SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________
Commission file number 0-9032
SONESTA INTERNATIONAL HOTELS CORPORATION
-----------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 13-5648107
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Clarendon Street, Boston, Massachusetts 02116
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 421-5400
Securities registered pursuant to Section 12 (b) of the Act:
NONE
(Title of Class)
Securities registered pursuant to Section 12 (g) of the Act:
Title of each class Name of each exchange on which registered
Class A Common Stock
$ .80 par value NASDAQ
<PAGE>
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 No X
--- ---
See Form 12b-25 filed June 30, 1997.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229,405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the common stock held by non-affiliates
of the registrant as of the close of business on March 16, 1998 was $9,780,507.
The number of shares outstanding of the registrant's common stock as of
the close of business on March 16, 1998 was 2,068,215.
Documents incorporated by reference
1. Portions of the annual report to shareholders for the year ended
December 31, 1997 are incorporated by reference into Parts I, II and IV.
2. Portions of the proxy statement for the 1998 annual meeting of
stockholders are incorporated by reference into Part III.
An Index to Exhibits appears on pages 12 through 20 of this Form 10-K.
- --------------------------------------------------------------------------------
<PAGE>
PART I
Item 1. Business
(a) General Development of Business: The Company is engaged in the
operation of hotels that it owns or leases in Boston (Cambridge),
Massachusetts; New Orleans, Louisiana; and Anguilla, B.W.I. It also
operates, under management agreements, hotels in Southampton, Bermuda;
Curacao, Netherlands Antilles; Key Biscayne, Florida; New Orleans,
Louisiana; and Cairo, Luxor, El Gouna, Port Said and Sharm el Sheikh,
Egypt; and two Nile River cruise vessels. The Company has paid $2
million for a 22% ownership interest in the hotel and casino it
operates under a management contract in Curacao, Netherlands Antilles.
The Company has entered into management agreements to operate new
hotels being created in Miami Beach; Taba and Nuweiba, Egypt; and
Manama, Bahrain; the Manama hotel is expected to open later this year,
the other projects are scheduled to open in 1999 or 2000. The Company
also licenses the use of the Sonesta name to two operating hotels in
Aruba. The Company terminated contracts under which it operated two
properties in Hurghada, Egypt, effective in early January 1998; and a
license agreement for a hotel in Santiago, Chile was terminated
effective at the end of February 1998. In November 1995, the Company
acquired the 100-room resort in Anguilla, B.W.I., known as Casablanca
Resort, which at that time was closed due to damage from Hurricane
Luis, in September 1995. (For details of this transaction, reference is
made to Note 2-Operations, on page 13 of the 1997 Annual Report to
Shareholders.) In December 1994 the Company entered into two
partnerships: one involving an 82-room hotel in Soho, New York; the
other to create a 320-room resort in Costa Rica. In July, 1996, the
Company liquidated its investment in the Soho project, and in March
1997 the Company notified its partner in the Costa Rica project that it
was terminating its participation in that project. Through a
foreclosure procedure the Company now owns the resort site in Costa
Rica.
(b) Not applicable.
(c) Narrative Description of Business: The Company's business is to a great
extent dependent upon a high level of economic activity.
The hotel business is highly competitive. The facilities of competitors
are often affiliated with national or regional chains having more room
accommodations and greater financial resources than the Company. The
Company follows the practice of refurnishing and redecorating the
hotels which it operates in order to keep the properties attractive and
competitive with new hotel properties, and this requires the Company to
make substantial capital expenditures. During the two years ended
December 31, 1997, the Company made capital expenditures for its hotels
totaling approximately $13,700,000.
The Company endeavors to create individual and distinctive features for
each hotel property while utilizing common corporate identification in
order to obtain the benefits of chain operation. The Company is using
the name "Sonesta" for all of its hotels.
2
<PAGE>
Item 1. Business
(c) (Cont'd)
The Company has approximately 1,538 employees. Approximately 256 of
these employees are covered by a collective bargaining agreement. The
Company considers its relations with its employees to be satisfactory.
While the business of the Company's individual hotels is seasonal, the
diverse locations of the three owned or leased properties tend to
mitigate the impact of this factor. Traditionally, the second and
fourth quarters have produced greater revenues and operating income
than the first and third quarters, although these seasonal fluctuations
do not materially affect the Company's business activities.
The following table provides total revenues, annual occupancy
percentage, average room rate and revenue per available room ("REVPAR")
for the Company's owned and leased properties for the years 1997, 1996
and 1995. REVPAR is calculated by dividing annual room revenue by the
total number of rooms available during the year. The Sonesta Beach
Resort Anguilla was acquired by the Company in November 1995 and opened
on January 18, 1996.
<TABLE>
<CAPTION>
TOTAL
NUMBER OF YEAR BUILT REVENUES
HOTEL ROOMS OR ACQUIRED (in thousands)
- ----- ----- ----------- -------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Sonesta Beach Resort Anguilla, Owned 100 1995 $4,071 $2,717 --
B.W.I.
Royal Sonesta Hotel Boston Owned 400 1963/1984 25,521 22,891 $20,969
(Cambridge)
Royal Sonesta Hotel New Orleans Leased 500 1969 31,491 30,802 29,318
</TABLE>
<TABLE>
<CAPTION>
AVERAGE AVERAGE
OCCUPANCY DAILY
PERCENTAGE RATE
----------------------------------------- ------------------------------------------------
HOTEL 1997 1996 1995 1997 1996 1995
- ----- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Sonesta Beach Resort Anguilla, 48.8% 39.3% -- $192 $147 --
B.W.I.
Royal Sonesta Hotel Boston 76.2% 76.5% 76.2% 144 127 $118
(Cambridge)
Royal Sonesta Hotel New Orleans 79.1% 80.5% 79.6% 147 141 136
</TABLE>
"REVPAR"
------------------------------------
HOTEL 1997 1996 1995
- ----- ---- ---- ----
Sonesta Beach Resort Anguilla, B.W.I. $ 94 $ 58 --
Royal Sonesta Hotel Boston (Cambridge) 109 97 $ 90
Royal Sonesta Hotel New Orleans 117 114 108
3
<PAGE>
Item 1. Business
(c) (Cont'd)
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 class of service for the three years ended December 31,
1997, reference is made to the Consolidated Statements of Operations
which appears on page 7 of the 1997 Annual Report to Shareholders.
(d) Financial Information about Foreign and Domestic Operations: This
information is incorporated by reference to Note 2 on pages 13 through
15 of the 1997 Annual Report to Shareholders.
Item 2. Properties
The Company's hotels are primarily metropolitan and resort hotels in popular
vacation areas which emphasize luxury accommodations and personal service.
The Company has fee ownership in two hotels: Royal Sonesta Hotel, Boston
(Cambridge), Massachusetts and Sonesta Beach Resort Anguilla, B.W.I. Reference
is made to Note 6 of the Notes to the Consolidated Financial Statements of the
registrant which appears on pages 16 and 17 of the Company's 1997 Annual Report
to Shareholders for details of the mortgage liens on the Boston (Cambridge),
Massachusetts property and the Anguilla property.
The Company operates the Royal Sonesta Hotel, New Orleans, Louisiana under a
long-term lease which expires on September 30, 2024, provided the Company
exercises its two ten-year extension options.
The Company also operates under management agreements hotels in Southampton,
Bermuda; Curacao, Netherlands Antilles; Key Biscayne, Florida; New Orleans,
Louisiana; and Cairo, Luxor, El Gouna, Port Said and Sharm el Sheikh, Egypt; and
two Nile River cruise vessels. The Company's hotel and casino on the island of
Curacao is operated under a management contract, and the Company has invested $2
million for a 22% ownership interest in that property. The company has granted
licenses for the use of its name to two hotels in Aruba.
In December 1994, the Company entered into two partnerships: one of the
partnerships was formed to acquire and develop as a hotel, including retail
space, a building in the SoHo district of New York; the other partnership was
formed to acquire a beachfront hotel site in Guanacaste, Costa Rica on which the
partnership intended to develop a 320-room resort and casino. The Company
liquidated its investment in the Soho project in July 1996. The Company notified
its
4
<PAGE>
development partner that it did not intend to proceed with the Costa Rica
project, in which a Company subsidiary was a 50% partner, triggering the
repayment of certain funds advanced by the Company and secured by a mortgage.
Those funds were not repaid and the Company foreclosed on the mortgage and now
holds fee ownership of the development site in Costa Rica.
In addition to the properties listed above, the Company leases space for its
executive offices at 200 Clarendon Street, Boston, Massachusetts 02116.
Item 3. Legal Proceedings
A wholly-owned subsidiary of the Company, Sonesta Hotels of Anguilla Limited
("SHAL"), and two executive officers of the Company were named as defendants in
a lawsuit filed in October, 1997, in Anguilla, B.W.I., by the former owner of
the resort hotel in Anguilla which the subsidiary purchased in November 1995
(the "Resort"), and the principals of that entity. The Statement of Claim in
this lawsuit, which was substantially amended in January 1998, alleges, inter
alia, that the defendants have not complied with certain "implied terms" of the
agreements between them and with the terms of an alleged oral agreement. The
plaintiffs in this action are seeking relief from their contractual obligations,
entitlement to certain financial benefits, and certain equitable relief. In late
February 1998 defendants filed a "Defense and Counterclaim" to plaintiffs'
"Amended Statement of Claim". The parties have engaged in settlement discussions
which to date have not been fruitful. In the absence of a settlement SHAL
expects to vigorously defend against this action, and to vigorously prosecute
its counterclaims, and expects a favorable outcome.
In early 1997, SHAL filed a lawsuit in The Court of First Instance, in Curacao,
Netherlands Antilles, against the company that was insuring the Resort at the
time of Hurricane Luis, in September 1995. In the suit, SHAL seeks to establish
its entitlement to business interruption coverage for periods subsequent to the
date SHAL acquired ownership of the Resort. The insurer, Ennia Caribe Schade
N.V., has taken the position that (1) it has no obligation to fund business
losses realized after the date of sale, and (2) the applicable policy does not
recognize business losses incurred after the Resort was restored and reopened.
The Company expects to vigorously pursue its claims against Ennia Caribe, but it
is not able to predict with certainty how this lawsuit will be resolved.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of shareholders of the Company in the fourth
quarter of 1997.
5
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Common stock market prices and dividends and the number of shareholders of
record are incorporated by reference to page 2 of the 1997 Annual Report to
Shareholders.
A dividend of $ .15 per share was paid on the Company's common stock in July
1996 and a dividend of $ .15 per share was declared on the Company's common
stock in December 1996, but was paid in January 1997. A dividend of $ .15 per
share was paid on the Company's common stock in July 1997 and a dividend of $
.15 per share was declared on the Company's common stock in December 1997, but
was paid in January 1998. Other information required by this item is
incorporated by reference to the Consolidated Statements of Stockholders' Equity
which appears on page 10 of the 1997 Annual Report to Shareholders.
No dividends may be declared or paid on the Company's common stock nor may
common stock be purchased or redeemed unless (a) preferred stock dividend and
sinking fund requirements are met; and (b) the total of dividends paid does not
exceed the maximum amount permitted by one of the Company's bank loan
agreements.
Item 6. Selected Financial Data
Selected Financial Data, on page 2 of the 1997 Annual Report to Shareholders, is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
This information is incorporated by reference to pages 3 through 5 of the 1997
Annual Report to Shareholders.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
This Item does not apply to the Company.
