting of a lease to Tenant if on the date Tenant would otherwise have entered into such a lease, another party acceptable to Equitable, Royal and Landlord takes the actions and makes the agreements set forth in Section 3(a)(i), (ii) and (iii) hereof.

(e)  If for any reason whatsoever the lease described in either subparagraph (a) or (b) above as the case may be, is not granted to Tenant promptly upon fulfillment by Tenant of the necessary conditions described in said subparagraph (a) or (b) entitling Tenant to such lease, then and in such event:

(i) Landlord shall forthwith reimburse Tenant in an amount equal to all sums (A) theretofore paid by Tenant to Landlord pursuant to paragraph 3(a)(ii) or 3(b), as the case may be, and (B) expended by Tenant, as required by the terms of the Royal Lease, pursuant to paragraph 3(a)(iii) or 3(b)(z), as the case may be, (and Tenant shall have the right, without prejudice to its other rights, to offset any amounts not so reimbursed against installments of rent due hereunder), and

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(ii) this lease shall be deemed further amended as from the date of the default under the Royal Lease by the deletion of clause (3) of Section 18 of the Lease.

4.             (a)  Landlord shall, or shall cause Royal to, serve notice on the tenant under the Royal Lease within five days after it or Royal first has knowledge of a default thereunder, and shall deliver to Tenant a copy of any notice given by it or Royal of a default under the Royal Lease at the time the same is given.  Furthermore, it shall promptly give Tenant notice of any proceedings instituted by Royal to terminate the Royal Lease, and shall inform Tenant from time to time with respect to the progress of all such proceedings.  Landlord shall use its best efforts to cause Royal to exercise its rights and pursue its remedies set forth in Section 18 of the Royal Lease in the manner of a prudent lessor desirous of maintaining its property in good condition and maximizing its return therefrom; provided, however, that in furtherance and not in limitation of the foregoing requirement, Landlord shall endeavor to cause Royal timely and diligently to exercise all of its rights and pursue all of its remedies under the Royal Lease if the default of the Tenant thereunder shall be in the nonpayment of rent, taxes, insurance premiums, or utility charges.  If Royal does not exercise its rights and pursue its remedies as set forth in the preceding sentence, then and in such event, this lease shall be deemed further amended as from the date of the default under the Royal Lease by the deletion of clause (3) of Section 18 of the Lease unless Tenant agrees within seven (7) days following the receipt of notice of termination of the Royal Lease from Landlord, to the conditions set forth in paragraph 3(a) or 3(b), as the case may be.

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(b)  To the extent of any sums paid by Tenant to Landlord pursuant to the provisions of paragraph 3(a)(ii) or 3(b)(y) hereof or expended by Tenant, as required by the terms of the Royal Lease, pursuant to the provisions of paragraph 3(a)(iii) or 3(b)(z) hereof, Landlord shall reimburse Tenant out of any recovery against the Tenant under the Royal Lease forthwith upon receipt thereof.

5.             (a)  In the event that the tenant under the Royal Lease shall request the consent of Royal to an assignment, transfer, encumbrance or mortgage of the Royal Lease as required by Section 14 of the Royal Lease, then Landlord shall promptly notify Tenant of such request and shall request the concurrence of Tenant to the granting of such consent.  In the event that Tenant within fourteen (14) days following delivery of such notice shall notify Landlord that it does not wish Landlord to consent to such assignment, transfer, encumbrance, or mortgage, then Landlord shall use its best efforts to cause Royal to deny such consent, whereupon Tenant shall be obligated at its sole cost and expense to defend any proceeding brought against Royal and Landlord or either of them by reason of Royal's refusal to grant such consent, and shall protect, indemnify, and save Landlord and Royal harmless from and against all claims asserted and damages sustained should it subsequently be determined that Royal's failure to consent was not reasonable.

(b)  In the event that Royal shall consent to an assignment, transfer, encumbrance or mortgage of the Royal Lease, except as provided in the preceding subparagraph, then this Lease shall be deemed further amended by the deletion of clause (3) of Section 18 of the Lease.

6.             Each of the parties agrees, upon the request of the other, to execute a statement to the effect that the Lease remains in full force and effect in accordance with its terms (as the same may hereafter be modified) and, if such be the case, that the other party is not in default thereunder, in order that such statement may be relied upon by any then present or prospective purchaser, lender, auditor, mortgagee or other interested party.

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IN WITNESS WHEREOF, the parties have caused this agreement to be executed on the date first above written.

Witnesses:	CHATEAU LOUISIANE, INC.
	By	/s/ Laurence M. Williams
		Laurence M. Williams, Vice President
	Attest	/s/ Stephen B. Lemann
		Stephen B. Lemann, Secretary
	LOUISIANA SONESTA CORPORATION
	By	/s/ John J. Duane
		John J. Duane, Vice President
	Attest

The undersigned Royal St. Louis, Inc., as owner of all of the issued and outstanding stock of Chateau Louisiane, Inc., does hereby agree to grant the lease or make the amendments, as the case may be, called for pursuant to Section 3 of the above and foregoing amendment, to exercise its rights in the manner set forth in Section 4 thereof, and to deny its consent in the manner set forth in Section 5 thereof.

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Witnesses:	ROYAL ST. LOUIS, INC.
	By	/s/ Laurence M. Williams
		Laurence M. Williams, Vice President
	Attest	/s/ Stephen B. Lemann
		Stephen B. Lemann, Secretary

The undersigned Sonesta International Hotels Corporation (formerly Hotel Corporation of America), as guarantor of the obligations of Tenant pursuant to the Lease dated December 12, 1967, does hereby consent to the execution of the above and foregoing amendment and agrees that it shall remain obligated in solido with Louisiana Sonesta Corporation pursuant to the terms of the Lease as amended by the foregoing Amendment No. 1 and agrees that its obligations as guarantor of the Royal Lease, as modified by the terms of the assignment thereof, also remain in full force and effect.

Witnesses:	SONESTA INTERNATIONAL HOTELS CORPORATION
	By	/s/ John J. Duane
		John J. Duane, Vice President
	Attest

STATE OF LOUISIANA

PARISH OF ORLEANS

9

On this 28th day of November, 1973, before me appeared LAURENCE M. WILLIAMS, to me personally known, who being by me duly sworn, did say that he is the Vice President of ROYAL ST. LOUIS, INC., and that the above and foregoing instrument was signed and sealed on behalf of the corporation by authority of its Board of Directors, and the said appearer acknowledged the instrument to be the free act and deed of said corporation.

Notary Public

STATE OF LOUISIANA

PARISH OF ORLEANS

On this 28th day of November, 1973, before me appeared LAURENCE M. WILLIAMS, to me personally known, who being by me duly sworn, did say that he is the Vice President of CHATEAU LOUISIANE INC., and that the above and foregoing instrument was signed and sealed on behalf of the corporation by authority of its Board of Directors and the said appearer acknowledged the instrument to be the free act and deed of said corporation.

Notary Public

COMMONWEALTH OF MASSACHUSETTS

COUNTY OF SUFFOLK

10

On this 26th day of November, 1973, before me appeared John J. Duane, to me personally known, who being by me duly sworn, did say that he is the Vice President of LOUISIANA SONESTA CORPORATION, and that the above and foregoing instrument was signed and sealed on behalf of the corporation by authority of its Board of Directors, and the said appearer acknowledged the instrument to be the free act and deed of said corporation.

Notary Public

COMMONWEALTH OF MASSACHUSETTS

COUNTY OF SUFFOLK

On this 26th day of November, 1973, before me appeared John J. Duane, to me personally known, who being by me duly sworn, did say that he is the Vice President of SONESTA INTERNATIONAL HOTELS CORPORATION, and that the above and foregoing instrument was signed and sealed on behalf of the corporation by authority of its Board of Directors, and the said appearer acknowledged the instrument to be the free act and deed of said corporation.

Notary Public

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EX-10.16

Exhibit 10.16

HOTEL LEASE

Amendment No. 2

This agreement, dated the 1st day of September, 1977, by and between CHATEAU LOUISIANE, INC., a Louisiana corporation hereinafter called "Landlord" and ROYAL SONESTA, INC., a Louisiana corporation, assignee of Sonesta International Hotels Corporation, successor by merger of Louisiana Sonesta Corporation (formerly The Royal Orleans, Inc.), which corporations are hereinafter interchangeably referred to as "Tenant",

W I T N E S S E T H   T H A T :

WHEREAS, by act dated December 12, 1967, registered C.O.B. 683-D, Folio 40-43, as amended by agreement dated November 26, 1973, registered C.O.B. 723-C, Folio 269-272 (which act and agreement are hereinafter collectively called the "Lease"), Landlord did lease to Tenant certain properties located in the City of New Orleans, and

WHEREAS, it has become apparent that certain changes should be made in the Lease so as to clarify the original intent of the parties,

NOW, THEREFORE, the parties agree that the Lease between them shall be and the same is hereby further amended as follows:

1.           By providing that the furnishings and equipment provided by Landlord pursuant to the provisions of Paragraph (c) of Section 7 of the Lease shall be construed as a portion of the property leased by Landlord to Tenant.

2.           By adding the following to Section 8 of the Lease:

"Tenant's obligation to maintain the furnishings and equipment shall be construed in accordance with the provisions of Articles 2719 and 2720 of the Revised Civil Code of Louisiana, except only as modified by the obligations of the parties pursuant to Sections 21 and 22 of this Lease."

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3.           By adding to Section 26 of the Lease, following the words "the demised premises", the words "(including the furnishings and equipment)".

IN WITNESS WHEREOF, the parties have caused this agreement to be executed on the date first above written.

Witnesses:	CHATEAU LOUISIANE, INC.
	By	/s/ Lester E. Kabacoff
		Lester E. Kabacoff, Vice President
	Attest	/s/ Stephen B. Lemann
		Stephen B. Lemann, Secretary
	ROYAL SONESTA, INC.
	By	/s/ John J. Duane
		John J. Duane, Vice President
	Attest

The undersigned Sonesta International Hotels Corporation (formerly Hotel Corporation of America), as guarantor of the obligations of Tenant pursuant to the Lease dated December 12, 1967, as amended by agreement dated November 26, 1973, does hereby consent to the execution of the above and foregoing amendment and agrees that it shall remain obligated in solido with Royal Sonesta, Inc. pursuant to the terms of the Lease as amended by the foregoing Amendment No. 2, and agrees that its obligations as guarantor of the Royal Orleans Hotel Lease, as modified by the terms of the assignment thereof, also remain in full force and effect.

Witnesses:	SONESTA INTERNATIONAL HOTELS CORPORATION
	By	/s/ John J. Duane
		John J. Duane, Vice President

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Attest

Consent is hereby granted to the foregoing Amendment No. 2:

THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By
	Vice President

STATE OF LOUISIANA

PARISH OF ORLEANS

On this 19th day of July, 1977, before me appeared LESTER E. KABACOFF, to me personally known, who being by me duly sworn, did say that he is the Vice President of CHATEAU LOUISIANE, INC., and that the above and foregoing instrument was signed and sealed on behalf of the corporation by authority of its Board of Directors, and the said appearer acknowledged the instrument to be the free act and deed of said corporation.

Notary Public

COMMONWEALTH OF MASSACHUSETTS

COUNTY OF SUFFOLK

On this 1st day of September, 1977, before me appeared John J. Duane, to me personally known, who being by me duly sworn, did say that he is the Vice President of ROYAL SONESTA, INC., and that the above and foregoing instrument was signed and sealed on behalf of the corporation by authority of its Board of Directors, and the said appearer acknowledged the instrument to be the free act and deed of said corporation.

Notary Public

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COMMONWEALTH OF MASSACHUSETTS

COUNTY OF SUFFOLK

On this 1st day of September, 1977, before me appeared John J. Duane, to me personally known, who being by me duly sworn, did say that he is the Vice President of SONESTA INTERNATIONAL HOTELS CORPORATION, and that the above and foregoing instrument was signed and sealed on behalf of the corporation by authority of its Board of Directors, and the said appearer acknowledged the instrument to be the free act and deed of said corporation.

Notary Public

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EX-13

EXHIBIT 13

SONESTA INTERNATIONAL HOTELS CORPORATION

ANNUAL REPORT 2008

TO OUR SHAREHOLDERS:

For Sonesta, 2008 was a year comprised of two distinct periods:  January through August, and September through December.  Through the first eight months we were on track for a strong year:  cumulative revenues from our hotel operations in Boston and New Orleans exceeded what we realized during the same period in 2007 by $4,100,000.  In addition our management and franchise income increased substantially from 2007 to 2008.  In the last four months of the year, however, revenues and profits from hotel operations, and from management and franchise fee income, trailed what we reported for those months in 2007.  By the end of 2008, the increase in total revenues over 2007 was $3,614,000, and operating income increased by $4,443,000.

During 2008, we collected $5,002,000 in connection with the termination of our management contract to operate Trump International Sonesta Beach Resort, in Sunny Isles, Florida, and $3,397,000 of loan repayments regarding Sonesta Bayfront Hotel in Coconut Grove, Florida.  During the year we also distributed a total of $4,438,000 in dividends, including a special dividend of $1.00 per share paid in February.

Through October, Royal Sonesta Boston was 9% ahead of the same period in 2007 in revenues.  The Hotel relies heavily on group business, however, and cancellations in November and December – the result of corporate cost-cutting – and seasonal drop-off in group business significantly affected year-end results.  Even so, the Hotel surpassed 2007’s results by $1,401,000 in revenues, and $538,000 in operating income.  The hotel remains in outstanding condition, and we completed the renovation of the Hotel’s East Tower meeting space and public restrooms in the first quarter of this year.

For Royal Sonesta New Orleans, the pivotal month was September, when the back-to-back threats from Hurricanes Gustav and Ike adversely affected the Hotel’s business.  Although Gustav caused no physical damage to the Hotel, many people evacuated the City and the Hotel was closed for several days.  Gustav, alone, resulted in an estimated $500,000 in lost revenues.  Due to a strong first eight months, the Hotel finished 2008 $907,000 ahead of 2007 in revenues.  Operating income before rent expense increased by $414,000.  The Hotel continues to be the upper upscale market leader in New Orleans.  In March 2009, the Hotel will transform its lobby lounge into a new jazz club:  Irvin Mayfield’s Jazz Playhouse.

While it, too, fell victim to the economy in the later part of 2008, Sonesta Bayfront Hotel Coconut Grove had a good year in a challenging market.  Revenues decreased slightly compared to 2007, but profits increased over 2007, as did the Company’s fee income.  In October, the Hotel’s owner refinanced the Hotel and repaid the balance of the Company’s original $5 Million loan.

We terminated our relationship with Trump International Sonesta Beach Resort, in Sunny Isles, Florida, effective April 1, 2008.  We then engaged in an arbitration process with the Hotel’s owner, seeking reimbursement of some $7 Million in deferred fees and advances, as provided in our contract.  During that process, the parties agreed to a settlement of all claims, and the Company received approximately $5 million in cash.

Redevelopment of the Sonesta Key Biscayne site stalled during 2008 due to the severe economic conditions and their impact on the condominium market in South Florida.  We and our partner in the project, Fortune International, continue to explore a number of possible scenarios regarding the property.

All of our hotels, resorts and cruise ships in Egypt realized more revenues and profits in 2008 than they had in 2007.  Additionally, our Cairo and Luxor properties are being expanded by 171 and 119 guestrooms, respectively, and both are adding function and meeting space.  At the end of March 2009, our operation of Sonesta Port Said, a 92-room hotel, will end.

Relationships with our licensed hotels in Peru, Brazil and St. Maarten continue to be strong.  These hotels provide us with important brand exposure in South America and the Caribbean.  We anticipate additional licensed hotels in South America with our Colombian associates at GHL Hotels.