Item 8. Consolidated Financial Statements and Supplementary Data
The financial statements listed in the Index to Consolidated Financial
Statements filed as part of this Annual Report on Form 10-K, together with the
report of Ernst & Young LLP dated March 13, 1998, are incorporated herein by
reference to the 1997 Annual Report to Shareholders.
Selected Quarterly Financial Data, on page 5 of the 1997 Annual Report to
Shareholders, is incorporated by reference.
6
<PAGE>
Item 9. Changes in and Disagreements with Auditors on Accounting and Financial
Disclosure
There were no disagreements with auditors on accounting principles or practices
or financial statement disclosures.
PART III
Item 10. Directors and Executive Officers of the Registrant
A. Directors of the Company and Compliance with Section 16 (a)
The information required by this item is incorporated herein by
reference to the proxy statement for the 1998 Annual Meeting of
Stockholders.
B. The Executive Officers of the Company are as follows
<TABLE>
<CAPTION>
Employment History
Name Present Position Age 1993 to Present
- ---- ---------------- --- ---------------
<S> <C> <C> <C>
Roger P. Sonnabend Chairman of the Board and Chief 72 Chairman and Chief Executive Officer.
Executive Officer
Stephanie Sonnabend President 45 Vice President - Marketing until
November 1993, then Executive Vice
President until January 1, 1996.
Paul Sonnabend Chairman of the Executive Committee 70 President until December 31, 1995.
and Chief Financial Officer
Stephen Sonnabend Senior Vice President 66 Senior Vice President.
Boy van Riel Vice President and Treasurer 39 Controller until March 1993, then
Vice President & Treasurer.
Peter J. Sonnabend Vice Chairman, Vice President and 44 Vice President and Secretary until
Secretary May 1995.
Christopher Baum Vice President - Sales & Marketing 44 Vice President - Sales & Marketing.
7
<PAGE>
<CAPTION>
Employment History
Name Present Position Age 1993 to Present
- ---- ---------------- --- ---------------
<S> <C> <C> <C>
Michael Levie Vice President - Egypt 37 Vice President & General Manager,
Royal Sonesta Hotel, Boston
(Cambridge), until January 1996.
Felix Madera Vice President - International 49 Vice President & General Manager,
Sonesta Beach Resort, Key Biscayne,
Florida.
Mary Jane Rosa Vice President - Design 49 Director of Design until January
1993, then Vice President - Design.
Jacqueline Sonnabend Executive Vice President 43 Vice President - Human Resources
until March 1996.
Hans Wandfluh Vice President 63 President & General Manager, Royal
Sonesta Hotel, New Orleans,
Louisiana.
</TABLE>
Roger, Paul and Stephen Sonnabend are brothers. Stephanie Sonnabend and
Jacqueline Sonnabend are the daughters of Roger Sonnabend. Peter J. Sonnabend is
the son of Paul Sonnabend.
The Board of Directors elects officers of the Company on an annual basis.
Item 11. Executive Compensation
and
Item 12. Security Ownership of Certain Beneficial Owners and Management
and
Item 13. Certain Relationships and Related Transactions.
The information required by these items is incorporated by reference to the
proxy statement for the 1998 Annual Meeting of Stockholders to be held on May
18, 1998.
8
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements: The financial statements listed in the
accompanying Index to Consolidated Financial Statements is filed as
part of this Annual Report.
2. Financial Statement Schedules: The schedule listed in the
accompanying Index to Consolidated Financial Statements is filed as
part of this Annual Report.
3. Financial Statements of significant subsidiary, RIF Resort Hotel,
N.V., if available, shall be provided by amendment to this Form 10-K
by June 30, 1998, as allowed under Regulation S-X, Rule 3-09.
4. Exhibits: The exhibits listed on the accompanying Index to Exhibits
are filed as part of this Annual Report.
(b) Reports on Form 8-K filed during the last quarter of 1997: None
9
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
Index to Consolidated Financial Statements
and Financial Statement Schedules
Item 14 (a) (1) and (2) References (Page)
1997 Annual Report to
Form 10-K Shareholders*
--------- -------------
Consolidated Balance Sheets
at December 31, 1997 and 1996 ........... 8-9
For the years ended December 31,
1997, 1996 and 1995:
Consolidated Statements of
Operations .................. 7
Consolidated Statements of
Stockholders' Equity ........... 10
Consolidated Statements of
Cash Flows .......................... 11
Notes to Consolidated
Financial Statements ..................... 12-20
Consolidated Financial Statement
Schedule for the year ended
December 31, 1997:
II. Consolidated Valuation and
Qualifying Accounts ............ 11
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
- -------------------------------------------------
*Incorporated by Reference
10
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
AMOUNTS AMOUNTS
BALANCE, CHARGED (WRITTEN OFF) BALANCE,
BEGINNING (CREDITED) NET OF END OF
OF YEAR TO INCOME RECOVERIES YEAR
------- --------- ---------- ----
<S> <C> <C> <C> <C>
Year Ended December 31, 1995
Deducted from assets:
Valuation reserve on long-term
receivables and advances $ 5,500,000 $ - $ - $ 5,500,000
=========== ========== ========== ===========
Allowance for doubtful accounts $ 84,249 $ 26,400 $ (12,748) $ 97,901
=========== ========== ========== ===========
Year Ended December 31, 1996
Deducted from assets:
Valuation reserve on long-term
receivables and advances $ 5,500,000 $ - $ - $ 5,500,000
=========== ========== ========== ===========
Allowance for doubtful accounts $ 97,901 $ 37,650 $ (27,577) $ 107,974
=========== ========== ========== ===========
Year Ended December 31, 1997
Deducted from assets:
Valuation reserve on long-term
receivables and advances $ 5,500,000 $ - $ - $ 5,500,000
=========== ========== ========== ===========
Allowance for doubtful accounts $ 107,974 $ 26,001 $ (16,317) $ 117,658
=========== ========== ========== ===========
==========================================================================================================
</TABLE>
11
<PAGE>
Sonesta International Hotels Corporation
Index to Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE NOS.
- ------ ----------- ---------
<S> <C> <C>
3.1 Certificate of Incorporation as amended to date. (8)
3.2 Company By-laws, including all amendments through March
16, 1998. (12)
9.1(a) Sonnabend Voting Trust Agreement dated August 1, 1984,
providing for the combination of the voting power of
stock held by members of the Sonnabend Family. (6)
9.1(b) First Amendment dated December 1984 to Sonnabend Voting
Trust Agreement (6)
10.1(a) "Third Amendment of Mortgage and Security Agreement and
Second Amendment of Note" Between Key Biscayne Limited
Partnership, Mortgagor ("KBLP") and Florida Sonesta
Corporation, Mortgagee ("FSC"), dated February 4, 1994.
(10)
10.1(b) "Operating Deficit Loan Mortgage Note" ($2,194,005.00)
from KBLP to FSC, dated as of December 31, 1993. (10)
10.1(c) "Operating Deficit Loan Mortgage and Security Agreement"
between KBLP and FSC, dated February 4, 1994. (10)
10.1(d) "Promissory Note" ($1,576,600.00) from KBLP to FSC,
dated February 4, 1994 . (10)
10.1(e) "Second Amendment to Management Agreement" dated as of
December 31, 1993 between KBLP and FSC. (10)
12
<PAGE>
<CAPTION>
NUMBER DESCRIPTION PAGE NOS.
- ------ ----------- ---------
<S> <C> <C>
10.2(a) Renovation Enhancement Agreement, dated February 19,
1993, between Florida Sonesta Corporation ("FSC") and
Key Biscayne Limited Partnership ("KBLP"). (9)
10.2(b) First Amendment to Renovation Enhancement Agreement,
dated May 18, 1993, between FSC and KBLP. (9)
10.3 Second Renovation Enhancement Agreement, dated April 30,
1993, between FSC and KBLP. (9)
10.4(a) "Sonesta Loan" agreement, dated April 13, 1993 between
FSC and KBLP. (9)
10.4(b) First Amendment to "Sonesta Loan" agreement, dated
September 29, 1993, between FSC and KBLP. (9)
10.5(a) "Renovation Agreement", dated September 12, 1991,
between Florida Sonesta Corporation ("FSC") and Key
Biscayne Limited Partnership ("KBLP"). (7)
10.5(b) "First Amendment to Management Agreement", dated
September 12, 1991, between FSC and KBLP. (7)
10.5(c) "Amendment of Note and Second Mortgage", dated September
12, 1991, between FSC and KBLP. (7)
10.5(d) "Amendment of Note and Third Mortgage", dated September
12, 1991, between FSC and KBLP. (7)
10.6(a) "1995 Loan Agreement" between Hibernia National Bank
("Hibernia") and Royal Sonesta, Inc. ("Royal Sonesta"),
as of January 1, 1995. (10)
10.6(b) "Promissory Note" ($5,000,000) from Royal Sonesta to
Hibernia, dated "Effective January 1, 1995". (10)
13
<PAGE>
<CAPTION>
NUMBER DESCRIPTION PAGE NOS.
- ------ ----------- ---------
<S> <C> <C>
10.6(c) "First Amendment to 1995 Loan Agreement" Between
Hibernia and Royal Sonesta, dated December 12, 1994.
(10)
10.6(d) "Second Amendment to 1995 Loan Agreement" Between 23-34
Hibernia and Royal Sonesta, dated as of December
31, 1997.
10.6(e) "Second Modification to Promissory Note" Between Hibernia and 25
Royal Sonesta, dated as of December 31, 1997.
10.7(a) 1992 Loan Agreement, dated December 30, 1992, between
Royal Sonesta, Inc. and Hibernia National Bank in New
Orleans. (8)
10.7(b) Promissory Note, dated December 30, 1992 between Royal
Sonesta, Inc. and Hibernia National Bank in New Orleans.
(8)
10.7(c) Restatement and Continuation of Continuing Guaranty,
dated December 30, 1992, between the Registrant and
Hibernia National Bank in New Orleans. (8)
10.8(a) "Amendment and Restatement of the Amended and Restated
Loan Agreement", dated December 23, 1991, between
Hibernia National Bank, Royal Sonesta, Inc. and Sonesta
International Hotels Corporation. (7)
10.8(b) $2,875,000 Promissory Note, dated December 23, 1991,
from Royal Sonesta, Inc. to Hibernia National Bank. (7)
10.9(a) Promissory Note ($22,880,000), dated December 18, 1996,
from the Trustees of Charterhouse of Cambridge Trust
("Trust") and Sonesta of Massachusetts, Inc. ("Sonesta
Mass") to SunAmerica Life Insurance Company
("SunAmerica"). (13)
14
<PAGE>
<CAPTION>
NUMBER DESCRIPTION PAGE NOS.
- ------ ----------- ---------
<S> <C> <C>
10.9(b) Mortgage, Security Agreement, Fixture Filing, Financing
Statement and Assignment of Leases and Rents, dated as
of December 18, 1996, between Trust and Sonesta Mass,
and SunAmerica. (13)
10.9(c) Environmental Indemnity Agreement, dated as of December
18, 1996, between Trust, Sonesta Mass, and Sonesta
International Hotels Corporation ("Sonesta"), and
SunAmerica. (13)
10.9(d) Escrow Agreement, dated as of December 18, 1996, between
Trust and Sonesta Mass, SunAmerica, "Escrow Agent". (13)
10.9(e) Replacement Reserve and Security Agreement, dated as of
December 18, 1996, between Trust and Sonesta Mass, and
SunAmerica. (13)
10.9(f) Limited Guaranty Agreement, dated as of December 18,
1996, between Sonesta and SunAmerica. (13)
10.10(a) "Contract of Sale", dated July 11, 1996, between The
Soho Hotel Company, L.P. ("Soho") and The Mercer I
L.L.C. ("Mercer I"). (13)
10.10(b) "Lease Assignment and Assumption", dated July 11, 1996,
between Soho and Mercer I. (13)
10.10(c) "Assignment and Assumption of Assumed Contracts", dated
July 11, 1996, between SoHo and Mercer I. (13)
10.10(d) "Indemnity Agreement", dated July 11, 1996, between Soho
and Andre Balazs. (13)
10.11 "Shareholders Agreement of C.R. Resort Associates
Limited", dated December 8, 1994. (10)
10.12(a) First Amendment to Shareholders Agreement of C.R. Resort
Associates Limited, dated September 18, 1996. (13)
15
<PAGE>
<CAPTION>
NUMBER DESCRIPTION PAGE NOS.
- ------ ----------- ---------
<S> <C> <C>
10.12(b) Agreement, dated September 18, 1996, between El Cacique
de Calzon de Pobre, S.A.; Extency Internacional S.A.;
Investex, S.A.; Sonesta International Hotels Limited;
Sonesta International Hotels Corporation; Costa Rica
Resort Associates, S.A. (13)
10.13(a) Revolving Term Note ($2,000,000) from Sonesta
International Hotels Corporation to USTrust, dated
September 30, 1995. (12)
10.13(b) Commitment Letter agreement, dated September 28, 1995,
between Sonesta International Hotels Corporation and
USTrust. (12)
10.14 Letter Agreement extending the maturity date of the 26-29
Commercial Promissory Note ($2,000,000) from Sonesta
International Hotels Corporation to USTrust, dated September
30, 1997.
10.15(a) Loan Agreement dated ($1,000,000), dated December 18,
1996, between Masters of Tourism and Sonesta
International Hotels Limited. (13)
10.15(b) (Personal) Guaranty of Hisham Aly, dated as of December
18, 1996. (13)
10.16 Loan Agreement ($277,935) dated as of January 1, 1997,
between Masters of Tourism and Sonesta International
Hotels Limited (consolidating two (2) outstanding loan
balances). (13)
10.17(a) "Amendment to Loan Agreement", dated April 29, 1997, between 30-33
Masters of Tourism and Sonesta International Hotels Limited.
10.17(b) (Personal) Guaranty of Hisham Aly, dated as of April 29, 1997. 34-37
10.18 "Third Amendment to Lease" between John Hancock and
Sonesta, dated June, 1994. (10)
16
<PAGE>
<CAPTION>
NUMBER DESCRIPTION PAGE NOS.
- ------ ----------- ---------
<S> <C> <C>
10.19 "Second Amendment to Lease" between John Hancock Mutual
Life Insurance Company ("John Hancock") and Sonesta
International Hotels Corporation ("Sonesta"), dated
March 22, 1994. (10)
10.20 Indenture of Lease, dated June 26, 1979, between John
Hancock Mutual Life Insurance Company and Sonesta
International Hotels Corporation. (4)
10.21(a) Intercreditor, Payment Priority and Lien Priority
Agreement, dated as of September 15, 1993, between
Sonesta International Hotels Corporation ("Sonesta"),
Sonesta Louisiana Hotels Corporation ("SLHC"), 800 Canal
Street Limited Partnership (the "Partnership"), and
numerous other parties. (9)
10.21(b) Commercial Guaranty, dated September 15, 1993, by SLHC
and Sonesta. (9)
10.21(c) CSDC/Manager Reserve Agreement, dated September 15,
1993, between SLHC, the Partnership and Canal Street
Development Corporation. (9)
10.22(a) Manager Advance Agreement, dated as of May 6, 1997, between 38-42
SLHC and the Partnership.
10.22(b) Term Note ($500,000) from the Partnership to SLHC, dated May 43
6, 1997.
10.22(c) Collateral Note ($650,000) from the Partnership to SLHC, 44
dated May 6, 1997.
10.22(d) Commercial Guaranty, dated May 6, 1997, between SLHC, 45-49
Sonesta, and First National Bank of Commerce.
10.22(e) Amended and Restated Intercreditor, Payment Priority and Lien 50-102
Priority Agreement, dated as of May 6, 1997, between Sonesta,
SLHC, the Partnership, and numerous other parties.
17
<PAGE>
<CAPTION>
NUMBER DESCRIPTION PAGE NOS.
- ------ ----------- ---------
<S> <C> <C>
10.23 Extension of Lease by Royal Sonesta, Inc., dated August
6, 1993. (9)
10.24 Agreement, dated September 9, 1993, between Royal
Sonesta, Inc. and Aetna Life Insurance Company (9)
10.25 Hotel Lease-Amendment No. 3, dated September 17, 1981,
between Aetna Life Insurance Company and Royal Sonesta,
Inc. (5)
10.26 Hotel Lease-Amendment No. 2, dated September 1, 1977,
between Chateau Louisiane, Inc. and Royal Sonesta, Inc.
(3)
10.27 Hotel lease-Amendment No. 1, dated November 26, 1973,
between Chateau Louisiane, Inc. and Louisiana Sonesta
Corporation. (2)
10.28 Hotel Lease, dated December 12, 1967, between Chateau
Louisiane, Inc., as "Landlord", and The Royal Orleans,
Inc., as "Tenant". (1)
10.29(a) Restated Employment Agreement, dated January 1, 1992,
between the Registrant and Paul Sonnabend, together with
letter agreement regarding permanent and total
disability. (8) (Management contract under Item 601 (10)
(iii) (A))
10.29(b) Restated Employment Agreement, dated January 1, 1992,
between the Registrant and Roger P. Sonnabend, together
with letter agreement regarding permanent and total
disability. (8) (Management contract under Item 601 (10)
(iii) (A)).
10.29(c) Restated Employment Agreement, dated January 1, 1992,
between the Registrant and Stephen Sonnabend together
with letter agreement regarding permanent and total
disability. (8) (Management contract under Item 601 (10)
(iii) (A)).
18
<PAGE>
<CAPTION>
NUMBER DESCRIPTION PAGE NOS.
- ------ ----------- ---------
<S> <C> <C>
10.30 (Letter) Loan Agreement ($2,000,000), dated July 18,
1996, between Maduro & Curiel's Bank N.V. and Sonesta
Curacao Hotel Corporation N.V. (13)
10.31 Lease, dated September 21, 1991, between "the Crown" and
Casablanca Resorts Development of Anguilla Limited
("CRDAL") (assumed by Sonesta Hotels of Anguilla Limited
("Sonesta Anguilla") in November 1995). (11)
10.32 Debenture, dated November 28, 1995, between Scotiabank
Anguilla Limited and Sonesta Anguilla (11)
10.33 Debenture ($6,390,000) from Sonesta Hotels of Anguilla
Limited to Scotiabank Anguilla Limited, dated December
1996 (evidencing additional $1,700,000 loan). (13)
10.34 Agreement, dated as of March 1, 1996, between CRDAL and
Sonesta Anguilla. (13)
10.35 (Letter) Loan Agreement ($1,000,000), dated February 9,
1997, between Sakkara Hotels and Sonesta International
Hotels Corporation. (13)
10.36 (Letter) Lease Agreement, dated June 3, 1996, between
Sonesta Hotels of Anguilla, Ltd. and Amsterdam Sonesta
Corporation (subsequently renamed Anguilla Hotel
Management, Inc.) (13)
10.37 Loan Agreement, dated July 30, 1997, between Sonesta Miami 103-112
Beach Hotel Company, Inc. and Skip Properties N.V.
13 Annual Report to Security Holders for the calendar year ended 113-133
December 31, 1997.
21 Subsidiaries of the Registrant. 134
23 Consent of Ernst & Young LLP filed herewith. 135
19
<PAGE>
<CAPTION>
NUMBER DESCRIPTION PAGE NOS.
- ------ ----------- ---------
<S> <C> <C>
27 Financial Data Schedule 136
</TABLE>
(1) Incorporated by reference to the Company's 1967 Report on Form 10-K.
(2) Incorporated by reference to the Company's 1973 Report on Form 10-K.
(3) Incorporated by reference to the Company's 1977 Report on Form 10-K.
(4) Incorporated by reference to the Company's 1979 Report on Form 10-K.
(5) Incorporated by reference to the Company's 1981 Report on Form 10-K.
(6) Incorporated by reference to the Company's 1984 Report on Form 10-K.
(7) Incorporated by reference to the Company's 1991 Report on Form 10-K.
(8) Incorporated by reference to the Company's 1992 Report on Form 10-K.
(9) Incorporated by reference to the Company's 1993 Report on Form 10-K.
(10) Incorporated by reference to the Company's 1994 Report on Form 10-K.
(11) Incorporated by reference to the Company's 1995 Report on Form 8-K.
(12) Incorporated by reference to the Company's 1995 Report on Form 10-K.
(13) Incorporated by reference to the Company's 1996 Report on Form 10-K.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SONESTA INTERNATIONAL HOTELS CORPORATION
(Registrant)
By: /S/ Date: March 16, 1998
-------------------------------------------------
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.
By: /S/ Date: March 16, 1998
--------------------------------------------------
Roger P. Sonnabend
Chairman of the Board and Chief Executive Officer
By: /S/ Date: March 16, 1998
--------------------------------------------------
Boy van Riel
Vice President and Treasurer, Principal
Financial and Accounting Officer
By: /S/ Date: March 16, 1998
--------------------------------------------------
Paul Sonnabend
Director
By: /S/ Date: March 16, 1998
--------------------------------------------------
Peter J. Sonnabend
Director
21
<PAGE>
By: /S/ Date: March 16, 1998
--------------------------------------------------
Stephanie Sonnabend
Director
By: /S/ Date: March 16, 1998
--------------------------------------------------
Stephen Sonnabend
Director
By: /S/ Date: March 16, 1998
--------------------------------------------------
George S. Abrams
Director
By: /S/ Date: March 16, 1998
--------------------------------------------------
Vernon R. Alden
Director
By: /S/ Date: March 16, 1998
--------------------------------------------------
Joseph L. Bower
Director
By: /S/ Date: March 16, 1998
--------------------------------------------------
Lawrence M. Levinson
Director
By: /S/ Date: March 16, 1998
--------------------------------------------------
Jean C. Tempel
Director
22
SECOND AMENDMENT TO 1995 LOAN AGREEMENT
This Second Amendment to 1995 Loan Agreement is executed on this ____
day of February, 1998 by and between HIBERNIA NATIONAL BANK, a national bank
association (hereinafter "BANK") ROYAL SONESTA, INC., a Louisiana corporation
(hereinafter "Borrower") and SONESTA INTERNATIONAL HOTELS CORPORATION, a New
York corporation (hereinafter "Guarantor").