Last spring, we determined to grow the Company through expansion of the Sonesta brand, particularly in the United States.  One way to accomplish this is through franchising.  In September, Philip Silberstein joined us as Executive Vice President of Development.  Phil has 30 plus years of industry development experience, including franchising, and he is leading our expansion efforts.  We are excited to have him on board.

The first phase of Sonesta Jaco Resort, in Costa Rica, is scheduled to open this summer.  At least half of the condo-hotel’s 190 luxurious suites should be available this summer, together with a restaurant, lazy-river, and other wonderful features and amenities.  Sonesta San Carlos, on Mexico’s Sea of Cortez, remains in development, and we anticipate that the developer will break ground soon.  Both the aforementioned hotels will be operated under management agreements.  In January of this year, we announced the signing of a management contract to operate a 252-room hotel as part of a mixed-use development in downtown Miami.  Sonesta Mikado Hotel will open in 2011.  Development of Sonesta Orlando Resort, on the other hand, is stalled.  In January 2009, we formally severed ties with the project.

We are sad to report that Roger P. Sonnabend, Sonesta’s Executive Chairman of the Board, passed away in early December 2008 after a brief illness.  Roger guided the Company for 44 years and was universally admired and respected.  Our memories of him will inspire us for many years to come.

If you would like additional information about Sonesta hotels, resorts, or cruises, please visit our website at www.sonesta.com.

We appreciate the continued interest and support of you, our shareholders, and of our hotel owners, guests, partners and employees.

 /s/  Peter J. Sonnabend

Peter J. Sonnabend

Executive Chairman of the Board

 /s/  Stephanie Sonnabend

Stephanie Sonnabend

Chief Executive Officer and President

March 19, 2009

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SONESTA INTERNATIONAL HOTELS CORPORATION

5-YEAR SELECTED FINANCIAL DATA

(In thousands except for per share data)

	2008			2007			2006			2005			2004
Revenues	$	71,552		$	67,938		$	77,595		$	88,125		$	89,907
Other revenues from managed and affiliated properties		8,965			18,747			21,237			14,543			12,727
Total revenues		80,517			86,685			98,832			102,668			102,634
Operating income (loss)		6,671			2,228			(3,829	)		(1,905	)		1,502
Net interest expense		(1,788	)		(1,292	)		(1,441	)		(2,836	)		(5,860	)
Other income		574			250		49			4,054			182
Income (loss) before income taxes		5,457			1,186			(5,221	)		(687	)		(4,176	)
Income tax provision (benefit)		1,377			(151	)		(1,698	)		(5,355	)	426
Net income (loss)	$	4,080		$	1,337		$	(3,523	)	$	4,668		$	(4,602	)
Basic and diluted net income (loss) per share of common stock	$	1.10		$	0.36		$	(0.95	)	$	1.26		$	(1.24	)
Cash dividends declared	$	1.35		$	0.20		$	0.20		$	1.10		$	--
Net property and equipment	$	35,031		$	37,303		$	38,400		$	72,799		$	76,638
Total assets		127,040			129,591			126,428			130,619			109,537
Long-term debt including currently payable portion		33,002			34,061			34,061			34,061			69,816
Common stockholders' equity		4,126			8,547			7,371			11,865			11,264
Common stockholders' equity per share		1.12			2.31			1.99			3.21			3.05
Common shares outstanding at end of year		3,698			3,698			3,698			3,698			3,698

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
	2008				2007
	High		Low		High		Low
First	$	35.99	$	18.93	$	29.97	$	20.00
Second		30.61		22.92		32.40		22.02
Third		27.97		18.78		59.00		31.50
Fourth		20.79		7.85		47.99		28.05

The Company’s common stock trades on the NASDAQ Stock Market under the symbol SNSTA.  As of February 11, 2009 there were 322 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.

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Performance Graph

The following graph compares the annual percentage change in the cumulative total stockholder return on the Company’s Common Stock against the cumulative total return of the NASDAQ Stock Market (US Companies) and the NASDAQ Hotels and Motels Stocks (SIC 7010-7019) for the five-year period commencing December 31, 2003 and ending December 31, 2008.

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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 Royal Sonesta Hotel Boston, Royal Sonesta Hotel New Orleans and the Company’s investment in a partnership which owns the site of the former Sonesta Beach Resort Key Biscayne. The Boston property is owned by the Company, and the New Orleans hotel is operated under a long-term lease. The financial statements also include the Company’s revenues and expenses from the management of properties in the United States and Egypt, and license fee income from properties in New Orleans, Louisiana (until October 2008); St. Maarten, Brazil and Peru.

Results of Operations

During 2008, the Company recorded net income of $4,080,000, or $1.10 per share, compared to net income of $1,337,000, or $0.36 per share, during 2007.  A reconciliation of the $2,743,000 increase in earnings follows (in thousands):

Increase in operating income Royal Sonesta Boston	$	538
Decrease in operating income Royal Sonesta New Orleans		(741	)
Income from Management Agreement settlement		3,279
Decrease in loss from management activities		1,367
Decrease in interest income		(537	)
Other changes		365
Increase in tax expense, partially due to improved earnings		(1,528	)
Increase in earnings 2008 compared to 2007	$	2,743

· Royal Sonesta Hotel Boston had a good year, increasing revenues by 5% compared to 2007.  Business was strong through October 2008, but declined substantially during the months of November and December, as a result of the decline in economic activity.

· Royal Sonesta Hotel New Orleans recorded a modest 3% increase in revenues compared to 2007.  Operating income decreased primarily as a result of increased rent expense.  Through August 2008, revenues increased by 10% compared to the same period in 2007.  September 2008 revenues were impacted by Hurricane Gustav, and 2008 fourth quarter revenues declined due to the worsening economic conditions.

· The loss from management activities decreased primarily as a result of higher income from the Company’s managed properties in Egypt.

· During the 2008 third quarter, the Company recorded pre-tax income of $3,279,000 related to the settlement of a dispute with the owner of Trump International Sonesta Beach Resort (see Note 2).  The Company terminated the Management Agreement for this property effective April 1, 2008.

A detailed analysis of the revenues and expenses by location follows.

Revenues

The Company records costs incurred on behalf of owners of managed and affiliated properties, and expenses reimbursed from managed and affiliated properties, on a gross basis.  The revenues included and discussed in this Management’s Discussion and Analysis exclude the “other revenues and expenses from managed and affiliated properties”.

	TOTAL REVENUES
	(in thousands)
	NO. OF ROOMS		2008		2007		2006
Sonesta Beach Resort Key Biscayne		300	$	--	$	--	$	19,341
Royal Sonesta Hotel Boston		400		30,778		29,377		26,408
Royal Sonesta Hotel New Orleans		500		32,795		31,888		27,894
Management and service fees				7,979		6,673		3,952
Total revenues, excluding other revenues from managed and affiliated properties			$	71,552	$	67,938	$	77,595

2008 versus 2007:  Total revenues, excluding other revenues from managed and affiliated properties, were $71,552,000 in 2008 compared to $67,938,000 in 2007, an increase of $3,614,000.  Revenues at Royal Sonesta Hotel Boston increased by $1,401,000 in 2008 compared to 2007, representing a 5% increase.  Demand in the Boston hotel market was strong in 2008 through the month of October.  Revenues declined during the last two months of 2008.  Revenues at Royal Sonesta Hotel New Orleans in 2008 increased by a modest 3%.  Business during the first eight months of the year was strong, but September 2008 revenues were impacted by Hurricane Gustav.  Revenues during the fourth quarter decreased compared to 2007, due to worsening economic conditions.  Revenues from management activities increased from $6,673,000 during 2007 to $7,979,000 during 2008, primarily due to an increase in management income from the Company’s collection of hotels and cruise ships in Egypt.  A more detailed analysis of the revenues by hotel, and of our management income, follows.

Royal Sonesta Hotel Boston recorded revenues of $30,778,000 during 2008 compared to $29,377,000 in 2007, representing an increase of $1,401,000, or 5%.  This increase was mainly due to an increase of $1,160,000 in room revenues.  Room revenues per available room (“REVPAR”) increased by 6% in 2008 compared to 2007, mainly due to an increase in occupancy levels.  Demand in Boston was strong through October 2008, which benefitted the Hotel.  The increase in occupancy was entirely from increased transient rooms business.  The increase in non-rooms revenue of $241,000 was mainly due to increased food and beverage revenues, which included higher revenues from the hotel’s newly renovated ArtBar.

Revenues at Royal Sonesta Hotel New Orleans during 2008 totaled $32,795,000 compared to $31,888,000 during 2007, representing an increase of $907,000, or 3%.  In general, hotel business in New Orleans continued to improve during the first eight months of 2008 from the downturn in business following Hurricane Katrina in 2005.  September revenues, however, were impacted by Hurricanes Gustav and Ike, and fourth quarter 2008 revenues were affected by decreased business volumes resulting from worsened economic conditions.  Room revenues increased by $771,000 in 2008 due to a 4% REVPAR increase which was entirely due to higher average room rates achieved.  Revenues other than rooms increased by $215,000 due to increased banquet revenues.  Revenues from the hotel’s laundry, which also services third party hotels, decreased by $79,000 in 2008 compared to 2007 due to the loss of revenues from Chateau Sonesta Hotel New Orleans, which was operated by the Company under a management agreement until October, 2007.

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Revenues from management activities increased from $6,673,000 during 2007 to $7,979,000 during 2008, representing an increase of $1,306,000.  Of this increase, $1,146,000 resulted from improved fee income from the Company’s collection of hotels and Nile River cruise ships in Egypt.  Business in Egypt in 2008 continued to improve, and management income also included fee income from Sonesta Pharaoh Beach Resort Hurghada, which was added under management effective January 1, 2008.  The remaining increase resulted from higher income from hotels to which the Company licenses the use of its name in St. Maarten and South America, partially offset by decreased fee income from Chateau Sonesta Hotel New Orleans, which the Company stopped operating in October, 2007, and decreased income from Trump International Sonesta Beach Resort following the termination by the Company of the management agreement for this hotel effective April 1, 2008 (see Note 2).

2007 versus 2006:  Total revenues, excluding other revenues from managed and affiliated properties, were $67,938,000 in 2007 compared to $77,595,000 in 2006, a decrease of $9,657,000.  Revenues from Sonesta Beach Resort Key Biscayne, which closed for operations on August 31, 2006 were $19,341,000 in 2006.  The Company contributed the land and improvements to a development partnership, in which it is a 50% owner, with the intent to redevelop the site.  Revenues at Royal Sonesta Hotel Boston increased from $26,408,000 in 2006 to $29,377,000 in 2007, an increase of $2,969,000, and Royal Sonesta Hotel New Orleans increased revenues from $27,894,000 in 2006 to $31,888,000 in 2007, an increase of $3,994,000.  Demand in Boston was strong in 2007 compared to 2006, and Royal Sonesta Hotel New Orleans continued to recover from the after-effects of Hurricane Katrina.  Revenues from management activities increased from $3,952,000 in 2006 to $6,673,000 in 2007, an increase of $2,721,000.  This increase was primarily due to higher fee income from the Company’s managed hotels in Coconut Grove and Sunny Isles, Florida, and from the Company’s managed operations in Egypt.  A more detailed analysis of the revenues by hotel, and of our management income, follows.

Revenues at Sonesta Beach Resort Key Biscayne, which closed for operations on August 31, 2006, were $19,341,000 during the 2006 period.  In April 2005, the Company contributed the land and improvements of the Key Biscayne Resort to a development partnership in which it is a 50% limited partner, with the objective to redevelop the hotel’s site.  Additional information regarding this transaction is provided in Note 3 – Investment in Development Partnership.

Royal Sonesta Hotel Boston reported revenues during 2007 of $29,377,000 compared to $26,408,000 in 2006, representing an increase of $2,969,000, or 11%.  This increase was primarily due to an increase in room revenues of $2,573,000.  Room revenues per available room (“REVPAR”) increased by 15% in 2007 compared to 2006, due to both an increase in occupancy levels as well as average room rates achieved.  Increases in room revenue were primarily from the transient market segment, resulting from continued strong demand in the Boston hotel market.  The hotel’s room nights sold to groups and conventions business declined slightly in 2007, which accounts for the modest increase in revenues from other sources, including food and beverage.

Revenues at Royal Sonesta Hotel New Orleans during 2007 were $31,888,000 compared to $27,894,000 in 2006, which represented an increase of $3,994,000, or 14%.  Of the increase in revenues, approximately $1,724,000 was due to increased room revenues, resulting from a 9% increase in REVPAR.  Occupancies in 2007 improved, but increases in average room rates achieved were modest, as many hotels competed for limited business in the post-Katrina era.  The remaining increase in revenues of $2,270,000 was primarily from additional food and beverage revenues.  During 2006, especially in the first half, the Hotel received very little group and convention business in the aftermath of Hurricane Katrina, which struck New Orleans in August 2005.  In 2007, the Hotel was able to capture much more group business which provided the Hotel with much higher food and beverage revenues, including banqueting business.

Revenues from management activities increased from $3,952,000 in 2006 to $6,673,000 in 2007, an increase of $2,721,000.  Management income in 2007 from Sonesta Bayfront Hotel Coconut Grove increased by $797,000 and income from Trump International Sonesta Beach Resort Sunny Isles increased by $974,000 compared to last year.  Net operating income of both the Coconut Grove and Sunny Isles hotels improved substantially in 2007 compared to 2006.  The Company’s fees from these properties depend on profits achieved.  Income from the Company’s managed operations in Egypt increased by $641,000 in 2007 compared to 2006, which represented a 38% increase.  Business in Egypt improved substantially in 2007, both in the resort and city hotels.

Operating Income

	OPERATING INCOME/(LOSS)
	(in thousands)
	2008			2007			2006
Sonesta Beach Resort Key Biscayne	$	--		$	--		$	(1,073	)
Royal Sonesta Hotel Boston		5,464			4,926			2,416
Royal Sonesta Hotel New Orleans		144			885			450
Operating income from hotels after management and service fees		5,608			5,811			1,793
Management activities and other income		(2,216	)		(3,583	)		(5,622	)
Subtotal		3,392			2,228			(3,829	)
Income from Management Agreement settlement, net		3,279			--			--
Operating income (loss)	$	6,671		$	2,228		$	(3,829	)

2008 versus 2007:  The Company recorded operating income in 2008 of $6,671,000, compared to operating income of $2,228,000 in 2007, an increase of $4,443,000. In the 2008 third quarter, the Company recorded pre-tax income of $3,279,000 related to the settlement of a dispute with the owner of Trump International Sonesta Beach Resort.  The Company terminated the management agreement for this property effective April 1, 2008 (see Note 2).  Operating income at Royal Sonesta Hotel Boston increased by $538,000 compared to 2007 due to a 5% increase in revenues at this property.  Operating income at Royal Sonesta Hotel New Orleans decreased by $741,000, mainly due to higher rent expense incurred under the lease under which the Company operates the hotel.  Operating losses from management activities decreased by $1,367,000 to $2,216,000 in 2008, primarily due to higher income achieved from the Company’s managed hotels and cruise ships in Egypt.  A more detailed discussion of the changes in operating income by location follows.

Royal Sonesta Hotel Boston increased operating income during 2008 by $538,000 to $5,464,000.  Revenues during 2008 increased by $1,401,000, but were partially offset by a 4% increase in expenses, totaling $863,000.  The expense increase was almost entirely due to a 5% increase in cost and operating expenses, totaling $624,000.  The hotel operated at a higher occupancy level in 2008 compared to 2007, resulting in increased payroll expenses.  In addition, the hotel incurred

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higher commissions and reservations costs, increases in linens and guest supplies expense, as well as increased employee benefit costs.  In December 2008, the hotel incurred severance expenses related to layoffs following the decline in business in late 2008.