WITNESSETH
WHEREAS, Borrower, Bank and Guarantor have entered into a 1995 Loan
Agreement effective January 1, 1995, as amended by First Amendment to 1995 Loan
Agreement dated as of December 12, 1994, whereunder Bank renewed and extended a
revolving line of credit facility in the amount of $5,000,000.00 (the "1995
Agreement"), and
WHEREAS, Borrower and Guarantor desire to renew and extend the credit
to Borrower with the particulars set forth hereinafter;
NOW THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. The 1995 Loan Agreement is hereby amended so the Article I.,
Section 1.2, Definitions shall be amended with respect to the term
"Commitment Termination Date" to read as follows:
"Commitment Termination Date" shall mean December 31, 2000, or any
maturity date set forth in the Revolving Credit Note.
2. The 1995 Loan Agreement is further amended to delete the
definition of "Revolving Credit Note" set forth in Section 1.2,
and replace it with the following:
"Revolving Credit Note" shall have the meaning assigned to it in
Section 2.1 (b) hereof, but shall also include all renewals,
modifications, substitutions, and refinancing thereof.
3. The Loan Agreement is further amended to add the following as a
new subsection of Section 6.12:
(g) Out of Debt Covenant. Borrower shall take such actions as may
be needed to ensure that during the term of the Revolving Credit
Note, there shall be a period of at least thirty (30) consecutive
days during which there are no Revolving Credit Advances
outstanding thereunder.
4. All other terms and conditions of the 1995 Loan Agreement and
First Amendment to 1995 Loan Agreement remain in full force and
effect.
IN WITNESS WHEREOF, Bank, Borrower and Guarantor have each caused this
amendment to be executed by their respective officers, hereunto duly authorized,
on the day, month, and year first written above, such amendment to be effective
as of December 31, 1997
WITNESSES: ROYAL SONESTA, INC.
<PAGE>
/s/ Darleen Washington /s/ Boy A.J. Van Riel
_____________________________ BY:__________________________
Boy A.J. van Riel, Vice President
and Treasurer
/s/ Christine Moynihan DATE: February 10, 1998
_____________________________ _______________________
SONESTA INTERNATIONAL HOTELS
CORPORATION
/s/ Darleen Washington /s/ Boy A.J. Van Riel
_____________________________ BY:__________________________
Boy A.J. van Riel, Vice President
and Treasurer
/s/ Christine Moynihan DATE: February 10, 1998
_____________________________ _______________________
HIBERNIA NATIONAL BANK
/s/ ????????????????? /s/ Christopher B. Pitre
_____________________________ By:__________________________
/s/ ????????????????? Date: 2/6/98
_____________________________ _______________________
SECOND MODIFICATION TO PROMISSORY NOTE
WHEREAS, Royal Sonesta, Inc. ("Borrower") has executed a promissory
note dated January 1, 1995, payable to the order of Hibernia National Bank
("Bank"), in the original principal amount of $5,000,000.00, as amended by
Modification dated December 12, 1994, bearing interest at the rate of Citibank
Prime minus 1/8%, and having a final maturity of December 31, 1997 (the "Note");
and
WHEREAS, Borrower and Bank desire to extend the maturity date of the
Note, and they agree as follows:
AGREEMENT
1. The maturity date of the Note as referenced in subparagraph (b) on
page one of the Note is hereby extended from December 31, 1997 to December 31,
2000, so that the entire unpaid and outstanding amount of principal and interest
due under the Note shall be due and payable on the 31st day of December, 2000.
The payment schedule shall remain as set forth in the Note, that is, interest is
payable quarterly in arrears on the last day of September, December, March and
June, with the entire outstanding balance of principal and interest due and
payable on the 31st day of December, 2000.
2. Wherever the Note references the "1995 Agreement", such reference
shall mean and include any and all amendments, modifications or revisions to
said 1995 Agreement.
3. Except as expressly modified herein, all terms and provisions of the
Note and of all other documents securing, or evidencing the obligations under or
related to the Note, are hereby ratified and confirmed, and shall remain in full
force and effect. Borrower represents and warrants that no default has occurred
as of the date hereof, and that Borrower has no defense, offset, compensation,
counterclaim or reconventional demand with respect to the Note.
EXECUTED this 10th day of February, 1998, and effective as of December
31, 1997.
BANK HIBERNIA NATIONAL BANK BORROWER: Royal Sonesta, Inc.
/s/ Christopher B. Pitre /s/ Boy A.J. van Riel
By _________________________ By _________________________
Name Christopher B. Pitre Name: Boy A.J. van Riel
-------------------------
Title Assistant Vice President Title: Vice President and Treasurer
-------------------------
[letterhead
USTrust Bank
30 Court Street
Boston, MA 02108
617-726-7000] [logo] USTRUST
September 30, 1997
Mr. Boy van Riel
Vice President & Treasurer
Sonesta International Hotels Corp.
John Hancock Tower
200 Clarendon Street
Boston, MA 02116
Dear Boy:
We are pleased to advise that USTrust has approved the renewal of your
$2,000,000.00 unsecured line of credit at our Base Lending Rate. Unless renewed
the line will expire on September 30, 1998. The line continues to be guaranteed
by the company's principal domestic subsidiaries (as described in Exhibit A).
This line will be governed by the terms and conditions of the commitment letter
dated September 28, 1995 and the Commercial Promissory Note dated September 30,
1995, except as amended as follows:
1. The maturity date of the Commercial Promissory Note date September 30,
1995 is hereby extended form September 30, 1995 to September 30, 1998.
2. The permitted indebtedness and guaranties as described in Exhibit B
shall be replaced with Exhibit B-1997.
<PAGE>
Sonesta International Hotels Corp.
Page 2
Again, we are pleased to make this accommodation to you, and are pleased to
continue to have Sonesta as one of our customers. If you are in agreement with
these terms and conditions, please indicate your acceptance by signing on the
line designated below and returning an executed copy to my attention. Thank you.
Sincerely,
/s/ Charles J. Clark
Charles J. Clark
Senior Vice President
ACCEPTED
Sonesta International Hotels Corporation
By: /s/ Boy van Riel
_______________________
Boy van Riel
Vice President & Treasurer
I hereby acknowledge and affirm guaranty of the above described credit facility,
by the principal domestic subsidiaries of Sonesta International Hotels
Corporation as described in Exhibit A, in my capacity as authorized signer for
Said subsidiaries.
By: /s/ Boy van Riel
_______________________
Boy van Riel, as authorized signer for Sonesta subsidiaries.
<PAGE>
EXHIBIT A
Principal Domestic Subsidiaries of
Sonesta International Hotels Corporation
Amsterdam Sonesta Corporation Guaranty Unlimited
Brewster Wholesale Corporation Guaranty Unlimited
Florida Sonesta Corporation Guaranty Unlimited
S.I.A. Advertising, Inc. Guaranty Unlimited
Royal Sonesta, Inc. Guaranty Limited to $1,000,000
<PAGE>
EXHIBIT B- 1997
Financial Institute Maximum Commitment
- ------------------- ------------------
SunAmerica Insurance Co. $22.9 Million
Hibernia National $ 5.0 Million
Maduro & Curiels Bank $ 2.0 Million
First National Bank $ 1.5 Million Guarantee
Scotia Bank $ 500,000 Guarantee
Scotia Bank $ 6.5 Million with a
$ 2.0 Million Guarantee
Seller Note (Anguilla) $ 1.0 Million
AMENDMENT TO LOAN AGREEMENT
Reference is made to the Loan Agreement made as of the 18th
day of December, 1996 in the City of Boston, Massachusetts, U.S.A. by and
between SONESTA INTERNATIONAL HOTELS LIMITED (or its assignee) organized and
existing under the laws of The Bahamas and having its principal place of
business at 200 Clarendon Street, Boston, Massachusetts, U.S.A. and represented
in the signature of this Agreement by Peter J. Sonnabend, Vice President
(hereinafter referred to as the "Lender"), and MASTERS OF TOURISM organized and
existing under the laws of The Arab Republic of Egypt and having its principal
place of business at Salah Salem Avenue, El Abour Building, No. 13, Flat 84,
Heliopolis, Cairo, Egypt and represented in the signature of this Agreement by
MOHAMED HISHAM AHMED ALY, CHAIRMAN (hereinafter referred to as the "Borrower")
("Loan Agreement"). This agreement shall constitute an "Amendment" to the Loan
Agreement.
WHEREAS the Lender agrees to provide the Borrower with an
additional loan facility in the amount of Five Hundred Thousand Dollars (U.S.
$500,000.00) to be used as hereinafter mentioned and upon and according to the
terms and subject to the conditions hereinafter mentioned. Now it is hereby
agreed to amend the Loan Agreement as follows:
1. Section 1.10 is amended to refer to "One Million Five Hundred Thousand
Dollars (U.S. $1,500,000)", instead of "One Million Dollars (U.S.
$1,000,000)".
2. Sections 1.11 and 2.04 are amended by substituting the words "Prime
Rate charged by United States Trust Company, Boston, Massachusetts" for
the words "LIBOR (one (1) year rate) plus 2% per annum".
3. In Section 2.02, the reference to "80 guestrooms (74 by new
construction, 6 by completing existing guestrooms)" is hereby amended
to refer to "160 guestrooms (154 by new construction, 6 by completing
existing guestrooms)".
<PAGE>
4. Subsection 2.03 (A) is hereby revised to provide as follows:
A. The Loan shall be funded as follows:
-- one-third (1/3): $500,000.00 when Lender has approved the
plans and specifications for the Improvements, and
construction has commenced (which amount has previously
been advanced)
-- one-third (1/3): $500,000.00 when the development of the
Improvements is fifty percent (50%) complete
-- one-third (1/3): $500,000.00 when the Improvements are
completed (as completion is described in Section 2 of the
"Fourth Amendment" to the Management Agreement, dated
April 29, 1997).
5. Section 2.06 is hereby revised to provide as follows:
2.06 Repayment of Loan. The Loan shall be repaid to Lender out of
the "Owner's Return" payable to Owner (as provided in the
Management Agreement) in 8 annual installments of U.S.
$187,500.00, together with accrued interest on the Loan, each such
payment shall be made on or before January 1 of each year,
commencing January 1, 1998. The Operator, under the said
Management Agreement, is hereby authorized and instructed to make
any payment(s) due hereunder from "Owner's Return" directly to
itself as Lender hereunder.
6. Borrower represents and warrants that it has taken all appropriate and
necessary corporate action to authorize the execution and delivery of
this Amendment and the performance and observance of the terms and
conditions hereof and thereof. A copy of the Board Declaration (in
English) passed by Borrower's Board of Directors is attached hereto as
Exhibit A.
<PAGE>
7. In all other respects the Loan Agreement remains unchanged and in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in Boston, Massachusetts, U.S.A., by their respective
duly authorized signatories as of April 29, 1997.
Witness: SONESTA INTERNATIONAL HOTELS LIMITED
/s/ ?????????????? /s/ Peter J. Sonnabend
____________________ By: ________________________________
Name: Peter J. Sonnabend
Title: Vice President
Witness: MASTERS OF TOURISM
/s/ ????????????? /s/ Mohamed Hisham Ahmed Aly
____________________ By: ________________________________
Name: Mohamed Hisham Ahmed Aly
Title: Chairman
Witness: /s/ Mohamed Hisham Ahmed Aly
By: ________________________________
Mohamed Hisham Ahmed Aly
/s/ ???????????????
- --------------------
<PAGE>
EXHIBIT A
BOARD DECLARATION
The Board of Directors of Masters of Tourism (S.A.E.), the sole owner and
beneficiary of that certain resort hotel known as Sonesta Beach Resort, Sharm El
Sheikh, in its meeting held on _________________ in the city of ______________
declares and represents that the company did not assign any of its rights in the
said hotel to any legal entity or person and approves unanimously the terms of
the "Amendment to Loan Agreement" between Sonesta International Hotels Limited
and our company representing an additional loan of U.S. Five Hundred Thousand
Dollars ($500,000.00). This loan and the previous loan of U.S. $1,000,000 shall
together be repaid over 8 years together with interest at the "Prime Rate"
charged by United States Trust Company, Boston, Massachusetts, U.S.A., in
accordance with the Loan Agreement, as amended.
The Board of Directors approves as a guarantee for the said loan(s) to assign
unconditionally all of its rights and interests in the Management Agreement of
and pertaining to SONESTA BEACH RESORT, SHARM EL SHEIKH, dated December 13, 1991
to SONESTA INTERNATIONAL HOTELS LIMITED.
The Board of Directors delegates Mr. Mohamed Hisham Ahmed Aly to sign on behalf
of the company the Amendment to Loan Agreement and any documents relating to the
said Loan.
GUARANTY
Reference is made to (1) that certain Amendment to Loan Agreement ("Loan
Agreement") dated as of April ___, 1997, by and between MASTERS OF TOURISM
("Borrower") and SONESTA INTERNATIONAL HOTELS LIMITED ("Sonesta Limited"), and
to (2) that certain Management Agreement, dated as of December 13, 1991, by and
between Borrower, as "Owner", and Sonesta Limited, as "Operator", as amended to
date ("Management Agreement"). For good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the undersigned (the
"Guarantor") agrees as follows:
1. Guaranty of Payment and Performance of Obligations. The undersigned
Guarantor, jointly and severally with each other person or entity which
guarantees the "Obligations" (as hereinafter defined), hereby unconditionally
guarantees to Sonesta International Hotels Corporation and Sonesta Limited
(jointly and severally "Sonesta") that Borrower will duly and punctually pay and
perform, at the place specified therefor, the following amounts when and as
required to be paid by Borrower pursuant to the Loan Agreement and the
Management Agreement: Any and all interest, principal, fees, charges, and other
amounts at any time payable by Borrower to Sonesta (or their affiliates) under
the Loan Agreement and/or the Management Agreement. The obligations so
guaranteed pursuant to the preceding sentence may be collectively referred to in
this Guaranty as the "Obligations". This Guaranty is an absolute, unconditional
and continuing guaranty of the full and punctual payment and performance by
Borrower of the Obligations and not of their collectibility only and is in no
way conditioned upon any requirement that Sonesta first attempt to collect any
of the Obligations from Borrower or resort to any security or other means of
obtaining payment of any of the Obligations. Upon any default by Borrower in the
full and punctual payment and performance of the Obligations, the liabilities
and obligations of the Guarantor hereunder shall, at the option of Sonesta,
become forthwith due and payable to Sonesta without demand or notice of any
nature, all of which are expressly waived by the Guarantor. Payments by the
Guarantor hereunder may be required by Sonesta on any number of occasions.
2. Guarantor's Further Agreements to Pay. The Guarantor further agrees, as the
principal obligor and not as a guarantor only, to pay to Sonesta forthwith upon
demand, in funds immediately available to Sonesta, all costs and expenses
(including court costs, attorneys' fees and legal expenses) incurred or expended
by Sonesta in connection with the enforcement hereof, together with interest on
amounts recoverable under this Guaranty from the time such amounts become due
until payment at the rate of 18% per annum but not in excess of the maximum
amount permitted by law.
3. Guarantor's Warranty and Representation. The Guarantor further
unconditionally guarantees to Sonesta the authenticity, validity, and
effectiveness of the "Board Declaration" delivered to Sonesta as of the date of
this Guaranty (being the same Board Declaration referenced as "Exhibit A" to the
Loan Agreement).
4. Liability of Guarantor. The liability of the Guarantor hereunder shall be
unlimited, except as specifically set forth herein.
<PAGE>
5. Security; Set-off. The Guarantor grants to Sonesta, as security for the full
and punctual payment and performance of the Guarantor's obligations hereunder, a
security interest in all property belonging to the Guarantor now or hereafter
held by Sonesta and in all sums credited by or due from Sonesta to the
Guarantor, regardless of the adequacy of any collateral or other means of
obtaining repayment of the Obligations. Sonesta may at any time and without
notice to the Guarantor set off the whole or any portion or portions of any or
all such sums against amounts payable under the Guaranty.
6. Sonesta's Freedom to Deal with Borrower and Other Parties. Sonesta shall be
at liberty, without giving notice to or obtaining the assent of Guarantor and
without relieving the Guarantor of any liability hereunder, to deal with
Borrower, and with each other party who is now or after the date hereof becomes
liable in any manner for any of the Obligations, in such manner as Sonesta in
its sole discretion deems fit, and to this end the Guarantor gives to Sonesta
full authority in its sole discretion to do any or all of the following things
(but without any obligation of Sonesta to do so): (a) extend credit, make loans
and afford other financial accommodations to Borrower at such times, in such
amounts and on such terms as Sonesta may approve, (b) vary the terms and grant
extensions or renewals of any present or future indebtedness or obligations to
Sonesta of Borrower or any such other party, (c) grant time, waivers and other
indulgences in respect thereto, (d) vary, release, exchange or discharge, wholly
or partially, or delay in or abstain from perfecting and enforcing any security
or guaranty or other means of obtaining payment of any of the Obligations which
Sonesta now has or acquires after the date hereof, (e) accept partial payments
from Borrower or any such other party, (f) release or discharge wholly or
partially, any endorser or guarantor, and (g) compromise or make any settlement
or other arrangement with Borrower or any such other party.
7. Unenforceability of Obligations Against Borrower; Invalidity of Security or
Other Guarantees. If for any reason Borrower has no legal existence or is under
no legal obligations to discharge any of the Obligations undertaken or purported
to be undertaken by it or on its behalf, or if any of the moneys included in the
Obligations have become irrecoverable from Borrower by operation of law or for
any other reason, this Guaranty shall nevertheless be binding on the Guarantor
to the same extent as if the Guarantor at all times had been the principal
debtor on all such Obligations. This Guaranty shall be in addition to any other
guaranty or other security for the Obligations, and it shall not be prejudiced
or rendered unenforceable by the invalidity of any such other guaranty or
security.
8. Waivers by Guarantor. The Guarantor waives notice of acceptance hereof,
notice of any action taken or admitted by Sonesta in reliance hereon, and any
requirement that Sonesta be diligent or prompt in making demands hereunder,
giving notice of any default by Borrower or asserting any other right of Sonesta
hereunder. The Guarantor also irrevocably waives, to the fullest extent
permitted by law, all defenses which at any time may be available in respect of
the Guarantor's obligation hereunder by virtue of any homestead exemption,
valuation, stay, moratorium law or other similar law now or hereafter in effect.
2
<PAGE>
9. No contest with Sonesta. So long as any Obligations remain unpaid or
undischarged, and notwithstanding any other provision of this Guaranty, the
Guarantor agrees that such Guarantor will not, by paying any sum recoverable
hereunder (whether or not demanded by Sonesta) or by any means or on any other
ground, claim any set-off or counterclaim against Borrower in respect of any
liability of the Guarantor to Borrower, or, in proceedings under any applicable
bankruptcy laws or insolvency proceedings, or of any nature, prove in
competition with Sonesta in respect of any payment hereunder or be entitled to
have the benefit of any counterclaim or proof of claim or dividend or payment by
or on behalf of Borrower or the benefit of any other security for any obligation
which, now or hereafter, Sonesta may hold or in which it may have a share.
10. Preferences; Revival. Sonesta shall have the continuing and exclusive right
to apply or reverse and re-apply any and all payments to any portion of the
Obligations. To the extent that the Guarantor makes a payment or payments to
Sonesta or Sonesta receives any payment or proceeds for Borrower's or any
Guarantor's direct or indirect benefit, which payment or proceeds or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside or required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, state or federal law, common law or equitable cause,
then, to the extent of such payment or proceeds received, the Obligations, or
part thereof intended to be satisfied shall be revived and continue in full
force and effect, as if such payment or proceeds had not been received by
Sonesta. This Section 9 shall survive the termination of this Guaranty.
11. Amendments, Waivers, etc. No provision of this Guaranty can be changed,
waived, discharged, or terminated except by an instrument in writing signed by
Sonesta and the Guarantor expressly referring to the provision of this Guaranty
to which such instrument relates; and no such waiver shall extend to, affect or
impair any right with respect to any Obligation which is not expressly dealt
with therein. No course of dealing or delay or omission on the part of Sonesta
in exercising any right shall operate as a waiver thereof or otherwise be
prejudicial thereto.
12. Miscellaneous Provisions. This Guaranty is intended to take effect as a
sealed instrument to be governed by and construed in accordance with the laws of
the Commonwealth of Massachusetts and shall inure to the benefit of Sonesta and
its successors in title, assigns, and legal representatives and shall be binding
on the Guarantor and such Guarantor's successors in title, assigns, and legal
representatives. The Guarantor agrees that any action under this Guaranty may be
properly brought, for purposes of jurisdiction and of venue, in any federal or
state court located in either, (i) Cairo, Arab Republic of Egypt, or (ii) the
Guarantor's place of residence.
13. Joint and Several Liability. The liability of the Guarantor hereunder shall
be joint and several in all respects with Borrower and each and every other
person or entity which guaranties any or all of the Obligations, and any action
to enforce this guaranty may be brought against the Guarantor and any or all of
such other guarantors concurrently, consecutively or in any order that Sonesta
may deem appropriate in its sole and exclusive judgment.
3
<PAGE>
14. Conflict. To the extent of any conflict between the terms of this Guaranty
and terms of the Loan Agreement and/or the Management Agreement, this Guaranty
shall be deemed to control.
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as of the
29 day of April, 1997.
/s/ Mohamed Hisham Ahmed Aly
Witness ______________________________
Mohamed Hisham Ahmed Aly
/s/?????????????????/
____________________________
The Commonwealth of Massachusetts
Suffolk, ss April 29, 1997
Then personally appeared the above-named Mohamed Hisham Ahmed
Aly and acknowledged the foregoing instrument to be his free act and deed,
before me.
Karen K. Pettiford
---------------------------------
Notary Public
My Commission Expires: 4/17/2003
-----------
4
MANAGER ADVANCE AGREEMENT
This Manager Advance Agreement ("Agreement") is made and entered into
as of this 6th day of May , 1997, between Sonesta Louisiana Hotels Corporation,
a Louisiana corporation ("Manager") and 800 Canal Street Limited Partnership, a
Louisiana partnership in commendam ("Owner").
RECITALS:
A. Owner is the owner of the hotel operation known as Chateau Sonesta
Hotel, located in New Orleans, Louisiana (the "Hotel"), and Manager manages the
Hotel under a Management Agreement dated as of September 15, 1993.
B. Owner requires additional capital to construct meeting space within
the hotel (the "Improvements").
C. Manager is willing to advance funds as a loan to Owner on the terms
and conditions set forth herein for the construction of the Improvements, and to
guarantee in part the FNBC Loan, as hereinafter defined.