Operating income from Royal Sonesta Hotel New Orleans decreased from $885,000 in 2007 to $144,000 in 2008.  Increases in revenues of $907,000 were more than offset by increased expenses of $1,648,000.  The hotel expensed $303,000 in 2008 for costs incurred during 2006, 2007 and 2008 related to the potential addition of a spa in the hotel, following its decision to postpone this project because of the high cost.  Rent expense increased by $1,185,000 in 2008 compared to 2007.  The Company operates the hotel under a lease, and rent is equal to 75% of net cash flow.  The rent increase was due in part to higher operating profits achieved in 2008 compared to 2007.  In addition, the hotel spent less on capital additions in 2008 compared to previous year.  Under the lease, capital expenditures are deducted from cash flow for rent purposes.  Excluding the rent increase and development cost write off, the hotel’s total expenses were virtually the same in 2008 as in 2007.  Costs and operating expenses, as well as advertising and repairs and maintenance costs, increased slightly, but this increase was offset by decreased real estate tax expense in 2008 due to a favorable abatement received from the City of New Orleans.  Operating profits from the hotel’s laundry, which also services third party hotels, decreased by $266,000 in 2008 compared to 2007.  This was in part due to the loss of revenues from Chateau Sonesta Hotel New Orleans, which was operated by the Company under a management agreement until October, 2007, as well as increased costs and operating expenses of the laundry, including utility costs.

The Company’s loss from management activities, which is computed after giving effect to management fees from owned and leased hotels, decreased by $1,367,000 to $2,216,000 in 2008.  Revenues increased by $1,306,000, primarily from increased fee income from the Company’s managed operations in Egypt.  Expenses related to these activities decreased by $61,000.  Corporate expenses in 2008 included $720,000 related to an employment agreement with Roger Sonnabend, the Company’s former Executive Chairman of the Board who passed away in December 2008.  The 2008 expenses also included approximately $250,000 in costs related to a hotel project in Miami.  The Company started to work on this project during the summer of 2008, but decided in February 2009 not to further pursue this opportunity.  The Company also incurred higher legal costs related to the negotiation of management agreements for additional hotels, including the aforementioned project.  Expenses in 2007 included $691,000 based on an employment agreement following the retirement of a long term Company executive, Mr. Paul Sonnabend.  In addition, the Company spent approximately $265,000 in 2007 on legal and other costs in connection with a review of the Company’s strategic options to enhance shareholder value.

2007 versus 2006:  The Company recorded operating income in 2007 of $2,228,000, compared to an operating loss of $3,829,000 in 2006, representing an improvement of $6,057,000.  Sonesta Beach Resort Key Biscayne, which closed for operations on August 31, 2006, reported an operating loss of $1,073,000 in the eight-month period it operated in 2006.  Royal Sonesta Hotel Boston improved its operating income from $2,416,000 in 2006 to $4,926,000 in 2007 as a result of strong revenue growth and tight expense controls.  Operating losses from management activities decreased by $2,039,000 to $3,583,000 in 2007.  A more detailed discussion of the changes in operating income by location follows.

Sonesta Beach Resort Key Biscayne, which closed on August 31, 2006 (see Note 3 – Investment in Development Partnership), recorded an operating loss of $1,073,000 during 2006.  The 2006 operating loss was primarily from additional depreciation charges totaling $2.5 million in 2006, from the revision of useful lives of certain furniture and equipment, which became obsolete following the closure of the hotel in August 2006.  During the period the hotel was operating in 2006, it reported a substantial operating cash flow.  The operating loss of $1,073,000 was primarily a result of depreciation expense of $4,038,000, and, in addition, the hotel had minimal capital expenditures due to the anticipated closing.  Since the hotel’s debt was repaid in April 2005 no interest expense was incurred during 2006.

Royal Sonesta Hotel Boston increased operating income from $2,416,000 in 2006 to $4,926,000 in 2007, an increase of $2,510,000.  Revenues increased by $2,969,000 due to strong demand in the Boston hotel market, and overall expenses only increased by $459,000, representing a 2% increase, due to strict expense controls.  Increased costs and operating expenses and depreciation expense were partially offset by lower maintenance costs, and a decrease in human resources expense, since the 2006 expenses included the cost of recruiting and relocating a new General Manager for the Hotel.  In addition, employee benefit costs decreased following the freeze of the Company’s pension plan effective December 31, 2006.

Royal Sonesta Hotel New Orleans reported an increase in operating income of $435,000, improving operating income to $885,000 in 2007 compared to 2006.  Revenues in 2007 increased by $3,994,000, and expenses increased by $3,559,000.  The increase in expenses was primarily due to increased costs and operating expenses, including payroll expense.  The 2007 revenue growth was primarily from increased food and beverage revenues, which have a much lower profit margin compared to rooms income.  In addition, the Hotel’s staffing levels during 2006, especially during the first quarter, were much lower than in 2007, since many of its employees were unable to return to New Orleans in the aftermath of Hurricane Katrina.  The Hotel also experienced increased payroll costs in 2007 due to the continuing labor shortages in New Orleans.  Lower employee benefit costs due to the freeze of the Company’s Pension Plan partially offset the increase in payroll costs.  The Hotel increased its sales and marketing expenditures in 2007 compared to 2006 in an effort to generate additional business.

The Company’s loss from management activities decreased from $5,622,000 in 2006 to $3,583,000 in 2007.  The Company’s loss from management activities is computed after giving effect to management and marketing fees from owned and leased hotels.  Revenues from management increased by $2,722,000 compared to last year, primarily due to increased management income from Sonesta Bayfront Hotel Coconut Grove and Trump International Sonesta Beach Resort Sunny Isles, and additional income from the Company’s managed operations in Egypt.  Expenses related to these activities increased by $683,000 in 2007 compared to 2006.  Decreases in corporate sales and marketing expenditures, due to a restructuring of the Company’s regional sales offices, and lower employee benefit costs due to the freeze of the Company’s Pension Plan, were offset by increased administrative and general expenses and depreciation expense.  Administrative and general expenses included costs related to the retirement of a long-term company executive.  This expense of $691,000 was based on an employment agreement.  In addition, administrative and general expenses included $265,000 in legal and other costs incurred in connection with a review of the Company’s strategic options to enhance shareholder value.  The Company completed the review in December 2007, and decided to continue operating as an independent entity.  Depreciation expense included an additional expense of $567,000 related to accelerated depreciation of an investment the Company made in Trump International Sonesta Beach Resort.  The Company invested $2,268,000 in the Hotel in 2003, which it was amortizing over the initial ten-year term of the management contract.  Since the Company decided to exercise an early termination option (see Note 2

6

– Operations) the Company relinquished management of this property effective April 1, 2008, and as a result accelerated the depreciation of the remaining investment in the Hotel.

Other Income and Deductions

Interest expense, which consists entirely of interest paid on the Company’s mortgage loan secured by Royal Sonesta Hotel Boston, decreased by $42,000 in 2008 compared to 2007, due to the principal payments made on the loan during 2008.  No principal payments were made in 2007.

Interest income increased from $1,584,000 in 2006 to $1,720,000 in 2007, but decreased to $1,182,000 in 2008.  The decrease in 2008 was the result of lower income earned on the Company’s short-term cash investments, due to lower rates of return.  In addition, the 2008 period included lower interest earned on a loan to the owner of Sonesta Bayfront Hotel Coconut Grove.  This loan was repaid during 2008.  The decrease in interest income was partially offset by interest earned on a new loan made to the owners of Sonesta Beach Resort and Sonesta Club, in Sharm El Sheikh, and from income received related to the settlement of a dispute with the owner of Trump International Sonesta Beach Resort, in Sunny Isles, Florida, which the Company managed until April 1, 2008 (see Note 2).  The increase in interest income in 2007 compared to 2006 was primarily due to an increase in short-term investment income on the Company’s cash balances.

The $576,000 gain on sale of assets in 2008 resulted primarily from a $422,000 gain on the sale of a co-op unit the Company owned in New York City to the Company’s Executive Chairman.  The sale price was $700,000.  The Company’s Board of Directors approved this transaction.  In addition, the Company realized a gain on the sale of art in 2008.  The gain on the sale of assets of $214,000 during the 2007 period was almost entirely from the sale of art.

Federal, State and Foreign Income Taxes

In 2008, the Company recorded a net tax provision of $1,377,000 on its pre-tax income of $5,457,000.  The Company is able to take substantial credits for foreign taxes paid in 2008, and for foreign taxes paid in prior years which had been carrying forward.  In addition, the Company benefited from current and prior year’s general business credits, including work opportunity tax credits related to Hurricane Katrina.  The Company also recorded a state income tax benefit of $216,000 for Massachusetts taxes resulting from changes enacted in tax laws during 2008.  These changes include conforming to federal entity classification rules and adopting a unitary method of taxation.

In 2007, the Company recorded a net tax benefit of $151,000, even though pre-tax income equaled $1,186,000.  The Company was able to take substantial credits for foreign taxes paid in 2007, and foreign taxes paid in previous years, which it had been carrying forward.  In addition, the Company benefited from general business credits, including work opportunity tax credits related to Hurricane Katrina.

Liquidity and Capital Resources

The Company had cash and cash equivalents of approximately $37.5 million at December 31, 2008.  As of that date, the majority of these funds were held in money market mutual funds which participate in the U.S. Treasury Department Temporary Guarantee Program for Money Market  Funds, and in money market funds which invest solely in U.S. government obligations.

In February 2008 the Company paid a special dividend of $1 per share ($3,698,000).  In October 2008, the Company declared an additional special dividend of $0.15 per share ($555,000), which was paid in January, 2009.  These were in addition to dividends of $0.20 per share paid during each of the years 2006, 2007 and 2008.  Total dividends declared in 2008 equaled $4,993,000.

The Company contributed $1,280,000 and $1,722,000 to its Pension Plan in 2008 and 2007, respectively.

From April 2003 through March 2008, the Company operated Trump International Sonesta Beach Resort Sunny Isles, in Florida, under a management agreement.  The Company had a one-time right to cancel the management agreement, effective five years after the opening date, upon 6 months notice, and receive repayment of advances it was obligated to make for net operating losses and certain minimum returns due to the hotel’s owner.  The amount due upon termination, $7,031,000, was disputed by the hotel’s owner.  An arbitration procedure to resolve the dispute commenced in April 2008 and was settled in October 2008.  The Company received a total of $5,002,000, which included the amount of the settlement of $4,929,000, and its share of the interest earned on an escrow account in the amount of $73,000.  Of the settlement amount, $1,135,000 repaid the Company’s outstanding receivable (see Note 4).  After deducting $515,000 for legal and other costs in connection with the arbitration, the remaining amount of $3,279,000 was recorded as income in the 2008 third quarter.  This amount relates to fees due to the Company which were not previously recorded since the hotel’s profits were insufficient to pay them, and the collectability was uncertain.

In January 2008, the Company agreed to convert approximately $1.6 million of receivables for fees and expenses from two hotels it manages in Sharm El Sheikh, Egypt into a five-year loan.  This was part of a transaction which also included the extension until 2024 of the management agreement for Sonesta Club Sharm El Sheikh, which otherwise would have expired at the end of 2009.  In return, the Company agreed to pay $500,000, which payment was made by reducing outstanding receivables from Sonesta Club.

Under the terms of the partnership agreement for a development project in which the Company is a 50% limited partner, the Company received monthly payments of $125,000 since August 2006.  These payments reduced the carrying value of the Company’s investment.  The partnership’s general partner suspended these payments as of February 2008, in order to conserve cash for development expenditures.  Previously, the partnership deferred payments of a monthly development fee to the general partner.  During the 2009 first quarter, the Company advanced $842,000 to the partnership (see also Note 3).

The Company operates the Sonesta Bayfront Hotel Coconut Grove, in Miami, which is a condominium hotel that opened in April 2002.  Under its agreements, the Company is committed to fund net operating losses, and to provide the hotel’s owner with a minimum annual return ($442,000 during 2008), adjusted annually by increases in the Consumer Price Index.  The management agreement can be terminated by the hotel’s owner if the Company fails to cure shortfalls against a minimum target return ($1,001,000 during 2008), adjusted annually by increases in the CPI.  The hotel’s 2008 and 2007 net operating profits were sufficient to cover the owner’s target returns and to earn fees from the hotel of $1,039,000 and $947,000 in 2008 and 2007, respectively.  In October 2008, the Company received $2,627,000 in connection with the repayment of a loan made to the owner of the hotel for initial furniture, fixtures and equipment and pre-opening expenses.

In October 2007, the Company agreed to terminate its management agreement for Chateau Sonesta Hotel New Orleans.  In connection with the termination, the Company received $1,500,000, which included the repayment of advances the Company made to the Hotel’s owner following Hurricane Katrina and interest thereon.  The Company also received a note for $1.6 million, which accrues interest at 8%.  The note,

7

which is unsecured, represents a settlement for amounts owed for deferred management fees and a bonus incentive fee which were not previously recorded, as collectability was uncertain, as well as interest on the aforementioned fees and unpaid interest on the advances.  Since payments on the note prior to maturity, in September 2010, are dependent on future cash flows of the hotel, the Company has fully reserved this note receivable.  The Company will recognize loan payments as income when cash payments are received.  The Company entered into a license agreement for the use of its name with the owner of the hotel, which agreement was terminated in October 2008.

Brewster Wholesale Corporation, a wholly owned subsidiary of the Company, provides purchasing services to the Company’s hotels and third party clients.  In 2007 and 2008, Brewster contracted to provide purchasing services for two major refurbishment projects for a third-party client.  Deposits received against orders placed on behalf of this client of approximately $174,000 and $1,700,000 are included in Restricted Cash and Advance Deposits on the Company’s balance sheet at December 31, 2008 and 2007, respectively.

Company management believes that its present cash balances will be more than adequate to meet its cash requirements for 2009 and for the foreseeable future.

As of December 31, 2008, the Company’s fixed contractual obligations were as follows (in thousands):

	YEAR
	2009		2010		2011		2012		2013		Thereafter		Total
Long-Term Debt Obligations	$	1,163	$	31,839	$	--	$	--	$	--	$	--	$	33,002
Operating Leases		744		702		636		296		104		--		2,482
Total	$	1,907	$	32,541	$	636	$	296	$	104	$	--	$	35,484

The Company’s hotels also have certain purchase obligations, primarily for maintenance and service contracts.  These are not included in the contractual obligations since the amounts committed are not material, and because the majority of these contracts may be terminated on relatively short notice.

8

Economic Outlook

The economic recession affected the Company’s business in the 2008 fourth quarter, and this has continued during the first quarter of 2009.  Hotel business depends heavily on economic activity, and the Company’s U.S. hotels will be impacted in 2009 both from lower consumer demand as well as diminished corporate spending.  Both of the Company’s Boston and New Orleans hotels depend heavily on corporate groups and conventions.  Cost saving initiatives have been implemented, including layoffs at the Boston hotel and salary freezes at the Company’s Corporate office and for hotel management.  In addition, the Company will temporarily halt matching contributions to its 401(k) Plan, effective April 1, 2009.

It is impossible to predict the extent of the impact of the poor economic environment on the Company’s 2009 results.  The Company does have adequate cash resources to continue operations, and meet its foreseeable needs.

Review of Strategic Options

In June 2007, the Company’s Board of Directors retained Goldman, Sachs & Company to explore, under the direction of a special committee comprised of independent directors, strategic options available to the Company to increase shareholder value.  After considerable efforts evaluating alternatives with Goldman, Sachs & Company, and in light of the conditions affecting the real estate and financing markets, the Company completed the review in December 2007, and decided to continue to operate and license hotels in the United States and abroad as an independent entity.  Sonesta’s Board of Directors will continue to monitor both the real estate and financial markets to determine appropriate strategy in order to maximize shareholder value.

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.   Certain 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.