NOW THEREFORE, the parties agree as follows:
1. Loan and Guaranty. 1.1 Manager agrees to advance to Owner the sum of
$500,000.00 (the "Manager Advance") for the purpose of financing the
construction of the Improvements to the Hotel on the terms and conditions set
forth herein. The Manager Advance shall be represented by a promissory note
("Term Note") drawn by Owner in the amount of the Manager Advance, bearing
interest at Prime Rate (as defined in the Term Note) plus one percentage point,
payable in five equal annual installments, all as more fully set forth in the
Term Note. The Manager Advance shall be secured by a mortgage affecting the
Hotel, and Owner shall also furnish the guaranties of Maurice Pres Kabacoff and
Edward B. Boettner (the "Guarantors"). The proceeds of the Manager Advance shall
be deposited in a special account with First National Bank of Commerce (the
"Bank") for disbursement in accordance with the terms of a Loan Agreement
between the Bank and Owner.
1.2 On the terms and conditions set forth herein, Manager
shall also guarantee a portion of the debt service on a loan of up to $1,305,000
to be made by the Bank to Owner simultaneously with the Manager Advance, and
shall execute and deliver to the Bank a Commercial Guaranty ("Bank Guaranty"),
executed by Manager and Sonesta
<PAGE>
International Hotels Corporation ("Sonesta"). The Bank Guaranty shall include
terms and conditions that are satisfactory in form and substance to Manager.
2. Conditions Precedent. Manager shall make the Manager Advance and
deliver the Guaranty upon fulfillment of all of the following terms and
conditions:
2.1 Owner shall have entered into a Loan Agreement with the
Bank under which the Bank agrees to lend to Owner the principal sum of up to
$1,505,000, and all conditions precedent to the funding of the Manager Advance
from the Bank shall have been satisfied.
2.2 The Chevron capital contribution in the amount of
$600,000, paid in 1996, shall have been deposited to a disbursement account with
the Bank for the purpose of funding a portion of cost of the Improvements.
2.3 The following executed original documents ("Manager Loan
Documents"), in form and substance satisfactory to Manager, shall have been
delivered to the Manager:
(a) Term Note in the principal amount of $500,000;
(b) Continuing Guaranties of Maurice Pres Kabacoff and
Edward B. Boettner;
(c) Collateral Mortgage and Security Agreement in the
amount of $650,000, with a Collateral Mortgage and
Security Agreement, effectively creating a fifth
priority mortgage on the Hotel in favor of Manager
(the "Mortgage Documents");
(d) Policy of title insurance insuring the fifth priority
of the Lien of the Collateral Mortgage and Security
Agreement forming a part of the Mortgage Documents
for the full amount of the Manager Advance;
(e) Commercial Security Agreement;
(f) UCC-1 Financing Statement;
(g) Amendment to Management Agreement between Owner and
Manager relating to the Hotel;
2
<PAGE>
(h) First Amendment to and Confirmation of Pledge and
Assignment of Partnership Interest by Historic
Restoration, Incorporated to Manager;
(i) First Amendment to and Confirmation of Security
Agreement (Collateral Note);
(j) First Amendment to and Confirmation of Commercial
Security Agreement;
(k) First Amendment to and Confirmation of Assignment of
Leases and Rents; and
(l) Assignment of Garage Management Agreement to HRI
Parking Corporation.
and Owner shall take such other actions and execute and deliver such other
documents at closing as shall be reasonably necessary to give effect to the
transactions contemplated by this Agreement.
2.4 All actions necessary to authorize this Agreement and the
Manager Loan Documents hereof shall have been taken by Owner, and evidence
thereof, in form satisfactory to Manger's counsel, shall have been delivered to
Manager.
2.5 Manager shall have received an opinion of Smith Martin,
attorneys for Owner, covering such matters as the Manager and its counsel shall
require.
2.6 Manager shall have received a Consent to Mortgage executed
and delivered by Canal Street Development Corporation.
2.7 Manager shall have received an amendment to the
Intercreditor Agreement.
3. Credit Enhancement Fee. As consideration to Manager for making the
Manager Advance and executing the Bank Guaranty, Owner agrees to pay to Manager
an annual fee of $20,000 ("Credit Enhancement Fee"), the first installment of
which shall be paid at the closing of the Manager Advance, and subsequent
installments of which shall be payable on the same date each year until the
Manager Advance has been paid in full, and the Bank Guaranty shall have been
satisfied and finally canceled.
3
<PAGE>
4. Covenants. Owner agrees to perform fully all of the following
covenants:
4.1 Owner shall pay the Term Note, and all installments
thereof, in accordance with its terms;
4.2 Owner shall promptly reimburse Manager or Sonesta (as the
case may be) for all amounts that either shall be required to pay under the
terms of the Bank Guaranty, together with interest on such payments at the rate
provided in the Term Note, from date of such payment until Manager and Sonesta
have been entirely and finally reimbursed.
4.3 Owner shall pay all installments of the Credit Enhancement
Fee when due, together with interest at the rate provided in the Term Note on
the past due amount of any such installment, from due date until paid.
5. Other Provisions.
5.1 Owner shall pay (a) one-half of all of Manager's
reasonable attorneys fees and expenses in connection with the negotiation and
documentation of the transactions contemplated by and closed simultaneously with
this Agreement, including without limitation, the Manager Loan Documents, the
First Amendment to Sixth Amendment and Restatement of Hotel Lease, dated May 6,
1997, between Canal Street Development Corporation and Owner ("Hotel Lease"),
and all transactions and documents related to the management and operation of
the Hotel and the garage facility used in connection with the Hotel; and (b) all
of Manager's reasonable attorneys fees and expenses in connection with the
enforcement of Manager's rights under this Agreement.
5.2 This Agreement shall be governed by the internal laws of
the State of Louisiana, and may not be amended except by instrument in writing
executed and delivered by all parties hereto.
5.3 If Owner should fail to perform its obligations hereunder,
and such default should not be remedied within ten days after notice is given by
Manager to Owner, at Suite 1717, 210 Baronne Street, New Orleans, Louisiana
70112, Owner and Sonesta shall thereafter be entitled to take action to enforce
remedies set forth herein, in the documents to be executed pursuant to this
Agreement, and provided by law, subject to applicable provisions of the
Intercreditor Agreement (as defined in the Management Agreement).
4
<PAGE>
Signed and delivered in multiple originals, effective as of the date
first above written.
800 CANAL STREET LIMITED PARTNERSHIP
By: Historic Renovations Incorporated,
General Partner
By: /s/ Maurice Pres Kabacoff
----------------------------------
Maurice Pres Kabacoff
President
SONESTA LOUISIANA HOTELS CORPORATION
By: /s/ Peter J. Sonnabend
----------------------------------
Peter J. Sonnabend
Vice President
5
TERM NOTE
$500,000.00 May 6, 1997
FOR VALUE RECEIVED, 800 Canal Street Limited Partnership, a Louisiana
partnership in commendam ("Maker"), promises to pay to the order of Sonesta
Louisiana Hotels Corporation, a Louisiana corporation ("Sonesta"), the principal
sum of Five Hundred Thousand and No/100 ($500,000.00) Dollars, with interest at
a rate per year equal to one percent plus the Prime Rate (as hereinafter
defined). The term "Prime Rate" shall mean the base rate on corporate loans, as
quoted from time to time as the "prime rate" in the Money Rates column of the
Wall Street Journal. The Prime Rate as determined on the first business day of
each month shall be the applicable Prime Rate for that month.
This term note ("Note") shall be repaid in five equal annual
installments of principal, commencing one year after the date hereof, and
continuing on the same date of each subsequent year until this note is paid in
full. Interest shall be payable on the same date as the principal payments are
due. All remaining amounts due hereunder shall be due and payable no later than
five years from the date of this Note. Payments hereunder shall be applied first
to accrued but unpaid interest and then to principal. Interest on the
outstanding principal owed on this Note shall be computed and assessed on the
basis of the actual number of days elapsed over a year composed of 360 days. If
Sonesta declares this Note to be in default, Sonesta shall have the right
prospectively to adjust and fix the interest rate under this Note at eighteen
percent (18%) per annum.
If this Note is referred to an attorney at law to institute legal
proceedings to recover the amount hereof, or any part hereof, to protect the
interest of the holder or holders hereof, Maker hereby binds itself to pay the
reasonable fees of the attorney and all charges, fees, costs, and expenses
incurred in connection therewith. Maker expressly waives any presentment,
protest or notice in connection with this Note now or hereafter required by
applicable law. Maker and the endorsers hereof, if any, bind themselves jointly,
severally and solidarily for the full payment hereof. This Note shall be
non-recourse, and upon default, Sonesta shall enforce its remedies solely from
the collateral given by Maker as security for the repayment of this Note, and no
deficiency, after applying the net proceeds of any foreclosure or other sale of
such collateral, shall be asserted against the Maker, or any partner thereof, or
their respective successors, heirs, legal representatives or assigns.
800 CANAL STREET LIMITED PARTNERSHIP
By: Historic Renovations Incorporated,
General Partner
By: /s/ Maurice Pres Kabacoff
----------------------------------
Maurice Pres Kabacoff, President
COLLATERAL NOTE
$650,000.00 May 6, 1997
New Orleans, Louisiana
ON DEMAND, I we, or either of us, promise to pay to the order of bearer, at
Sonesta International Hotels Corporation, 41st Floor, 200 Clarendon Street,
Boston Massachusetts 02116, Office of the Treasurer, or at such other place as
the holder may designate from time to time SIX HUNDRED FIFTY THOUSAND AND NO/100
($650,000.00) DOLLARS for value received with interest payable on demand at the
rate of Eighteen (18%) per cent per annum from date until paid.
If this note is referred to an attorney, after its maturity, to institute
legal proceedings to recover the amount hereof, or any part hereof, in principal
or interest, or to protect the interests of the holder hereof or if this note is
referred to an attorney for collection, compromise or other action, all makers
and endorsers bind themselves to pay the reasonable fees of the attorney who may
be employed for that purpose and all costs and expenses incurred in connection
with such legal proceedings.
All parties hereto severally waive presentment for payment, demand, notice of
non-payment, protest, and all pleas of division and discussion, and agree that
the payment hereof may be extended from time to time, one or more times, without
notice, hereby binding themselves jointly, severally, solidarily,
unconditionally and as original promisors for the payment hereof, in principal,
interest, costs and attorneys' fees.
800 CANAL STREET LIMITED PARTNERSHIP
By: Historic Renovations Incorporated,
General Partner
By: /s/ Maurice Pres Kabacoff
----------------------------------
Maurice Pres Kabacoff
President
Ne Varietur for identification with an act of
Collateral Mortgage and Security Agreement
passed before me this 6th day of
May, 1997, at New Orleans,
Louisiana
/s/ Kelly C. Simoneaux
- ----------------------
Notary Public
KELLY C. SIMONEAUX
NOTARY PUBLIC
Parish of Orleans, State of Louisiana
My Commission is issued for Life
COMMERCIAL GUARANTY
================================================================================
<TABLE>
<S> <C> <C> <C>
BORROWER: 800 Canal Street Limited Partnership LENDER: First National Bank of Commerce
(TIN: 72-1194621) TIN: 72-0269760
210 Baronne Street, Suite 1717 P. O. Box 60279
New Orleans, LA 70112 210 Baronne Street
New Orleans, LA 70160
GUARANTOR: Sonesta Louisiana Hotels Corporation
TIN 72-1246856
c/o Sonesta International Hotels Corporation
200 Clarendon Street
Boston, Massachusetts 02116
</TABLE>
================================================================================
AMOUNT OF GUARANTY. This is a guaranty of payment of the Indebtedness not to
exceed the principal sum of $285,000.00, plus interest and other costs as set
forth below.
DEFINITIONS. The following terms shall have the following meanings when used in
this Agreement:
Agreement. The word "Agreement" means this Guaranty Agreement as this
Agreement may be amended or modified from time to time.
Borrower. The word "Borrower" means individually, collectively and
interchangeably 800 CANAL STREET LIMITED PARTNERSHIP.
Guarantor. The word "Guarantor" means individually, collectively and
interchangeably Sonesta Louisiana Hotels Corporation, a Louisiana
corporation, and all other persons guaranteeing payment and satisfaction
of Borrower's Indebtedness as hereinafter defined.
Indebtedness. The word "Indebtedness" means all amounts which are or might
become due and owing by Borrower for the monthly payments of principal and
interest under the Note, as defined below, which arise during the term
thereof and continuing up to the maturity date, but excluding accelerated
principal payments due on said maturity date, except that a Ten Dollar
($10.00) advance to be credited against the first monthly payment under
the Note shall be due on the date hereof and shall be advanced by
Guarantor on behalf of Borrower (the "Guaranty Period"), together with all
penalties, costs and attorneys' fees arising under the Note of Borrower to
Lender after, but not before, Guarantor defaults on any payment due
hereunder. Should Borrower default on the Note and Lender elect to
accelerate the entire debt due thereunder, this Guaranty shall apply only
to that portion of the principal amount of the debt due thereunder after
the date of default which would have been paid during the Guaranty Period
had the Note not been accelerated, plus all interest and penalties due
thereon until the amount is paid. Should no acceleration of the Note occur
prior to the maturity date, the term Indebtedness shall not include the
remaining principal balance due on the Note on the maturity date other
than any regularly scheduled monthly principal payment due on that date
and any amounts which would have been due prior thereto but remain unpaid
at maturity. The maximum amount of Indebtedness secured by this Guaranty
shall be $285,000.00, plus interest and other charges due hereunder (the
"Maximum Amount"). Periodic payment of amounts that are part of the
Indebtedness hereby guaranteed shall reduce the Maximum Amount
correspondingly.
Interest. From and after the date of demand by Lender for payment
hereunder, interest shall accrue on the amount demanded at the Default
Rate due under the Note.
Lender. The word "Lender" means First National Bank of Commerce TIN:
72-0269760, its successors and assigns, and any subsequent holder or
holders of Borrower's Indebtedness. Wire Instructions: First National Bank
of Commerce, 210 Baronne Street, New Orleans, LA: ABA# 065000029, Attn:
Lantz Harvey, for credit to 800 Canal Street Limited Partnership.
Loan Agreement. The words "Loan Agreement" mean that certain Loan
Agreement dated as of May 6, 1997 between Lender and Borrower, together
with all amendments and supplements thereto.
Note. The word "Note" means the promissory note defined and described as
the "Hotel Term Note" under the Loan Agreement, which Note shall be
executed by Borrower in connection with the Loan (as defined under the
Loan Agreement), in the original principal amount up to $1,305,000 from
Borrower to Lender excluding any amendments thereto unless consented to by
Guarantor. After execution by Borrower, Lender agrees to attach a copy of
the Note, initialed by Guarantor, as an exhibit hereto.
Original Loan. The words "Original Loan" shall mean the loan made by
Lender to Borrower in the principal amount of $12,600,000 dated September
15, 1993.
Original Term Note. The words "Original Term Note" shall mean the Term
Note as defined under the Phase I Loan Agreement.
Phase I Loan Agreement. The words "Phase I Loan Agreement" shall mean the
loan agreement between Borrower and Lender dated September 15, 1993 in
connection with the Original Loan, defined herein.
GUARANTEE OF BORROWER'S INDEBTEDNESS. Guarantor hereby absolutely and
unconditionally agrees to, and by these presents does hereby, guarantee the
prompt and punctual payment, and satisfaction of any and all of Borrower's
Indebtedness in favor of Lender.
JOINT, SEVERAL AND SOLIDARY LIABILITY. Guarantor's obligations and liability
under this Agreement shall be on a "solidary" or "joint and several" basis along
with Borrower to the same degree and extent as if Guarantor had been and/or will
be a co-borrower, co-principal obligor and/or co-maker of Borrower's
Indebtedness. In the event that there is more than one Guarantor under this
Agreement, or in the event that there are other guarantors, endorsers or
sureties of all or any portion of Borrower's Indebtedness, Guarantor's
obligations and liability hereunder shall further be on a "solidary" or "joint
and several" basis along with such other guarantors, endorsers and/or sureties.
DEFAULT. (1). In the event of a termination of the Management Agreement due to
Guarantor default, or a monetary default by Borrower on any of the regular
monthly payments guaranteed above during the duration of the Guaranty, Lender
may:
(a) Accelerate and demand immediate payments of the principal portion of
the Indebtedness which is to arise during the Guaranty Period, whether or
not Guarantor continues to manage under the Management Agreement or,
(b) Demand, without acceleration, payment of monthly payments due to
Lender of Indebtedness as it arises during the Guaranty Period whether or
not Guarantor continues to manage under the Management Agreement.
(2) Should Borrower default on the guaranteed payments set forth above due to
the bankruptcy of Borrower, then Lender may:
(a) Demand, without acceleration, payment one or more times of monthly
payments due to Lender of Indebtedness as it arises during the Guaranty
Period whether or not Guarantor continues to manage under the Management
Agreement; or
(b) Upon default in any such payment, accelerate and demand immediate
payments of the Indebtedness which is to arise during the Guaranty Period,
whether or not Guarantor continues to manage under the Management
Agreement.
<PAGE>
05-01-97 COMMERCIAL GUARANTY Page 2
Loan No. (Continued)
================================================================================
GUARANTOR'S WAIVERS. Guarantor hereby waives:
(a) Notice of Lender's acceptance of this Agreement.
(b) Presentment for payment of Borrower's Indebtedness, notice of dishonor
and non-payment, notice of intention to accelerate, notice of
acceleration, protest and notice of protest, collection or institution of
any suit or other action by Lender in collection thereof, including any
notice of default in payment thereof, or other notice to, or demand for
payment thereof, on any party.
(c) Any right to require Lender to notify Guarantor of any non-payment
relating to any collateral directly or indirectly securing Borrower's
Indebtedness, or notice of any action or non-action on the part of
Borrower, Lender, or any other guarantor, surety or endorser of Borrower's
Indebtedness.
(d) Any rights to demand or require collateral security from the Borrower
or any other person as provided under applicable Louisiana law or
otherwise.
(e) Any right to require Lender to notify Guarantor of the terms, time and
place of any public or private sale of any collateral directly or
indirectly securing Borrower's Indebtedness.
(f) Any "one action" or "anti-deficiency" law or any other law which may
prevent Lender from bringing any action, including a claim for deficiency,
against Guarantor, before or after Lender's commencement or completion of
any foreclosure action, or any action in lieu of foreclosure.
(g) Any election of remedies by Lender that may destroy or impair
Guarantor's subrogation rights or Guarantor's right to proceed for
reimbursement against Borrower or any other guarantor, surety or endorser
of Borrower's Indebtedness, including without limitation, any loss of
rights Guarantor may suffer by reason of any law limiting, qualifying, or
discharging Borrower's Indebtedness.
(h) Any disability or other defense of Borrower, or any other guarantor,
surety or endorser, or any other person, or by reason of the cessation
from any cause whatsoever, other than payment in full of Borrower's
Indebtedness.
(i) Any statute of limitations or prescriptive period, if at the time an
action or suit brought by Lender against Guarantor is commenced, there is
any outstanding Indebtedness of Borrower to Lender which is barred by any
applicable statute of limitations or prescriptive period.
Guarantor warrants and agrees that each of the waivers set forth above is made
with Guarantor's full knowledge of its significance and consequences, and that,
under the circumstances, such waivers are reasonable and not contrary to public
policy or law. If any such waiver is determined to be contrary to any applicable
law or public policy, such waiver shall be effective only to the extent
permitted by law.
GUARANTOR'S SUBORDINATION OF RIGHTS. In the event that Guarantor should for any
reason (a) advance or lend monies to Borrower, whether or not such funds are
used by Borrower to make payment(s) under Borrower's Indebtedness, and/or (b)
make any payment(s) to Lender or others for and on behalf of Borrower under
Borrower's Indebtedness, and/or (c) make any payment to Lender in total or
partial satisfaction of Guarantor's obligations and liabilities under this
Agreement, and/or (d) if any of Guarantor's property is used to pay or satisfy
any of Borrower's Indebtedness, Guarantor hereby agrees that any and all rights
that Guarantor may have or acquire to collect from or to be reimbursed by
Borrower (or from or by any other guarantor, endorser or surety of Borrower's
Indebtedness), whether Guarantor's rights of collection or reimbursement arise
by way of subrogation to the rights of Lender or otherwise, shall in all
respects, whether or not Borrower is presently or subsequently becomes
insolvent, be subordinate, inferior and junior to the rights of Lender to
collect and enforce payment, performance and satisfaction of Borrower's then
remaining Indebtedness, until such time as Borrower's Indebtedness is fully paid
and satisfied. In the event of Borrower's insolvency or consequent liquidation
of Borrower's assets, through bankruptcy, by an assignment for the benefit of
creditors, by voluntary liquidation, or otherwise, Guarantor's obligations
hereunder shall not be affected thereby and the assets of Borrower applicable to
the payment of claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to Borrower's then remaining Indebtedness. If
Guarantor is, or at any time may be, an "insider" of Borrower (or of any other
guarantor, surety or endorser of Borrower's Indebtedness) within the context of
Section 101(30) of the Bankruptcy Code (11 U.S.C. 101(30)), Guarantor shall have
no rights of, and unconditionally agrees not to seek or obtain, collection or
reimbursement from Borrower (or from any other guarantor, surety or endorser of
Borrower's Indebtedness), whether by subrogation of Lender's rights or otherwise
until the thirteen (13) month anniversary date following the full and final
payment and satisfaction of Borrower's Indebtedness.
GUARANTOR'S RECEIPT OF PAYMENTS. Guarantor further agrees to refrain from
attempting to collect and/or enforce any of Guarantor's collection and/or
reimbursement rights against Borrower (or against any other guarantor, surety or
endorser of Borrower's Indebtedness), arising by way of subrogation or
otherwise, until such time as all of Borrower's then remaining Indebtedness in
favor of Lender is fully paid and satisfied, or under the "insider"
circumstances described above, until the thirteen (13) month anniversary date
following the full and final payment and satisfaction of Borrower's
Indebtedness. Other than payments under the Management Agreement in the event
that Guarantor should for any reason whatsoever receive any payment(s) from
Borrower (or any other guarantor, surety or endorser of Borrower's Indebtedness)
that Borrower (or such a third party) may owe to Guarantor for any of the
reasons stated above, Guarantor agrees to accept such payment(s) in trust for
and on behalf of Lender, advising Borrower (or the third party payee) of such
fact. Guarantor further unconditionally agrees to immediately deliver such funds
to Lender, with such funds being held by Guarantor over any interim period, in
trust for Lender. In the event that Guarantor should for any reason whatsoever
receive any such funds from Borrower (or any third party), and Guarantor should
deposit such funds in one or more of Guarantor's deposit accounts, no matter
where located, Lender shall have the right to attach any and all of Guarantor's
deposit accounts in which such funds were deposited, whether or not such funds
were commingled with other monies of Guarantor, and whether or not such funds
then remain on deposit in such an account or accounts. To this end and to secure
Guarantor's obligations under this Agreement, Guarantor collaterally assigns and
pledges to Lender, and grants to Lender a continuing security interest in, any
and all of Guarantor's present and future rights, title and interest in and to
all monies that Guarantor may now and/or in the future maintain on deposit with
banks, savings and loan associations and other entities (other than tax deferred
accounts with Lender), in which Guarantor may at any time deposit any such funds
that may be received from Borrower (or any other guarantor, endorser or surety
of Borrower's Indebtedness) in favor of Lender.