Management, license and service fees represents fee income from hotels operated under management agreements, and license fees from hotels to which the Company has licensed the use of the “Sonesta” name.  Management fees include base fees and marketing fees, which are generally based on a percentage of gross revenues, and incentive fees, which are generally based on the hotels’ profitability.  These fees are typically based on revenues and income achieved during each calendar year.  Incentive fees, and management fees of which the receipt is based on annual profits achieved, are recognized throughout the year on a quarterly basis based on profits achieved during the interim periods when our agreements provide for quarterly payments during the calendar years they are earned, and when such fees would be due if the management agreements were terminated.  As a result, during quarterly periods, fee income may not be indicative of eventual income recognized at the end of each calendar year due to changes in business conditions and profitability.  License fees are earned based on a percentage of room revenues of the hotels.

The Company records the reimbursement of certain expenses incurred on behalf of managed and affiliated properties, and the costs incurred on behalf of owners of managed properties on a “gross” basis in revenues and costs.  These costs relate primarily to payroll and benefit costs of managed properties in which the Company is the employer.

· Impairment of long lived assets – the Company monitors the carrying value of its owned properties and its investment in development property 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 estimates incorrectly or 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 maintains a defined benefit plan for eligible employees, which was frozen effective December 31, 2006.    Costs and liabilities are developed from actuarial valuations.  In these valuations are assumptions relating to discount rates, expected return on assets and employee turnover.  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 Bayfront Hotel 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 ($442,000 during 2008), adjusted annually by increases in the Consumer Price Index, beginning as of January 1, 2004.  In addition, starting in 2005, the management agreement may be subject to termination if the Company elects not to cure shortfalls against a minimum target return ($1,001,000 during 2008), adjusted annually by increases in the Consumer Price Index.  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 and minimum target returns are not met, the Company’s policy is to eliminate management and marketing fees from its revenues.  If the amount of the shortfall exceeds the fee income, the Company will book the additional amount as an administrative and general expense.

· Trump International Sonesta Beach Resort  - until April 2008, the Company operated a condominium hotel in Sunny Isles Beach, Florida.  The hotel opened in April 2003.   Under the management agreement, the Company was entitled to management and marketing fees based on the hotel’s revenues, and incentive fees based on the hotel’s net operating income. The Company was obligated to advance funds for operating losses and to provide

9

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 was obligated to advance 50% of any net operating losses.  Amounts advanced under these obligations were subject to repayment, without interest, out of future profits in excess of the aforementioned minimum return.  During the years the minimum returns were not earned, the Company eliminated the fee income earned from the property from its revenues.  If the amounts of the shortfalls exceeded the total fee income, the Company reflected such excess amounts either as long-term receivables and advances on its balance sheet, or recorded an expense equal to the amount advanced.  The Company exercised its right to terminate the management agreement effective April 1, 2008, and receive back advances it made under the agreement totaling $7,031,000.  In October 2008, following the settlement of a dispute, the Company received $5,002,000 in connection with the termination of the management agreement, which included the repayment of advances and the payment of fees which were not previously recorded.  The Company had invested in the furniture, fixtures and equipment of the non-guestroom areas of the hotel, an amount of $2,268,000.  This was included in other long-term assets, and was being amortized over the 10-year initial term of the management agreement.  As a result of the decision to terminate the agreement, the Company accelerated the depreciation of the long-term asset during the 2007 fourth quarter.

· Accounting for 2005 Asset Transfer – in April 2005, the Company completed the transfer of the land and improvements of Sonesta Beach Key Biscayne to a development partnership, of which the Company is a 50% partner.  At that time, the Company received non-refundable proceeds of approximately $60 million, and is entitled to a priority return of an additional $60 million from the sale proceeds of residential condominium units to be constructed on the site.  Since the Company has a continuing involvement in the ownership of the development, the initial gain is being deferred.  A comprehensive description of this transaction is included in Note 3 – Investment in Development Partnership.

10

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 Royal Sonesta Boston.  The table that follows summarizes the Company’s fixed rate debt obligations outstanding at December 31, 2008, and presents the fair value of the debt based on current prevailing interest rates for similar financing. This information should be read in conjunction with Note 5 — Borrowing Arrangements.

Short and Long Term Debt (in thousands) maturing in:

	YEAR
	2009			2010			Thereafter		Total		Fair Value
Fixed rate	$	1,163		$	31,839		$	--	$	33,002	$	33,944
Average interest rate		8.6	%		8.6	%

Selected Quarterly Financial Data

Following are selected quarterly financial information for the years ended December 31, 2008 and 2007.

	(in thousands except for per share data)
	2008
	1st			2nd		3rd		4th
Revenues	$	17,798		$	20,422	$	16,398	$	16,934
Other revenues from managed and affiliated properties		5,117			1,346		1,286		1,216
Total revenues		22,915			21,768		17,684		18,150
Operating income (loss)		80			2,730		4,411		(550	)
Net income (loss)		90			1,506		2,792		(308	)
Net income (loss) per share	$	0.02		$	0.41	$	0.76	$	(0.09	)
	2007
	1st			2nd		3rd		4th
Revenues	$	15,383		$	18,118	$	15,599	$	18,839
Other revenues from managed and affiliated properties		4,900			4,678		4,537		4,631
Total revenues		20,283			22,796		20,136		23,470
Operating income (loss)		(737	)		1,636		809		520
Net income (loss)		(821	)		762		442		954
Net  income (loss) per share	$	(0.22	)	$	0.21	$	0.12	$	0.25

11

Fourth Quarter Results

Revenues

	TOTAL REVENUES
	(in thousands)
	NO. OF ROOMS		2008		2007
Royal Sonesta Hotel Boston		400	$	7,344	$	8,128
Royal Sonesta Hotel New Orleans		500		7,884		8,496
Management and service fees				1,706		2,215
Total revenues, excluding other revenues from managed and affiliated properties			$	16,934	$	18,839

Total revenues, excluding other revenues from managed and affiliated properties, during the fourth quarter of 2008 were $16,934,000 compared to $18,839,000 during the fourth quarter of 2007, a decrease of $1,904,000.    Revenues at both the Company’s Boston and New Orleans hotels were affected by the economic downturn during the 2008 fourth quarter.

Royal Sonesta Hotel Boston reported fourth quarter 2008 revenues of $7,344,000 compared to $8,128,000 during the fourth quarter of 2007, representing a $784,000, or 10%, decrease.  Room revenues decreased by $442,000 in the 2008 fourth quarter compared to last year, due to an 8.5% decrease in room revenues per available room (“REVPAR”).  Occupancies were virtually the same in the fourth quarter of 2008 compared to 2007, but the hotel’s average daily room rate declined substantially.  Group and convention business in particular decreased during the 2008 quarter.  The hotel made up the deficiency in occupancy with increased transient sales, albeit at lower rates.  Revenues from other sources declined by $342,000 in the 2008 quarter compared to last year due to a decrease in banqueting revenues, resulting from the aforementioned decrease in group and convention business.

Royal Sonesta Hotel New Orleans recorded 2008 fourth quarter revenues of $7,884,000 compared to $8,496,000 during the 2007 fourth quarter, a decrease of $612,000, or 7%.  Room revenues declined by $478,000 due to a 9% REVPAR decrease.  Both lower occupancies as well as average room rates achieved contributed to the REVPAR decrease.  The loss in occupancy was primarily from group and convention business, which also affected the hotel’s banqueting revenues.

Revenues from management activities decreased by $509,000 to $1,706,000 during the 2008 fourth quarter.  This was primarily due to decreased fee income from Trump International Sonesta Beach Resort, Sunny Isles, which was only partially offset by an increase in fee income from the Company’s managed hotels in Egypt.  The Company terminated its management agreement for the Sunny Isles hotel, effective April 1, 2008 (see Note 2).

Operating Income

	OPERATING INCOME (LOSS)
	(in thousands)
	2008			2007
Royal Sonesta Hotel Boston	$	1,257		$	1,766
Royal Sonesta Hotel New Orleans		(373	)		71
Operating income from hotels after management and service fees		884			1,837
Management activities and other income		(1,434	)		(1,317	)
Operating income (loss)	$	(550	)	$	520

The Company reported an operating loss of $550,000 during the fourth quarter of 2008, compared to operating income of $520,000 in the fourth quarter of 2007.

Royal Sonesta Hotel Boston reported operating income of $1,257,000 in the 2008 fourth quarter compared to $1,766,000 during the 2007 fourth quarter, a decrease of $509,000.  Decreases in revenues of $784,000 were partially offset by decreased expenses of $275,000.  The decrease in expenses was primarily from lower costs and operating expenses of $283,000 (an 8% decrease).  Management reduced payroll and other expenses in response to the decline in business levels.

Royal Sonesta Hotel New Orleans reported an operating loss of $373,000 during the 2008 fourth quarter compared to operating income of $71,000 during the 2007 fourth quarter, a decrease of $444,000.  Revenues decreased by $612,000, and were partially offset by a $168,000 decrease in expenses.  The decrease was primarily from lower costs and operating expenses and lower rent expense due to the lower operating profits.

Operating loss from management activities was $1,434,000 in the 2008 fourth quarter, a $117,000 increase compared to the 2007 fourth quarter loss of $1,317,000.  Revenue decreases of $509,000 were partially offset by lower expenses related to these activities of $392,000.  The decrease was primarily from lower depreciation expense.  The 2007 quarter included an additional depreciation charge of $567,000 related to accelerated depreciation of an investment the Company made in Trump International Sonesta Beach Resort Sunny Isles, following its decision to terminate the management agreement for this hotel (see also Note 2 – Operations).  Administrative and general expenses increased during the 2008 fourth quarter due to legal fees associated with the negotiation of management agreements, as well as a $250,000 charge for costs incurred related to a hotel project in Miami.  The Company started to work on this project during the summer of 2008, but decided in February 2009 not to further pursue this opportunity.

12

SONESTA INTERNATIONAL HOTELS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

For the years ended December 31, 2008 and 2007

(in thousands, except for per share data)

	2008			2007
Revenues:
Rooms	$	41,052		$	39,121
Food and beverage		17,519			17,113
Management, license and service fees		7,956			6,635
Parking, telephone and other		5,025			5,069
		71,552			67,938
Other revenues from managed and affiliated properties		8,965			18,747
Total revenues		80,517			86,685
Costs and expenses:
Costs and operating expenses		30,819			29,878
Advertising and promotion		5,608			5,427
Administrative and general		14,405			13,823
Human resources		1,191			1,122
Maintenance		3,549			3,573
Rentals		5,392			4,168
Property taxes		1,358			1,672
Depreciation and amortization		5,838			6,047
		68,160			65,710
Other expenses from managed and affiliated properties		8,965			18,747
Total costs and expenses		77,125			84,457
Income from Management Agreement settlement, net		3,279			--
Operating income		6,671			2,228
Other income (deductions):
Interest expense		(2,970	)		(3,012	)
Interest income		1,182			1,720
Foreign exchange profit (loss)		(2	)		36
Gain on sales of assets		576			214
		(1,214	)		(1,042	)
Income before income taxes		5,457			1,186
Income tax expense (benefit)		1,377			(151	)
Net income	$	4,080		$	1,337
Basic and diluted income per share	$	1.10		$	0.36
Dividends per share	$	1.35		$	0.20
Weighted average number of shares outstanding		3,698			3,698

See accompanying notes to consolidated financial statements.

13

SONESTA INTERNATIONAL HOTELS CORPORATION

CONSOLIDATED BALANCE SHEETS

December 31, 2008 and 2007

(in thousands, except for per share data)

	2008		2007
ASSETS
Current assets:
Cash and cash equivalents	$	37,463	$	32,620
Restricted cash		175		1,700
Accounts and notes receivable:
Trade, less allowance of $59 ($66 in 2007) for doubtful accounts		5,407		7,676
Other, including current portion of long-term receivables and advances		1,001		1,151
Total accounts and notes receivable		6,408		8,827
Inventories		628		607
Current deferred tax assets		462		578
Prepaid expenses and other current assets		2,163		1,915
Total current assets		47,299		46,247
Long-term receivables and advances		992		3,776
Deferred tax assets		9,049		7,242
Investment in development partnership (see Note 3)		33,666		33,791
Property and equipment, at cost:
Land and land improvements		2,102		2,102
Buildings		25,610		26,190
Furniture and equipment		30,150		31,413
Leasehold improvements		8,785		8,450
Projects in progress		472		246
		67,119		68,401
Less accumulated depreciation and amortization		32,088		31,098
Net property and equipment		35,031		37,303
Other long-term assets		1,003		1,232
	$	127,040	$	129,591

See accompanying notes to consolidated financial statements.

14

SONESTA INTERNATIONAL HOTELS CORPORATION

CONSOLIDATED BALANCE SHEETS

	2008			2007
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	1,163		$	1,059
Accounts payable		3,747			4,494
Advance deposits		1,281			2,936
Accrued income taxes		402			306
Accrued liabilities:
Salaries and wages		1,772			2,000
Rentals		4,787			3,575
Interest		244			252
Pension and other employee benefits		1,612			2,341
Other		862			839
		9,277			9,007
Total current liabilities		15,870			17,802
Long-term debt		31,839			33,002
Deferred gain (see Note 3)		64,481			64,481
Pension liability, non-current		9,338			4,553
Other non-current liabilities		1,386			1,206
Commitments and contingencies (see Note 7)
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		14,155			15,068
Treasury shares – 2,404, at cost		(12,053	)		(12,053	)
Accumulated other comprehensive income (loss)		(2,858	)		650
Total stockholders’ equity		4,126			8,547
	$	127,040		$	129,591

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SONESTA INTERNATIONAL HOTELS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the years ended December 31, 2008 and 2007

(in thousands, except for per share data)

Common Shares Outstanding		Class A Common Stock		Treasury Shares at Cost			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
3,698	Balance January 1, 2007	$	4,882	$	(12,053	)	$	14,773		$	(231	)	$	7,371
--	Cash dividends declared on common stock ($0.20 per share)		--		--			(740	)		--			(740	)
--	Net income		--		--			1,337			--			1,337
--	Cumulative effect of change in accounting for sabbatical leaves		--		--			(302	)		--			(302	)
--	Pension Plan, actuarial gain recognized		--		--			--			881			881
3,698	Balance December 31, 2007		4,882		(12,053	)		15,068			650			8,547
--	Cash dividends declared on common stock ($1.35 per share)		--		--			(4,993	)		--			(4,993	)
--	Net income		--		--			4,080			--			4,080
--	Pension plan, actuarial loss recognized		--		--			--			(3,508	)		(3,508	)
3,698	Balance December 31, 2008	$	4,882	$	(12,053	)	$	14,155		$	(2,858	)	$	4,126

SONESTA INTERNATIONAL HOTELS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the years ended December 31, 2008 and 2007

(in thousands)

	2008			2007
Net income	$	4,080		$	1,337
Other comprehensive income (loss), net of tax:
Pension Plan, actuarial income (loss) recognized		(3,508	)		881
Comprehensive income	$	572		$	2,218

See accompanying notes to consolidated financial statements.

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SONESTA INTERNATIONAL HOTELS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31, 2008 and 2007

(in thousands)

	2008			2007
Cash provided by operating activities
Net income	$	4,080		$	1,337
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization of property and equipment		5,838			6,047
Other amortization and non-cash expenses		262			41
Deferred federal and state income tax provision		353			109
Gain on sales of assets		(576	)		(214	)
Changes in assets and liabilities
Restricted cash		1,526			(1,700	)
Accounts and notes receivable		(39	)		(412	)
Inventories		(21	)		(75	)
Prepaid expenses and other		71			51
Accounts payable		(1,301	)		712
Advance deposits		(1,655	)		2,107
Income taxes		(223	)		(446	)
Accrued liabilities		(319	)		(112	)
Cash provided by operating activities		7,996			7,445
Cash provided by investing activities
Proceeds from sales of assets		1,058			324
Payments received from development partnership		125			1,500
Expenditures for property and equipment		(3,494	)		(4,267	)
New loans and advances		(135	)		--
Payments received on long-term receivables and advances		4,789			3,470
Cash provided by investing activities		2,343			1,027
Cash used in financing activities
Repayments of long-term debt		(1,058	)		--
Cash dividends paid		(4,438	)		(740	)
Cash used in financing activities		(5,496	)		(740	)
Net increase in cash and cash equivalents		4,843			7,732
Cash and cash equivalents at beginning of year		32,620			24,888
Cash and cash equivalents at end of year	$	37,463		$	32,620

See accompanying notes to consolidated financial statements.

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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, Massachusetts; New Orleans, Louisiana; and Key Biscayne, Florida (until August 2006).  The Company also operates, under management agreements, hotels in Coconut Grove, Florida, New Orleans, Louisiana (until October 2007) and Sunny Isles, Florida (until March 2008); and in Cairo, Sharm El Sheikh, Luxor, Taba, Hurghada and Port Said, Egypt.  The Company also manages five Nile River cruise ships in Egypt.  Sonesta has granted licenses, for which it receives fees, for the use of its name for hotels in St. Maarten, Peru and Brazil.

In April 2005, the Company transferred the land and improvements of Sonesta Beach Resort Key Biscayne to a development partnership, in which the Company is a 50% owner (see Note 3 – Investment in Development Partnership).  The new partnership intends to redevelop the hotel’s site.  The hotel closed for operations on August 31, 2006.  Since the Company has a continuing interest in the development partnership, the historical results of Sonesta Beach Resort Key Biscayne are not accounted for as a discontinued operation.

Principles of Consolidation:

The consolidated financial statements include the results of operations of wholly-owned and leased properties, and fee income and certain revenues and costs from reimbursable expenses incurred at managed and affiliated properties.  All significant intercompany balances and transactions have been eliminated.  The Company has identified certain of its management agreements as variable interest entities in accordance with Financial Accounting Standards Board Interpretation No. 46(R), “Consolidation of Variable Interest Entities”.  However, the Company does not believe it bears the majority of the risk of loss from the variable interest entity’s activities, nor is it entitled to receive the majority of the variable interest entity’s residual returns.  As a result, these entities are not consolidated in the Company’s financial statements.

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:

Inventories consist of merchandise and supplies, and are stated at the lower of cost (first-in/first-out method) or market.

Revenue Recognition:

The Company’s revenues are primarily derived from (1) owned and leased hotels and (2) management, license and service fees.

· Owned and leased hotels – The majority of the Company’s income is derived from  its owned and leased hotels from the rental of rooms, food and beverage sales as well as charges for parking, telephone and other incidental charges.  These revenues are recognized when rooms are occupied and services have been rendered.

· Management, license and service fees – Represents fee income from hotels operated under management agreements, and license fees from hotels to which the Company has licensed the use of the “Sonesta” name.  Management fees include base fees and marketing fees, which are generally based on a percentage of gross revenues, and incentive fees, which are generally based on the hotels’ profitability.  These fees are typically based on revenues and income achieved during each calendar year.  Incentive fees, and management and marketing fees of which the receipt is based on annual profits achieved, are recognized throughout the year on a quarterly basis based on profits achieved during the interim periods when our agreements provide for quarterly payments during the calendar years they are earned, and when such fees would be due if the management agreements were terminated.  As a result, during quarterly periods, fee income may not be indicative of eventual income recognized at the end of each calendar year due to changes in business conditions and profitability.  License fees are earned based on a percentage of room revenues of the hotels.  Revenues and expenses of hotels operated under management agreements are excluded from the Company’s consolidated statements of operations, except for certain costs described below.

In accordance with the Emerging Issues Task Force, Issue no. 01-14, “Income Statement Characterization of Reimbursements received for ‘Out of Pocket’ expenses Incurred”, the reimbursements of certain expenses incurred on behalf of managed and affiliated properties, and the costs incurred on behalf of owners of managed properties are recorded on a “gross” basis in revenues and costs.  These costs relate primarily to payroll and related costs of managed properties in which the Company is the employer.  The revenue for these costs is included in Other revenue from managed and affiliated properties and the offsetting expense is included in Other expenses from managed and affiliated properties.

Advertising:

The cost of advertising is generally expensed as incurred.

Property and Equipment:

Property and equipment are stated at cost.  Depreciation and amortization of items of property and equipment are computed on the straight-line method based on the following estimated useful lives:

Buildings and building improvements:
Owned properties	10 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, an investment in a development partnership 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:

We provide for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes”.  The Company and its United States subsidiaries file a consolidated federal income tax return.  Federal and foreign income taxes are provided on earnings of foreign subsidiaries.

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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 majority of the Company’s cash and cash equivalents at December 31, 2008 were held in money market mutual funds which participate in the U.S. Treasury Department Temporary Guarantee Program for Money Market Funds, and in money market funds which invest solely in U.S. Government obligations.  The book balance at December 31, 2008 of the Company’s long-term debt, which carries an interest rate of 8.6%, is $33,002,000.    The Company estimates the fair value of this debt at approximately $33,944,000, based on current prevailing interest rates for similar mortgage debt.

Impact of Recently Issued Accounting Standards:

In December 2007, the FSAB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements” (SFAS No. 160).  SFAS No. 160 addresses consolidation rules for noncontrolling interests.  The objective is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.  It applies to all entities that prepare consolidated financial statements, except for not-for-profit organization, but will affect only those entities that have an outstanding noncontrolling interest in one or more subsidiaries or that deconsolidate a subsidiary.  This Statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.  Early adoption is prohibited.  Management is currently evaluating SFAS No. 160 to determine if it will have a material impact on the Company’s future financial statements.

In December 2007, the FASB issued SFAS No.141R, “Business Combinations” (SFAS no. 141R).  SFAS No. 141R addresses financial accounting and reporting for business combinations, and supersedes APB Opinion No. 16, Business Combinations and FASB Statement No. 38, Accounting for Preacquisition Contingencies of Purchased Enterprises.  The objective is to provide consistency to the accounting and financial reporting of business combinations by using only one method, the purchase method.  This Statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.  Early adoption is prohibited.  Management is currently evaluating SFAS No. 141R.  It could have a material impact on the Company’s future financial statements if an acquisition is completed.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (SFAS No. 161).  SFAS No. 161 enhances the disclosure requirements for derivative instruments and hedging activities.  Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows.  This Statement is effective for fiscal years, and interim periods within those fiscal years, beginning after November 15, 2008.  This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption.  Early adoption is encouraged.  Management is currently evaluating SFAS No. 161 to determine if it will have a material impact on the Company’s future financial statements.

Effective January 1, 2007, the Company adopted the provisions of EITF Issue No. 06-2, “Accounting for Sabbatical Leaves and other Similar Benefits”.  Under the provisions, the Company accrues a liability for the cost of sabbatical leave benefits for its employees over the period required for the employees to earn the right to the sabbatical leave benefits.  The Company has a policy under which management staff can take a six-week sabbatical leave of which the Company sponsors four weeks.  Eligible employees can take a sabbatical leave for the first time after ten years of service, and every five years thereafter.  At December 31, 2007, the Company recorded a liability on its balance sheet of $477,000 for benefits accrued through this date.  As allowed by the provisions of EITF Issue No. 06-2, the Company charged the cost of accrued benefits accumulated at January 1, 2007, in the amount of $302,000, net of taxes, directly to retained earnings on its balance sheet.

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.

Statement of Cash Flows:

Cash and cash equivalents consist 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 2008 and 2007 was approximately $2,936,000 and $2,970,000, respectively.  Cash paid for income taxes in 2008 and 2007 was approximately $1,350,000 and $238,000, respectively.

In January 2008, the Company agreed to convert approximately $1.6 Million of receivables for fees and expenses from two hotels it manages in Sharm El Sheikh, Egypt into a five year loan.  In addition, the Company paid the hotels’ owner $500,000 for an extension of the management agreement for one of the hotels, which payment was made by reducing outstanding receivables.  In connection with this transaction, the Company recorded the following non-cash transaction (in thousands):

Increase in Long term receivables	$	1,473
Increase in Long term assets		545
Decrease in Accounts Receivable		(2,018	)

2. Operations

From April 2003 through March 2008, the Company operated Trump International Sonesta Beach Resort Sunny Isles, in Florida, under a management agreement.  The Company had a one-time right to cancel the management agreement, effective five years after the opening date, upon 6 months notice, and receive repayment of advances it was obligated to make for net operating losses and certain minimum returns due to the hotel’s owner.  The amount due upon termination, $7,031,000, was disputed by the hotel’s owner.  An arbitration procedure to resolve the dispute commenced in April 2008 and was settled in October 2008.  The Company received a total of $5,002,000, which included the amount of the settlement of $4,929,000, and its share of the interest earned on an escrow account in the amount of $73,000.  Of the settlement amount, $1,135,000 repaid the Company’s outstanding receivable (see Note 4).  After deducting $515,000 for legal and other costs in connection with the arbitration, the remaining amount of $3,279,000 was recorded as income in the 2008 third quarter.  This amount relates to fees due to the Company which were not previously recorded since the hotel’s profits were insufficient to pay them, and collectability was uncertain.

19

In 2008, the Company signed a management agreement for a hotel in Miami, Florida, which is expected to go under construction in 2009.  During 2007, the Company entered into management agreements for resorts in San Carlos, Mexico and Jaco, Costa Rica.  The Costa Rica resort is currently under construction, and is scheduled to open in 2009.  The hotel in San Carlos is still in the development phase.  In 2007, the Company also entered into a management agreement for Sonesta Pharaoh Beach Resort Hurghada, and started operating the resort on January 1, 2008.

In January 2008, the Company agreed to pay $500,000 to the owners of its two managed hotels in Sharm El Sheikh, Egypt, in return for an extension until 2024 of the management agreement for Sonesta Club, which otherwise would have expired in 2009.  The payment was made by reducing receivables for fees and expenses from this hotel.  In addition, the Company agreed to convert approximately $1.6 million of receivables from both hotels into a five-year loan, at an interest rate below market (5.25%).  The Company accounted for the loan based on a market rate of 6.5%, and discounted the loans accordingly.  The discount of $45,000, in addition to the $500,000 payment, has been recorded as an other long term asset, and will be amortized over the extended term of the management agreement.

The Company operates the Sonesta Bayfront Hotel Coconut Grove, in Miami, which is a condominium hotel that opened in April 2002.  Under its agreements, the Company is committed to fund net operating losses, and to provide the hotel’s owner with a minimum annual return ($442,000 during 2008), adjusted annually by increases in the Consumer Price Index.  The management agreement can be terminated by the hotel’s owner if the Company fails to cure shortfalls against a minimum target return ($1,001,000 during 2008), adjusted annually by increases in the CPI.  The hotel’s 2008 and 2007 net operating profits were sufficient to cover the owner’s target returns and to earn fees from the hotel of $1,039,000 and $947,000 in 2008 and 2007, respectively.  In October 2008, the Company received $2,627,000 in connection with the repayment of a loan made to the owner of the hotel for initial furniture, fixtures and equipment and pre-opening expenses.

In October 2007, the Company agreed to terminate its management agreement for Chateau Sonesta Hotel New Orleans.  In connection with the termination, the Company received $1,500,000, which included the repayment of advances the Company made to the Hotel’s owner following Hurricane Katrina, and interest thereon.  The Company also received a note for $1.6 million, which accrues interest at 8%.  The note, which is unsecured, represents a settlement for amounts owed for deferred management fees and a bonus incentive fee which were not previously recorded, as collectability was uncertain, as well as interest on the aforementioned fees and unpaid interest on the advances.  Since payments on the note prior to maturity, in September 2010, are dependent on future cash flow of the hotel, the Company has fully reserved this note receivable.  The Company will recognize loan payments as income when cash payments are received.  There were no payments received in 2008.  The Company entered into a license agreement for the use of its name with the owner of the hotel, which agreement was cancelled in October 2008.

Gross revenues for hotels operated by the Company under management contracts for third party owners, by geographic area, for the years ended December 31, 2008 and 2007, are summarized below:

	(in thousands)
	(unaudited)
	2008		2007
United States	$	26,060	$	56,708
Egypt		73,569		48,579
	$	99,629	$	105,287

Costs and operating expenses for owned and leased hotels for the years ended December 31, 2008 and 2007 are summarized below:

	(in thousands)
	2008		2007
Direct departmental costs:
Rooms	$	10,760	$	10,378
Food and beverage		14,246		13,922
Heat, light and power		2,932		2,925
Other		2,881		2,653
	$	30,819	$	29,878

Direct departmental costs include payroll expense and related payroll burden, the cost of food and beverage consumed and other departmental costs.

3. Investment in Development Partnership

In April 2005, Sonesta Beach Resort Limited Partnership (“SBRLP”), a wholly owned subsidiary of Sonesta International Hotels Corporation (“Sonesta”), completed the transfer of the land and improvements of Sonesta Beach Resort, in Key Biscayne, Florida to a partnership between SBRLP and affiliates of Fortune International, a Miami-based real estate development and brokerage firm (“Fortune”). SBRLP is a 50% limited partner in the new partnership, and affiliates of Fortune are the general partner and a limited partner, together owning a 50% interest in the partnership.  The purpose of the new partnership is to redevelop the site.

In connection with the closing in April 2005 of the transfer of the land and improvements to the new development partnership, Sonesta received $30,011,000 in cash, and, in addition, an existing mortgage of $29,967,000 on the property was paid off by SBR-Fortune.  Sonesta also received a priority equity position in SBR-Fortune of approximately $60 million.  This value will be paid to Sonesta out of the first available net proceeds from the sale of real estate, after repayment of debt.  Thereafter, Fortune will receive its initial $30 million equity contribution, plus any additional equity contributions it was required to make to redevelop the site.  Subsequent to Fortune fully recovering its investment, profits will be split equally.  Sonesta is not required to fund any additional equity beyond the contribution of the land and improvements.  Fortune has sole responsibility for arranging financing and completing construction.

From April 2005 through August 31, 2006, the Company continued to operate the existing hotel under a token ($1 per year) lease with SBR-Fortune, and reflected all income and expenses of the hotel in its statement of operations.  Additionally, the hotel’s assets remained included in fixed assets, and continued to be depreciated.  Due to its continuing involvement, the Company recognized the net proceeds received in April 2005 ($59,728,000) as a finance obligation.  Federal and state taxes paid on the taxable gain in 2005 of approximately $29.6 million from this transaction were recorded as deferred tax assets.

Sonesta Beach Resort Key Biscayne closed for business on August 31, 2006.  Costs related to the closure of $4 million, including severance payments to employees, funding of vacation pay, pension obligations and other costs, were reimbursed by SBR-Fortune, and are included in other revenues and expenses from managed and affiliated properties.  Amounts paid by the Company in excess of the reimbursable $4 million, which amounted to approximately $250,000, were included in costs and operating expenses in 2006.

During the third quarter of 2006, the Company removed the hotel’s assets from its balance sheet, and recorded an investment for its 50% equity ownership in the developing partnership amounting to $35,791,000.  This investment is based on 50% of the estimated fair

20

value of the assets transferred plus 50% of the remaining book value of the assets, reduced by the proceeds received in April 2005.  The investment is accounted for in accordance with the equity method of accounting for investments.  The estimated fair value of the assets was $160 million, based on a valuation of the highest and best use of the land.  The book value of the land and improvements was approximately $31 million at August 31, 2006.  The proceeds received equaled $59,728,000.

The deferred gain of $64,481,000 recorded on the Company’s consolidated balance sheets during the 2006 third quarter consists of 50% of the estimated market value of the assets contributed to the development partnership, reduced by 50% of the book value of the assets contributed at August 31, 2006.  Due to the continuing involvement of the Company by virtue of its ownership in SBR-Fortune, the gain on the transfer of the assets continues to be deferred.  Additional proceeds received from the development partnership first reduce the investment account, and future proceeds in excess of the investment account are added to the deferred gain.

Due to the Company’s continuing involvement in the development partnership, the historical results of Sonesta Beach Resort Key Biscayne have not been accounted for as a discontinued operation.

Following the closure of the hotel, the Company became entitled to monthly distributions of $125,000 from SBR-Fortune, and those payments reduce the priority equity position the Company is entitled to from the partnership.  The Company received total payments of $2,125,000 from September 2006 through January 2008. These payments reduced the investment account the Company has recorded on its balance sheet for its investment in the partnership to its current balance of $33,666,000.  The partnership’s general partner suspended these payments, as of February 2008, in order to conserve cash for development expenditures.  Previously, the partnership deferred payments of a monthly development fee to the general partner.

Initial partnership plans provided for the development of a luxury condominium hotel and residences, including meeting and function space, a spa and other resort facilities, to be managed by the Company. The initial development plans met with considerable community opposition, and the partnership instead filed for, and in 2007 received approvals for a 165-unit residential project.  The project is currently in the pre-construction phase, pending resolution of a claim filed by an abutter of the project.  In addition, current economic conditions and their impact on the South Florida real estate market have caused the partnership to delay the development.

The partnership has a loan, secured by a mortgage on the land, in the amount of $57.4 Million.  The loan matured in October 2008.  In January 2009, the lender and the partnership finalized an agreement to extend maturity of the loan until April 2010.  In connection with the extension, the Company has agreed, in principle, to increase the amount of financing the partnership is allowed to borrow from the current $61 Million to $68 Million. In addition, the Company agreed to advance funds during the first half of 2009 to pay 50% of interest and other costs related to the loan extension and project costs.  At March 15, 2009, the Company had advanced approximately $842,000.  Also in connection with the loan extension, the Company and its partner have had additional discussions and, despite their continuing commitment to develop the site, agreed to explore other options that may be available to them, including a recapitalization of the partnership, or a potential sale of the land.  The partners also reached an agreement in principle regarding the distribution of proceeds should a sale of the land materialize within a stipulated period of time.

As of December 31, 2008, the Company reviewed the likelihood of realizing the value of its investment account in the partnership, and obtained a valuation from a nationally recognized real estate firm.  The valuation of the highest and best use of the partnership assets, which was completed in early March 2009, reflected a value of approximately $106.6 million.  Based on this valuation, management concluded that no impairment exists.  However, there can be no assurance that real estate values in South Florida will not continue to deteriorate, and therefore impair the Company’s investment at some point in the future.

The development partnership’s balance sheet at December 31, 2008 is as follows (in thousands):

	at December 31, 2008
Total assets, primarily land	$	110,039
Less debt and other liabilities		(63,005	)
Partnership equity	$	47,034

The debt of the partnership is non-recourse to the Company.

4. Long-Term Receivables and Advances

	(in thousands)
	December 31, 2008		December 31, 2007
Sharm El Sheikh, Egypt (a)	$	1,215	$	--
Sonesta Bayfront Hotel Coconut Grove (b)		--		3,397
Trump International Sonesta Beach Resort (c)		--		1,135
Other		187		37
Total long-term receivables and advances		1,402		4,569
Less:  current portion		410		793
Net long-term receivables and advances	$	992	$	3,776

(a) This loan was made in January 2008 to the owners of Sonesta Beach Hotel Sharm El Sheikh and Sonesta Club Sharm El Sheikh by converting receivables for fees and expenses into a five year loan, payable in monthly installments, starting in January 2008.  The Company is accounting for this loan using an effective interest rate of 6.5%.  Monthly payments of $28,820 on this loan are paid directly from the hotels and deducted from distributions of profits to the owners of these managed hotels.  See also note 2.

(b) This loan was made to the owner of the Sonesta Bayfront Hotel Coconut Grove, Miami, which opened in April 2002, to fund construction and furniture, fixtures and equipment costs.  The interest rate was equal to the prime rate, plus 0.75%.  Following a refinancing, this loan was repaid in full in October 2008.

(c) This amount represented cash advances made to the owner of Trump International Sonesta Beach Resort Sunny Isles.  This advance, on which no interest was charged, was repaid in October 2008 (see also Note 2).

Management continually monitors the collectability of the long-term receivables and advances above and believes they are fully realizable.

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5. Borrowing Arrangements

Long-Term Debt

The Company’s long-term debt consists of a first mortgage note held by Charterhouse of Cambridge Trust and Sonesta of Massachusetts, Inc., which are the Company’s subsidiaries that own and operate the Royal Sonesta Hotel Boston.  The principal balance outstanding at December 31, 2008 and December 31, 2007 was $33,002,000 and $34,061,000, respectively.  The debt is secured by a first mortgage on the Royal Sonesta Hotel Boston property, which is included in fixed assets at a net book value of $19,877,000 at December 31, 2008.  The interest rate is 8.6% for the term of the loan, and the loan matures in July 2010.  Monthly payments of interest and principal are $332,911.

Aggregate principal payments for the years subsequent to December 31, 2008, are as follows:

Year	(in thousands)
2009	$	1,163
2010	$	31,839

6. Stockholders’ Equity

Basic Income per Share

As the Company has no dilutive securities, there is no difference between basic and diluted earnings per share.  The following table sets forth the computation of basic income or loss per share (in thousands, except for per share data):

	2008		2007
Numerator:
Net income	$	4,080	$	1,337
Denominator:
Weighted average number of shares outstanding		3,698		3,698
Net income per share	$	1.10	$	0.36

7. Commitments and Contingencies

The Company operates the Sonesta Bayfront Hotel Coconut Grove, Miami, which is a condominium hotel that opened in April 2002.  Under the management agreement for this hotel, the Company is committed to fund operating losses and a minimum annual return to the owner of the hotel.  During 2008, the hotel’s earnings were sufficient to cover the minimum return.  Further information is provided in Note 2 – Operations.

In January 2009, the Company agreed to advance funds during the first half of 2009 to a partnership in which it is a 50% limited partner.  At March 15, 2009, the Company had advanced approximately $842,000 (see Note 3 – Investment in Development Partnership).

Minimum fixed rentals under operating leases, principally on real estate, payable subsequent to December 31, 2008 (exclusive of real estate taxes, insurance and other occupancy costs) are as follows:

Period	(in thousands) Operating leases
2009	$	744
2010		702
2011		636
2012		296
2013		104
Thereafter		--
	$	2,482

Rentals charged to operations are as follows:

	(in thousands)
	2008		2007
Real Estate:
Fixed rentals	$	661	$	622
Percentage rentals based on defined operating profits		4,731		3,546
	$	5,392	$	4,168

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 $865,000 in 2008 and $1,193,000 in 2007.

8. 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.

Pension Plan Changes

Effective January 1, 2006, the Plan was amended to increase the total number of years of service required for participants to be eligible for full benefits under the Plan from 27 to 35 years.  At the same time, a minimum benefit payable for each year of service was reduced.  Effective December 31, 2006, the Company decided to freeze the Plan.  Participants in the Plan at December 31, 2006 continue to be eligible to receive a pension benefit, provided they meet the 5-years of service vesting requirement during their employment with the Company.  However, the amount of all pension benefits due under the Plan will be frozen at the December 31, 2006 level.  Any additional service and/or compensation increases after January 1, 2007 will not increase the participants’ benefits.  In addition, employees hired after July 1, 2005 will not receive benefits under the Plan.

SFAS No. 158

On December 31, 2006, the Company adopted the recognition and disclosure provisions of SFAS No. 158. SFAS No. 158 requires the Company to recognize the funded status (i.e., the difference between the fair value of plan assets and the projected benefit obligations) of its pension plan in its consolidated balance sheet, with a corresponding adjustment to accumulated other comprehensive income, net of tax. The adjustment to accumulated other comprehensive income at adoption represents the net unrecognized actuarial losses, which were previously netted against the plan’s funded status in the Company’s consolidated balance sheet pursuant to the provisions of SFAS No. 87. These amounts will be subsequently recognized as net periodic pension cost pursuant to the Company’s historical accounting policy for amortizing such amounts. Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic pension cost in the same periods will be recognized as a component of other comprehensive income. Those amounts will be subsequently recognized as a component of net periodic pension cost on the same basis as the amounts recognized in accumulated other comprehensive income at adoption of SFAS No. 158.

22

The adoption of SFAS No. 158 had no effect on the Company’s consolidated statement of operations for the year ended December 31, 2006, or for any prior period presented, and it will not effect the Company’s operating results in future periods. Had the Company not been required to adopt SFAS No. 158 at December 31, 2006, it would have recognized an additional minimum liability pursuant to the provisions of SFAS No. 87.

Included in accumulated other comprehensive loss at December 31, 2008 are unrecognized actuarial losses of $4,567,000 ($2,858,000, net of tax) that have not yet been recognized in net periodic pension cost. The actuarial loss included in accumulated other comprehensive loss and expected to be recognized in net periodic pension cost during the year ended December 31, 2009 is $92,000 ($58,000, net of tax).

Obligations and Funded Status

The following table sets forth the funded status of the Plan at December 31, 2008 and 2007:

	(in thousands)
	2008			2007
Change in benefit obligation
Benefit obligation at beginning of year	$	28,543		$	30,597
Service cost		--			--
Interest cost		1,650			1,779
Actuarial gain		(505	)		(661	)
Benefits paid		(1,881	)		(3,172	)
Benefit obligation at end of year		27,807			28,543
Change in plan assets
Fair value of plan assets at beginning of year		22,490			21,369
Actual return on plan assets		(3,926	)		2,761
Employer contribution		1,280			1,722
Benefits paid		(1,881	)		(3,172	)
Administrative expenses		(196	)		(190	)
Fair value of plan assets at end of year		17,767			22,490
Benefit obligation in excess of Plan assets		10,040			6,053
Unrecognized actuarial gain (loss)		(4,567	)		985
Additional (gain) loss charged to comprehensive income (loss)		4,567			(985	)
Accrued pension liability	$	10,040		$	6,053

The Company recognized accrued benefit costs of $10,040,000 and $6,053,000 in its statement of financial position at December 31, 2008 and 2007, respectively.

The following table presents the projected and accumulated benefit obligation compared to plan assets:

	(in thousands)
	December 31,
	2008		2007
Projected benefit obligation	$	27,807	$	28,543
Accumulated benefit obligation		27,807		28,543
Fair value of plan assets		17,767		22,490

The components of the Company’s net periodic pension credit for the Plan were as follows:

	(in thousands)
	2008			2007
Interest cost	$	1,650		$	1,779
Expected return on plan assets		(1,887	)		(1,843	)
Recognized actuarial (gain) loss		(48	)		37
Settlement income		--			(91	)
Net periodic benefit credit	$	(285	)	$	(118	)

Weighted-average assumption used to determine benefit obligations at the end of December 31, 2008 and 2007 were:

	2008			2007
Discount rate		6.00	%		6.00	%

Weighted-average assumptions used to determine net periodic pension costs for the years ended December 31, 2008 and 2007 were:

	2008			2007
Discount rate		6.00	%		5.75	%
Expected return on plan assets		8.50	%		8.50	%

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 9.5% since 1987.

Plan Assets

The Plan’s weighted-average asset allocations at December 31, 2008 and 2007, by asset category, were as follows:

	Plan assets at December 31,
	2008			2007
Cash & money market investments		9	%		6	%
Government debt securities		38	%		23	%
Corporate debt securities		4	%		2	%
Equity securities		49	%		69	%
		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 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.

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Cash Flows

The Company expects to make contributions totaling $702,000 during 2009, and has classified this amount as a current liability in the accompanying balance sheet.

The following table sets forth estimated future benefit payments from the Plan.

	(in thousands)
	Estimated Pension Benefit Payments
2009	$	1,080
2010		1,115
2011		1,175
2012		1,217
2013		1,237
2014 through 2018		7,938

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 twenty-seven mutual funds, which include equity funds, balanced funds and a money market fund.  Until December 31, 2006, the Savings Plan did not provide for contributions by the Company.   The Company does bear the costs of administering the Plan, which were $12,000 in 2008 and $13,000 in 2007.

Effective January 1, 2007, following a freeze of the Pension Plan, the Company started providing matching contributions of up to 4% of earnings to employees who make contributions to their 401(k) savings accounts.  The Company matches the first 3% salary deferral of its employees, and 50% of the next 2%.  The amount contributed by the Company and included in expenses in 2008 and 2007 totaled $644,000 and $613,000, respectively.

Effective April 1, 2009 the Company will temporarily halt matching contributions for its employees.

9. 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 hotels in Boston and 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 Boston and New Orleans hotels.  Segment data for the years ended December 31, 2008 and 2007 are as follows:

Year ended December 31, 2008
	(in thousands)
	Owned & Leased Hotels			Management Activities			Consolidated
Revenues	$	63,573		$	7,979		$	71,552
Other revenues from managed and affiliated properties		--			8,965			8,965
Total revenues		63,573			16,944			80,517
Operating income before depreciation and amortization expense		10,565			1,944			12,509
Depreciation and amortization		(4,957	)		(881	)		(5,838	)
Interest income (expense), net		(2,963	)		1,175			(1,788	)
Other income (deductions)		(9	)		583			574
Segment pre-tax profit		2,636			2,821			5,457
Segment assets		38,582			88,458			127,040
Segment capital additions		234			3,260			3,494

Year ended December 31, 2007
	(in thousands)
	Owned & Leased Hotels			Management Activities			Consolidated
Revenues	$	61,264		$	6,674		$	67,938
Other revenues from managed and affiliated properties		--			18,747			18,747
Total revenues		61,264			25,421			86,685
Operating income (loss) before depreciation and amortization expense		10,775			(2,500	)		8,275
Depreciation and amortization		(4,964	)		(1,083	)		(6,047	)
Interest income (expense), net		(3,005	)		1,713			(1,292	)
Other income		--			250			250
Segment pre-tax profit (loss)		2,806			(1,620	)		1,186
Segment assets		75,115			54,476			129,591
Segment capital additions		4,082			185			4,267

Segment assets for Management Activities in the information above include cash held in corporate accounts, and loans to and receivables from properties under management and license agreements.  Segment assets for Owned and Leased hotels include the book value of the hotels’ fixed assets, and the hotels’ other current and long-term assets.

Segment data by geographic area of the Company's revenues (excluding other revenues from managed and affiliated properties), operating income and long-lived assets follows:

	(in thousands)
	Revenues
	2008		2007
United States	$	67,206	$	64,891
Other		4,346		3,047
Consolidated	$	71,552	$	67,938

	Operating income
	2008		2007
United States	$	3,066	$	(309	)
Other		3,605		2,537
Consolidated	$	6,671	$	2,228

	Long-lived assets
	2008		2007
United States	$	34,654	$	36,908
Other		377		395
Consolidated	$	35,031	$	37,303

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10. Legal Proceedings

Trump International Sonesta Beach Resort Sunny Isles

From April 2003 through March 2008, the Company operated Trump International Sonesta Beach Resort Sunny Isles, in Florida, under a management agreement.  In October 2007, the Company exercised a one-time right to cancel the management agreement, upon 6 months notice, and receive repayment of advances it was obligated to make for operating losses and certain minimum returns due to the hotel’s owner.  The amount due upon termination was $7,031,000.  The hotel’s owner disputed the amount of the termination payment, but paid the entire amount into escrow, as required by the agreement.  An arbitration procedure to resolve the dispute commenced in April 2008.  In October 2008, the parties settled the dispute.  The Company received a total of $5,002,000, which included the amount of the settlement of $4,929,000, and its share of the interest earned on the escrow account of $73,000.  Expenses incurred in connection with the arbitration amounted to $515,000.  As part of the settlement agreement, the hotel’s owner agreed to waive all claims related to the Company’s management of the hotel.

Other

The Company is also from time to time subject to routine litigation incidental to its business, which is 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.

11. Related Party Transactions

The Company has, from time to time, purchased artwork for its hotels and executive offices from a gallery owned by the wife of Mr. Roger Sonnabend, the Company’s former Executive Chairman of the Board.  Purchases of artwork for the Company from January 1, 2007 through March 1, 2009, totaled $18,500.  The gallery also handled the sale of Company artwork totaling $240,000 during 2008 and $276,100 during 2007, resulting in gains of $120,000 and $211,100 in 2008 and 2007, respectively.  During 2008, the Company sold a piece of art directly to Mr. Peter J. Sonnabend in return for cash and two other pieces of art.  The Audit Committee of the Company’s Board of Directors has instituted policies and procedures to assure that the prices for artwork acquired from or sold to the gallery, and artwork purchased from or sold to executives, are at least as favorable to the Company as would have been obtained from unrelated third parties.

In October 2007, the Company entered into a purchase and sale agreement to sell a coop unit to the Executive Chairman of the Board, Mr. Peter J. Sonnabend, for $700,000.  The transaction closed in 2008 and resulted in a gain of $422,000 which is included in gain on sale of assets in the 2008 statement of operations.  The Company’s Board of Directors approved the transaction.

In accordance with employment agreements, the Company expensed $720,000 in 2008 in connection with the passing of Mr. Roger Sonnabend, the Company’s Executive Chairman of the Board, in December 2008.  In 2007, the Company expensed $691,000 in connection with the retirement of a long-term executive, Mr. Paul Sonnabend.

12. Income Taxes

The table below allocates the Company's income tax expense (benefit) based upon the source of income:

	(in thousands)
	2008						2007
	Domestic			Foreign			Domestic			Foreign
Income (loss) before income taxes	$	1,764		$	3,693		$	(1,351	)	$	2,537
Federal, foreign and state income tax provision (benefit)
Current federal income tax (benefit)	$	(76	)	$	454		$	(1,060	)	$	94
State and foreign tax, principally current		118			528			92			317
Deferred federal and state income tax (benefit)		356			(3	)		409			(3	)
	$	398		$	979		$	(559	)	$	408

Deferred federal and state income tax (benefit) includes deferred state income tax benefits of $274,000 in 2008 and $54,000 in 2007.

In 2008, the Company recorded a net tax provision of $1,377,000 on its pre-tax income of $5,457,000.  The Company recorded substantial credits for foreign taxes paid in 2008, and for foreign taxes paid in prior years which had been carrying forward.  In addition, the Company benefited from current and prior year’s general business credits, including work opportunity tax credits related to Hurricane Katrina.

In 2007, the Company recorded a net tax benefit of $151,000, even though pre-tax income equaled $1,186,000.  The Company was able to take substantial credits for foreign taxes paid in 2007, and for foreign taxes paid in prior years, which had been carrying forward.  In addition, the Company benefited from general business credits, including work opportunity tax credits related to Hurricane Katrina.

A reconciliation of the net tax expense (benefit) applicable to income or losses at the statutory rate follows:

	(in thousands)
	2008			2007
Expected tax expense at statutory rate	$	1,855		$	403
State income tax provision (benefit), net of federal taxes		(103	)		25
Prior years foreign tax credits		(278	)		(468	)
General business credits, including Katrina credits		(120	)		(159	)
Other		23			48
	$	1,377		$	(151	)

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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)
	2008			2007
Tax depreciation less than book depreciation	$	(114	)	$	--
Federal tax on deferred gain on sale of assets		(42	)		(504	)
State tax on deferred gain on sale of assets		(3	)		(37	)
General business credits used (carried forward)		242			(242	)
Pension contribution more than pension expense		155			1,589
Employee benefits		(175	)		(478	)
Trump settlement (see Note 2)		224			--
Other temporary differences		66			78
	$	353		$	406

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, 2008 and 2007 relate to the following:

	(in thousands)
	2008			2007
Current deferred tax asset
Employee benefits accrued but deferred for tax purposes	$	440		$	422
Other		22			156
Current deferred tax asset	$	462		$	578
Long-term deferred tax assets (liabilities)
Depreciation book tax difference	$	(6,263	)	$	(6,377	)
Pension expense in excess of contributions		3,437			1,548
Federal tax on deferred gain on sale of assets		10,726			10,684
State tax on deferred gain on sale of assets		755			752
General business credits, including Katrina credits		--			242
Employee benefits		403			246
State tax benefits of $1,400,000 in 2008 and $1,700,000 in 2007 from net operating loss carry-forwards, net of valuation allowance		--			--
Other		(9	)		147
Deferred tax asset	$	9,049		$	7,242

At December 31, 2008, the Company had state net operating loss carry-forwards of approximately $20,800,000 for income tax purposes.  Of the total carry-forwards available at December 31, 2008, approximately $4,900,000 expires in 2009, $4,200,000 expires in 2010, $3,700,000 expires in 2011, $4,200,000 expires in 2012, $3,300,000 expires in 2013, and $500,000 expires in 2014.   For financial reporting purposes, valuation allowances of $1,400,000 and $1,700,000 have been recognized at December 31, 2008 and 2007, respectively, to offset the deferred tax assets related to those carry-forwards.

Effective for years beginning January 1, 2009, the Commonwealth of Massachusetts has enacted tax law changes, including conforming to federal entity classification rules, and adopting a unitary method of taxation. In connection with this change, the Company recorded a state income tax benefit of $216,000 during 2008.

Effective January 1, 2007 the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). There was no impact on the Company’s results of operations or financial position as a result of the adoption of FIN 48. As of January 1, 2007, the Company provided a liability of $270,000 for unrecognized tax benefits related to various federal and state income tax matters. The total amount of unrecognized tax benefits at the end of each of the years ended December 31, 2008 and 2007 were $150,000 and $228,000, respectively. These entire balances are for tax positions that, if recognized, would impact the effective tax rate.

26

The table below reconciles the total amounts of unrecognized tax benefits at the beginning and end of the years 2008 and 2007 (in thousands):

	2008			2007
Unrecognized tax benefits at beginning of year	$	228		$	270
Decreases for prior year tax positions		(60	)		(42	)
Decrease attributable to settlements with taxing authorities		(18	)		--
Unrecognized tax benefits at end of year	$	150		$	228

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of state and federal income tax expense. As of December 31, 2008, the total amount of accrued interest and penalties is $25,000.

The Company files income tax returns, including returns for its subsidiaries, with federal, state, local, and foreign jurisdictions. During 2008, the Internal Revenue Service completed an examination of the federal income tax return for the tax year ended December 31, 2005. No adjustments were made to its 2005 tax return as a result of the examination. The Company is currently subject to audit by the Internal Revenue Service for the calendar years 2006, 2007 and 2008. The State of Florida completed an examination of the returns for calendar years 2004, 2005 and 2006. The adjustments resulting from this audit totaled $18,000. Various state and local income tax returns are subject to audit for the calendar years 2005, 2006, 2007 and 2008. The Company does not expect that the amounts of unrecognized tax benefits will change significantly within the next 12 months.

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VITALE, CATURANO & COMPANY

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Sonesta International Hotels Corporation:

We have audited the accompanying consolidated balance sheets of Sonesta International Hotels Corporation and subsidiaries as of December 31, 2008 and 2007 and the related consolidated statements of operations, stockholder’s equity, comprehensive income (loss) and cash flows for each of the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform audits of its internal controls over financial reporting. Our audits included consideration of internal controls over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal controls over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sonesta International Hotels Corporation and subsidiaries as of December 31, 2008 and 2007 and the consolidated results of their operations and their cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 /s/ Vitale, Caturano & Company, P.C.

VITALE, CATURANO & COMPANY, P.C.

Boston, Massachusetts

March 25, 2009

Certified Public Accountants           An Independent Member of Baker Tilly International

80 City Square, Boston, Massachusetts 02129           617-912---9000           FX 617-912-9001           www.vitale.com

28

Sonesta International Hotels Corporation Executive Offices, 116 Huntington Avenue Boston, Massachusetts 02116 – Telephone (617) 421-5400 Fax (617) 421-5402
SONESTA DIRECTORS
George S. Abrams (3) Winer & Abrams Attorneys at Law	Irma F. Mann (3) President IRMA, Inc.	Stephen Sonnabend (1) Hospitality Consultant Key Biscayne, FL
Joseph L. Bower (1)(2)(3) Professor, Harvard Business School	Peter J. Sonnabend (1) Executive Chairman of the Board, Sonesta International Hotels Corporation	Jean C. Tempel (1) (2) (3) Managing Director First Light Capital, LLC
Charles J. Clark (2) Director of Corporate Relations, Youthbuild USA	Stephanie Sonnabend Chief Executive Officer and President, Sonesta International Hotels Corporation
(1) Member Executive Committee	(2) Member Audit Committee	(3) Member of Compensation Committee

SONESTA OFFICERS
Peter J. Sonnabend Executive Chairman of the Board	Felix Madera Vice President – International	Alan M. Sonnabend Vice President – Development
Stephanie Sonnabend Chief Executive Officer and President	David Rakouskas Secretary and Corporate Controller	Jacqueline Sonnabend Executive Vice President
Carol C. Beggs Vice President – Technology	Kathy S. Rowe Senior Vice President	Boy A.J. van Riel Vice President and Treasurer
Scott T. Corey Vice President – Revenue and Distribution	Philip M. Silberstein Executive Vice President of Development

SONESTA HOTELS AND OTHER OPERATIONS
Royal Sonesta Hotel	Sonesta St. George I Cruise Ship	Sonesta Posada del Inca
Boston, Massachusetts (1)	Luxor, Egypt (2)	Cusco, Peru (3)
Royal Sonesta Hotel	Sonesta Nile Goddess Cruise Ship	Sonesta Posada del Inca
New Orleans, Louisiana (1)	Cairo, Egypt (2)	Miraflores, Lima, Peru (3)
Sonesta Bayfront Hotel	Sonesta Sun Goddess Cruise Ship	Sonesta Posada del Inca
Coconut Grove, Miami, Florida (2)	Cairo, Egypt (2)	Arequipa, Peru (3)
Sonesta Pharaoh Beach Resort	Sonesta Moon Goddess Cruise Ship	Sonesta Hotel Iberepuera
Hurghada, Egypt (2)	Cairo, Egypt (2)	Sao Paulo, Brazil (3)
Sonesta Beach Resort	Sonesta Star Goddess Cruise Ship	Sonesta Hotel Brasilia
Sharm el Sheikh, Egypt (2)	Cairo, Egypt (2)	Brasilia, Brazil (3)
Sonesta Club	Sonesta Maho Beach Resort & Casino	UNDER DEVELOPMENT
Sharm el Sheikh, Egypt (2)	St. Maarten (3)
		Sonesta Jaco Resort &  Beach Club
Sonesta St. George Hotel	Sonesta Great Bay Beach Resort & Casino	Jaco, Costa Rica (2)
Luxor, Egypt (2)	St. Maarten (3)
		Sonesta Gran Posada Resort
Sonesta Beach Resort	Sonesta Posada del Inca	San Carlos, Mexico (2)
Taba, Egypt (2)	El Olivar, Lima, Peru (3)
		Sonesta Mikado Hotel
Sonesta Hotel	Sonesta Posada del Inca	Miami, Florida (2)
Cairo, Egypt (2)	Sacred Valley, Yucay, Peru (3)
Sonesta Hotel	Sonesta Posada del Inca
Port Said, Egypt (2)	Lake Titicaca, Puno, Peru (3)
(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 Sonesta.com

INDEPENDENT AUDITORS

Vitale, Caturano & Company, Ltd., 80 City Square, Boston, MA 02129

TRANSFER AGENT

American Stock Transfer, 59 Maiden Lane, Plaza Level, New York, NY 10038

EX-21

EXHIBIT 21

ALPHABETICAL LIST OF WHOLLY-OWNED SUBSIDIARIES

Brewster Wholesale Corporation (Massachusetts)

Charterhouse of Cambridge Trust (Massachusetts, d.b.a. Royal Sonesta Hotel Boston)

Florida Sonesta Corporation (Florida)

Hotel Corporation of America (New York)

Hotel Corporation of Georgia (Georgia)

Newo Aruba N.V. (Aruba)

P.R. By Design, Inc. (Massachusetts)

Royal Sonesta, Inc. (Louisiana, d.b.a. Royal Sonesta Hotel New Orleans and Royal Laundry)

Sonesta Beach Resort Limited Partnership (Delaware)

Sonesta Charitable Foundation, Inc. (Massachusetts)

Sonesta Coconut Grove, Inc. (Florida, d.b.a. Sonesta Bayfront Hotel Coconut Grove)

Sonesta Costa Rica, S.A. (Costa Rica)

Sonesta Curacao Hotel Corporation, N.V. (Curacao, Netherlands Antilles)

Sonesta Hotels of Florida, Inc. (Florida)

Sonesta Hotels of Mexico, Inc. (formerly Anguilla Hotel Management, Inc., Massachusetts)

Sonesta Hotels of Mississippi, Inc. (Mississippi)

Sonesta International Hotels Limited (Bahamas)

Sonesta Licensing Corporation (Massachusetts)

Sonesta Louisiana Hotels Corporation (Louisiana)

Sonesta Middle East Hotel Corporation (Delaware)

Sonesta of Massachusetts, Inc. (Massachusetts, d.b.a. Royal Sonesta Hotel Boston)

Sonesta Orlando, Inc. (formerly S.I.A. Advertising, Inc., Massachusetts)

Sonesta Sunny Isles, Inc. (formerly Key Biscayne Land Corporation, Florida)

TBD, Inc. (Massachusetts, d.b.a. Ignite)

EX-23

Exhibit 23

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTING FIRM ON SUPPLEMENTAL SCHEDULE TO THE CONSOLIDATED FINANCIAL STATEMENTS

To the Board of Directors and Stockholders of

Sonesta International Hotels Corporation:

In connection with our audit of the consolidated financial statements of Sonesta International Hotels Corporation referred to in our report dated March 25, 2009, which is included in the 2008 Annual Report to Shareholders of Sonesta International Hotels Corporation and incorporated by reference in Part II of this form, we have also audited Schedule II as it relates to the year ended December 31, 2008. In our opinion, this schedule presents fairly, in all material respects, the financial data as of and for the two years ended December 31, 2008, required to be set forth therein.

 /s/ Vitale, Caturano & Company, P.C.

VITALE, CATURANO & COMPANY, P.C.

Boston, Massachusetts

March 25, 2009

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

As independent registered public accountants, we hereby consent to the incorporation by reference in this Annual Report on Form 10-K of our report dated March 25, 2009 on the consolidated financial statements of Sonesta International Hotels Corporation as of December 31, 2008 and 2007 and for the years then ended, included in the 2008 Annual Report to Shareholders of Sonesta International Hotels Corporation.

 /s/ Vitale, Caturano & Company, P.C.

VITALE, CATURANO & COMPANY, P.C.

Boston, Massachusetts

March 25, 2009

80 City Square Boston,MA 02129-3742P 617.912.9000F 617.912.9001www.vitale.com AN INDEPENDENT MEMBER
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EX-31.A

Exhibit 31(a)

CERTIFICATION REQUIRED BY RULE

13a-14(a)/15d-14(a)

Under the Securities Exchange Act of 1934 as Amended

I, Boy A. J. van Riel, certify that:

1. I have reviewed this Report on Form 10-K for the fiscal year ended December 31, 2008 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 officers 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) 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

d) 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.

5. The registrant’s other certifying officers 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 23, 2009	/s/ Boy A.J. van Riel
		Name:   Boy A.J. van Riel
		Title:     Vice President and Treasurer

EX-31.B

Exhibit 31(b)

CERTIFICATION REQUIRED BY RULE

13a-14(a)/15d-14(a)

Under the Securities Exchange Act of 1934 as Amended

I, Peter J. Sonnabend, certify that:

1. I have reviewed this Report on Form 10-K for the fiscal year ended December 31, 2008 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 officers 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) 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

d) 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.

5. The registrant’s other certifying officers 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 23, 2009	/s/ Peter J. Sonnabend
		Name:   Peter J. Sonnabend
		Title:     Executive Chairman of the Board

EX-31.C

Exhibit 31(c)

CERTIFICATION REQUIRED BY RULE

13a-14(a)/15d-

Under the Securities Exchange Act of 1934 as Amended 14(a)

I, Stephanie Sonnabend, certify that:

1. I have reviewed this Report on Form 10-K for the fiscal year ended December 31, 2008 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 officers 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) 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

d) 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.

5. The registrant’s other certifying officers 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 23, 2009	/s/ Stephanie Sonnabend
		Name:   Stephanie Sonnabend
		Title:     Chief Executive Officer and President

EX-32

EXHIBIT 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

In connection with the filing of the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (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 Executive Chairman of the Board, CEO & President and Treasurer, hereby certify pursuant to 18 U.S.C. ss. 1350, 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 23, 2009
By:	/s/ Peter J. Sonnabend
Name:  Peter J. Sonnabend
Title:  Executive Chairman of the Board
By:	/s/ Stephanie Sonnabend
Name:  Stephanie Sonnabend
Title:   Chief Executive Officer and President
By:	/s/ Boy A. J. van Riel
Name:   Boy A. J. van Riel
Title:   Vice President and Treasurer

EX-99.1

Exhibit 99.1

SBR – FORTUNE ASSOCIATES, LLLP

Financial Statements and

Independent Auditors' Report

December 31, 2008 and 2007

TABLE OF CONTENTS

Independent Auditors' Report	1
Financial Statements
Balance Sheets	2
Statements of Operations	3
Statements of Changes in Partners' Equity	4
Statements of Cash Flows	5
Notes to Financial Statements	6-10

GRAVIER

_____ & _____

Associates

CERTIFIED PUBLIC ACCOUNTANTS

To the Partners of

SBR-Fortune Associates, LLLP

Miami, Florida

We have audited the balance sheets of SBR-Fortune Associates, LLLP (the "Partnership"), as of December 31, 2008 and 2007, and the related statements of operations, changes in partners' equity, and cash flows for the years then ended.  These financial statements are the responsibility of the Partnership’s management.  Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America.  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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects the financial position of SBR-Fortune Associates, LLLP as of December 31, 2008 and 2007 and the results of its operations and its cash flows for the periods then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Gravier & Associates

CERTIFIED PUBLIC ACCOUNTANTS

Coral Gables, Florida

March 24, 2009

201 Alhambra Circle, Suite 90 L Coral Gables, FL 33134 • Tel: 305.446.3022 • Fax: 305.446.6319

WWW.GNACPA.COM

HLB Gravier & Associates is a member of   International.  A world-wide organization of accounting firms and business advisers.

SBR - FORTUNE ASSOCIATES, LLLP

Balance Sheets

December 31, 2008 and 2007

ASSETS	2008		2007
Cash equivalents	$	38,972	$	173,800
Land and development costs		110,000,000		150,823,316
Total Assets	$	110,038,972	$	150,997,116
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses	$	5,649,718	$	1,960,140
Notes payable		57,355,648		55,012,122
Total Liabilities		63,005,366		56,972,262
Partners' Equity		47,033,606		94,024,854
Total Liabilities and Partners' Equity	$	110,038,972	$	150,997,116

The accompanying notes are an integral part of these financial statements.

2

SBR - FORTUNE ASSOCIATES, LLLP

Statements of Operations

For the years ended December 31, 2008 and 2007

	2008			2007
EXPENSES
Interest expense	$	3,508,269		$	--
Project administration fee		1,100,000			--
Real estate taxes		861,073			--
Administrative expenses		149,684			--
		5,619,026			--
OTHER INCOME (EXPENSE)
Loss from impairment of land and development costs		(41,933,099	)		--
Interest income		1,377			11,749
		(41,931,722	)		11,749
NET INCOME (LOSS)	$	(47,550,748	)	$	11,749

The accompanying notes are an integral part of these financial statements.

3

SBR - FORTUNE ASSOCIATES, LLLP

Statement of Changes in Partners' Equity

For the years ended December 31, 2008 and 2007

	Limited Partners						General Partner
	Sonesta Beach Resort, LP			Fortune KB, LLC			Fortune KB GP, LLC			Total
Balance, January 01, 2007	$	59,576,061		$	33,002,750		$	1,077		$	92,579,888
Capital contributions		--			2,933,217			--			2,933,217
Net income		5,875			5,757			117			11,749
Capital distributions		(1,500,000	)		--			--			(1,500,000	)
Balance, December 31, 2007		58,081,936			35,941,724			1,194			94,024,854
Capital contributions		--			2,059,500			--			2,059,500
Capital distributions		(1,500,000	)		--			--			(1,500,000	)
Net loss (See Note 5)		(28,439,811	)		(19,109,743	)		(1,194	)		(47,550,748	)
Balance, December 31, 2008	$	28,142,125		$	18,891,481		$	0		$	47,033,606

The accompanying notes are an integral part of these financial statements.

4

SBR - FORTUNE ASSOCIATES, LLLP

Statements of Cash Flows

For the years ended December 31, 2008 and 2007

	2008			2007
Cash Flows From Operating Activities:
Net income (loss)	$	(47,550,748	)	$	11,749
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Loss from impairment of land and development costs		41,933,099			--
Increase in land and development costs		(1,109,783	)		(7,862,404	)
Increase in accounts payable		2,314,578			1,532,433
		43,137,894			(6,329,971	)
Net Cash Used in Operating Activities		(4,412,854	)		(6,318,222	)
Cash Flows From Financing Activities:
Capital contributions from partners		2,059,500			2,933,217
Increase in loan payable		2,343,526			3,997,183
Capital distributions to partner		(125,000	)		(1,500,000	)
Net Cash Provided by Financing Activities		4,278,026			5,430,400
Net decrease in cash		(134,828	)		(887,822	)
Cash at beginning of year		173,800			1,061,622
Cash at end of year	$	38,972		$	173,800

Supplemental disclosure of cash flow information

Interest paid during the years ended December 31, 2008 and 2007 was $1,286,115 and $0, respectively.  Interest capitalized to the principal loan balance for the years ended December 31, 2008 and 2007 was $1,286,247 and $3,944,888, respectively.

The accompanying notes are an integral part of these financial statements.

5

SBR - FORTUNE ASSOCIATES, LLLP

NOTES TO FINANCIAL STATEMENTS

December 31, 2008 and 2007

Note 1 – Significant Accounting Policies and Operations

Nature of Business

SBR-Fortune Associates, LLLP (the “Partnership”) was formed as a Florida limited liability limited partnership on January 13, 2005.  The Partnership has two limited partners and a general partner.  In April 2005, the Partnership merged with Sonesta Beach Resort, LLC, a Delaware limited liability corporation, and acquired 10.6 acres of land and real property for the purpose of developing and selling a luxury resort facility in Key Biscayne, Florida.  As described in Note 6, during 2007 the project was modified to a luxury residential development.  The Partnership shall be dissolved upon the earliest of: December 31, 2014, unanimous agreement of all partners, bankruptcy, or the sale of property and all the condominium units of the project.

These financial statements are for the years ended December 31, 2008 and 2007.  During 2008, the design and planning phase of the project was completed.  As a result of the current real estate market conditions, the Partnership decided to delay the development of the project.  As of December 31, 2008, no demolition of existing improvements, new construction or sale of units had occurred.

Revenues and Cost Recognition

Revenues from condominium unit sales will be recognized upon closing of the sale.  Land acquisition, materials and other direct and indirect costs related to the development and construction of the condominium will be capitalized.  Direct and indirect costs of the condominium units will be allocated to individual units based on their area.  Capitalized costs of condominium units will be charged to earnings when the related revenue is recognized.

Due to the delay in the development of the project during 2008, the Partnership treats current period project carrying costs such as interest and real estate taxes as a charge to current period earnings and not as part of land and development costs.

Impairment or Disposal of Long-Lived Assets

Long-lived assets are accounted for in accordance with Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of (SFAS No. 144). SFAS No. 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. SFAS No. 144 also requires companies to separately report discontinued operations and extends the reporting requirements to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. Assets to be disposed of are reported at the lower of the carrying amount or estimated fair value less costs to sell.

6

SBR - FORTUNE ASSOCIATES, LLLP

NOTES TO FINANCIAL STATEMENTS

December 31, 2008 and 2007

Note 1 – Significant Accounting Policies and Operations (continued)

Statement of Cash Flows

For purposes of the statement of cash flows, the Partnership considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

Use of Estimates

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Income Taxes

The Partnership does not incur federal or state income taxes; instead, its earnings are included in the partners’ income tax returns and taxed depending on the partners’ tax status.  Therefore, the financial statements do not reflect a provision for income taxes.

Note 2 –Related Party Transactions

Under its operating agreement, the Partnership agreed to pay “hotel shutdown payments” to Sonesta Beach Resort Limited Partnership (“Sonesta”) in the amount of $125,000 per month commencing in the month in which the hotel was closed to guests and continuing through the new hotel opening date.  The hotel was closed on August 31, 2006.  These payments are being recorded as capital distributions in each period.

Upon closing of the hotel and in accordance with its operating agreement, the Partnership incurred $4,000,000 in hotel closing expenses including costs of terminating contracts and agreements, employee severance payments, accrued vacation and defined benefit pension plan costs.  The Partnership has also agreed to pay Fortune International Management (“Fortune”) a project administration fee of $100,000 per month commencing on the acquisition of the property and not to exceed $4,400,000.  Project administration fees incurred for the years ended December 31, 2008 and December 31, 2007 were $1,100,000 and $1,200,000, respectively.  In addition, during 2008 the Partnership reimbursed a partner for certain expenses incurred of approximately $96,000.  As of December 31, 2008 and December 31, 2007, the Partnership had $3,378,211 and $1,069,063 in payables, respectively, to its partners or affiliates.

The Partnership’s land was obtained in a transaction with Sonesta.  In April 2005, Sonesta contributed the land to the Partnership and received cash of $30,011,000. In addition, an existing Sonesta mortgage in the amount of $29,967,000 was paid off by the Partnership. Sonesta also received a priority equity position in the Partnership.

7

SBR - FORTUNE ASSOCIATES, LLLP

NOTES TO FINANCIAL STATEMENTS

December 31, 2008 and 2007

Note 3 – Land and Development Costs

Land and development costs consist of the following as of December 31st

	2008			2007
Land	$	120,000,000		$	120,000,000
Interest, loan and legal fees		19,027,076			18,374,075
Hotel shutdown costs		4,000,000			4,000,000
Architectural, engineering and design		3,409,393			3,198,961
Project administration fees		3,300,000			3,300,000
Marketing and sales		445,215			445,215
Insurance		798,067			798,067
General and administrative		134,203			134,203
Permits and fees		299,900			269,561
Other development costs		519,245			303,234
Recognized impairment loss on development		(41,933,099	)		--
	$	110,000,000		$	150,823,316

As part of its test for impairment of long-lived assets, the Partnership performed a study of the current market value of the land and development costs incurred through December 31, 2008 and determined that it was necessary to record an impairment loss in the amount of approximately $42,000,000.

Note 4 – Loan payable

The Partnership entered into a loan agreement with a financial institution evidenced by two promissory notes that provide a revolving borrowing capacity up to $61,000,000. The purpose of the loan is to finance the land acquisition and pre-development costs and is secured by an amended and restated mortgage, an assignment of leases and rents, and a security agreement.  The loan is also personally guaranteed by one of the partners’ agents for $30,500,000.

The loan agreement’s most recent amendment was in January 2009, with an effective date of October 19, 2008.  This amendment increased the loan margins as described below, reduced the loan’s maximum commitment to $57,355,649, and changed the payment terms to require interest payments payable every quarter starting on March 1, 2009 and a principal payment of $1,000,000 on July 2009, October 2009, and January 2009.

In addition, on October 19, 2009, the Partnership must deposit with the financial institution a debt service reserve in an amount equal to the total amount of interest that will accrue during the period from October 19, 2009 through the maturity date.

8

SBR - FORTUNE ASSOCIATES, LLLP

NOTES TO FINANCIAL STATEMENTS

December 31, 2008 and 2007

Note 4 – Loan payable (continued)

The loan bears interest on the outstanding principal balance at the Applicable Interest Rate of LIBOR Rate plus a LIBOR Margin of 4% or the Reference Rate as announced by HSBC Bank of its prime rate plus a Reference Rate Margin of 2%.  The loan, as amended, matures on April 19, 2010.

The outstanding note payable balance as of December 31, 2008 and December 31, 2007 was $57,355,648 and $55,012,122, respectively.

Principal maturities under the loan agreement are as follows:

Year
2009	$	2,000,000
2010		55,355,648
	$	57,355,648

Note 5 – Allocation of Losses and Distributions

Losses for the year ended December 31, 2008 in the amount of $47,550,748 have been allocated between the partners in accordance with Article 6.1(b) of the partnership agreement.  First, in proportion to any profits previously allocated under 6.1(a)(3) and then in proportion to the partners' positive capital account balances.

Pursuant to Article 7 of the partnership agreement future distributions shall be made as follows: First, to Sonesta for accrued hotel shutdown payments and second, to Sonesta in payment of its unreturned capital until such capital is reduced to zero.  As of December 31, 2008, Sonesta's unreturned capital totaled $56,522,233 and the Partnership's ending equity amounted to $47,033,606.

Note 6 – Concentration of Credit Risk

The Partnership maintains cash balances in accounts at HSBC Bank.  At times, these balances may exceed the amount insured by the Federal Deposit Insurance Corporation (FDIC).

Note 7 – Commitments and Contingencies

Commitments

Under its operating agreement, the Partnership shall enter into a license agreement with Sonesta International for the use of the Sonesta brand in exchange for 1.5% of the gross sales of residential units, not to exceed $8,000,000. The Partnership shall also enter into a long term hotel management agreement with Sonesta or an affiliate to operate the proposed new hotel component of the development.

9

SBR - FORTUNE ASSOCIATES, LLLP

NOTES TO FINANCIAL STATEMENTS

December 31, 2008 and 2007

Note 7 – Commitments and Contingencies (continued)

Under its operating agreement, the Partnership has agreed to pay a development fee to an affiliate of Fortune equal to 2% of the project costs during the construction period and a technical support services fee to Sonesta of $8,000 per month upon completion of 60% of construction.  The development fee cannot exceed $8,000,000 and the technical support services fee cannot exceed $96,000.  In addition, the Partnership has entered into an exclusive agency listing agreement with Fortune Development Sales Corporation for the sale of the units.  Compensation payable under this agreement will be 2.75% of gross sales of residential units.  As of December 31, 2008, no amounts were paid under these agreements since the construction or marketing activities of the project had not commenced.

Contingencies and Risks

The existing zoning requirements were unfavorable for the development of a condominium hotel, as originally intended by the Partnership. The Partnership filed for, and received on April 16, 2007, approval to develop a luxury 165-unit residential development. As a result, it is highly likely that the development will not include a condominium hotel component, which, based on the original operating agreement, was to be operated by Sonesta.  These changes have not been documented in the Partnership’s operating agreement and may affect the Partnership’s commitments as described above.

The Partnership is subject to the risks inherent within the real estate industry and the general economy in which it operates such as the rise of interest rates and the supply of high-rise condominium units in South Florida.

Note 8 – Subsequent Events

In connection with the loan extension, the partners have had additional discussions and, despite their continuing commitment to develop the site, agreed to explore other options that may be available to them, including recapitalization of the Partnership, or a potential sale of the land.  The partners also reached an agreement in principle regarding the distribution of proceeds should a sale of the land materialize within a stipulated period of time.

10