DEPOSIT ACCOUNTS. As collateral security for repayment of Guarantor's
obligations hereunder and under any additional guaranties previously granted or
to be granted by Guarantor in the future, and additionally as collateral
security for any present and future indebtedness of Guarantor in favor of Lender
(with the exception of any indebtedness under a consumer credit card account),
Guarantor is granting Lender a continuing security interest in any and all funds
that Guarantor may now and in the future have on deposit with Lender or in
certificates of deposit or other deposit accounts as to which Guarantor is an
account holder (with the exception of IRA, pension, and other tax-deferred
deposits). Guarantor further agrees that Lender may at any time apply any funds
that Guarantor may have on deposit with Lender or in certificates of deposit or
other deposit accounts as to which Guarantor is an account holder against the
unpaid balance of any and all other present and future obligations and
indebtedness of Guarantor to Lender, in principal, interest, fees, costs,
expenses, and attorneys' fees.
ADDITIONAL COVENANTS. Guarantor agrees that Lender may, at its sole option, at
any time, and from time to time, without the consent of or notice to Guarantor,
or any of them, or to any other party, and without incurring any responsibility
to Guarantor or to any other party, and without impairing or releasing any of
Guarantor's obligations or liabilities under this Agreement:
(a) Make additional secured and/or unsecured loans to Borrower.
(b) Discharge, release or agree not to sue any party (including, but not
limited to, Borrower or any other guarantor, surety, or endorser of
Borrower's Indebtedness), who is or may be liable to Lender for any of
Borrower's Indebtedness.
(c) sell, exchange, release, surrender, realize upon, or otherwise deal
with, in any manner and in any order, any collateral directly or
indirectly securing repayment of any of Borrower's Indebtedness.
(d) Settle or compromise any of Borrower's Indebtedness.
<PAGE>
05-01-97 COMMERCIAL GUARANTY Page 3
Loan No. (Continued)
================================================================================
(e) Subordinate and/or agree to subordinate the payment of all or any part
of Borrower's Indebtedness, or Lender's security rights in any collateral
directly or indirectly securing any such Indebtedness, to the payment
and/or security rights of any other present and/or future creditors of
Borrower.
(f) Take or accept any other collateral security or guaranty for any or
all of Borrower's Indebtedness.
(g) Enter into, deliver, modify, amend or waive compliance with, any
instrument or arrangement evidencing, securing or otherwise affecting, all
or any part of Borrower's Indebtedness.
NO IMPAIRMENT OF GUARANTOR'S OBLIGATIONS. No course of dealing between Lender
and Borrower (or any other guarantor, surety or endorser of Borrower's
Indebtedness), nor any failure or delay on the part of Lender to exercise any of
Lender's rights and remedies under this Agreement or any other agreement or
agreements by and between Lender and Borrower (or any other guarantor, surety or
endorser), shall have the affect of impairing or releasing Guarantor's
obligations and liabilities to Lender, or of waiving any of Lender's rights and
remedies under this Agreement or otherwise. Any partial exercise of any rights
and remedies granted to Lender shall furthermore not constitute a waiver of any
of Lender's other rights and remedies; it being Guarantor's intent and agreement
that Lender's rights and remedies shall be cumulative in nature. Guarantor
further agrees that, should Borrower default under any of its Indebtedness, any
waiver or forbearance on the part of Lender to pursue Lender's available rights
and remedies shall be binding upon Lender only to the extent that Lender
specifically agrees to such waiver or forbearance in writing. A waiver or
forbearance on the part of Lender as to one event of default shall not
constitute a waiver or forbearance as to any other default.
NO RELEASE OF GUARANTOR. Guarantor's obligations and liabilities under this
Agreement shall not be released, impaired, reduced, or otherwise affected by,
and shall continue in full force and affect notwithstanding the occurrence of
any event, including without limitation any one or more of the following events:
(a) The death, insolvency, bankruptcy, arrangement, adjustment,
composition, liquidation, disability, dissolution, or lack of authority
(whether corporate, partnership or trust) of Borrower (or any person
acting on Borrower's behalf), or of any other guarantor, surety or
endorser of Borrower's Indebtedness.
(b) Any payment by Borrower, or any other party, to Lender that is held to
constitute a preferential transfer or a fraudulent conveyance under any
applicable law, or any such amounts or payment which, for any reason,
Lender is required to refund or repay to Borrower or to any other person.
(c) Any dissolution of Borrower, or any sale, lease or transfer of all or
any part of Borrower's assets.
AUTOMATIC REINSTATEMENT. This Agreement and Guarantor's obligations and
liabilities hereunder shall continue to be effective, and/or shall automatically
and retroactively be reinstated, if a release or discharge has occurred, or if
at any time, any payment or part thereof to Lender with respect to Borrower's
Indebtedness, is rescinded or must otherwise be restored by Lender pursuant to
any insolvency, bankruptcy, reorganization, receivership, or any other debt
relief granted to Borrower or to any other party to Borrower's Indebtedness or
any such security therefor. In the event that Lender must rescind or restore any
payment received in total or partial satisfaction of Borrower's Indebtedness,
any prior release or discharge from the terms of this Agreement given to
Guarantor shall be without effect, and this Agreement and Guarantor's
obligations and liabilities hereunder shall automatically and retroactively be
renewed and/or reinstated and shall remain in full force and effect to the same
degree and extent as if such a release or discharge had never been granted. It
is the intention of Lender and Guarantor that Guarantor's obligations and
liabilities hereunder shall not be discharged except by Guarantor's full and
complete performance and satisfaction of such obligations and liabilities; and
then only to the extent of such performance.
REPRESENTATIONS AND WARRANTIES BY GUARANTOR. Each Guarantor represents and
warrants that:
(a) Guarantor has the lawful power to own its properties and to engage in
its business as presently conducted.
(b) Guarantor's guaranty of Borrower's Indebtedness and Guarantor's
execution, delivery and performance of this Agreement are not in violation
of any laws and will not result in a default under any contract,
agreement, or instrument to which Guarantor is a party, or by which
Guarantor or its property may be bound.
(c) Guarantor has agreed and consented to execute this Agreement and to
guarantee Borrower's Indebtedness in favor of Lender, at Borrower's
request and not at the request of Lender.
(d) Guarantor will receive and/or has received a direct or indirect
material benefit from the transactions contemplated herein and/or arising
out of Borrower's Indebtedness.
(e) This Agreement, when executed and delivered to Lender, will constitute
a valid, legal and binding obligation of Guarantor, enforceable in
accordance with its terms.
(f) Guarantor has established adequate means of obtaining information from
Borrower on a continuing basis regarding Borrower's financial condition.
(g) Lender has made no representations to Guarantor as to the
creditworthiness of Borrower.
ADDITIONAL OBLIGATIONS OF GUARANTOR. So long as this Agreement remains in effect
has not and will not, without Lender's prior written consent, sell, lease,
assign, pledge, hypothecate, encumber, transfer, or otherwise dispose of all or
substantially all of Guarantor's assets in a manner which would create a
material adverse change in the financial condition of Guarantor which could have
an effect on Guarantor's ability to perform its obligations hereunder. Guarantor
agrees to keep adequately informed of any facts, events or circumstances which
might in any way affect Guarantor's risks under this Agreement. Guarantor
further agrees that Lender shall have no obligation to disclose to Guarantor any
information or material relating to Borrower or Borrower's Indebtedness.
ADDITIONAL DOCUMENTS; FINANCIAL STATEMENTS. Upon the reasonable request of
Lender, Guarantor will, at any time, and from time to time, execute and deliver
to Lender any and all such financial instruments and documents, and supply such
additional information, as may be necessary or advisable in the opinion of
Lender to obtain the full benefits of this Agreement. Guarantor further agrees
to provide Lender with such financial statements and other related information
at such frequencies and in such detail as Lender may reasonably request.
TRANSFER OF INDEBTEDNESS. This Agreement is for the benefit of Lender and for
such other person or persons as may from time to time become or be the holders
of all or any part of Borrower's Indebtedness. This Agreement shall be
transferrable and negotiable with the same force and effect and to the same
extent as Borrower's Indebtedness may be transferrable; it being understood and
agreed to by Guarantor that, upon any transfer or assignment of all or any part
of Borrower's Indebtedness, the holder of such Indebtedness shall have all of
the rights and remedies granted to Lender under this Agreement. Guarantor
further agrees that, upon any transfer of all or any portion of Borrower's
Indebtedness, Lender may transfer and deliver any and all collateral securing
repayment of such Indebtedness (including, but not limited to, any collateral
provided by Guarantor) to the transferee of such Indebtedness, and such
collateral shall secure any and all of Borrower's Indebtedness in favor of such
a transferee. Guarantor additionally agrees that, after any such transfer or
assignment has taken place, Lender shall be fully discharged from any and all
liability and responsibility to Borrower and Guarantor with respect to such
collateral, and the transferee thereafter shall be vested with all the powers
and rights with respect to such collateral.
CONSENT TO PARTICIPATION. Guarantor recognizes and agrees that Lender may, from
time to time, one or more times, transfer all or any part of Borrower's
Indebtedness through sales of participation interests in such Indebtedness to
one or more third party lenders. Guarantor specifically agrees and consents to
all such transfers and assignments, and Guarantor further waives any subsequent
notice of such transfers and assignments as may be provided under Louisiana law.
Guarantor additionally agrees that the purchaser of a participation interest in
Borrower's Indebtedness will be considered as the absolute owner of a percentage
interest of such Indebtedness and that such a purchaser will have all of the
rights granted under
<PAGE>
05-01-97 COMMERCIAL GUARANTY Page 4
Loan No. (Continued)
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any participation agreement governing the sale of such a participation interest.
Guarantor waives any rights of offset that Guarantor may have against Lender
and/or any purchaser of such a participation interest, and Guarantor
unconditionally agrees that either Lender or such a purchaser may enforce
Guarantor's obligations and liabilities under this Agreement, irrespective of
the failure or insolvency of Lender or any such purchaser.
NOTICES. Any notice provided in this Agreement must be in writing and will be
considered as given on the day it is received. If there is more than one
Guarantor under this Agreement, notice to any Guarantor shall constitute notice
to all Guarantors.
ADDITIONAL GUARANTIES. Guarantor recognizes and agrees that Guarantor may have
previously granted, and may in the future grant, one or more additional
guaranties of Borrower's Indebtedness in favor of Lender. Should this occur, the
execution of this Agreement and any additional guaranties on the part of
Guarantor will not be construed as a cancellation of this Agreement or any of
Guarantor's additional guaranties; it being Guarantor's full intent and
agreement that all such guaranties of Borrower's Indebtedness in favor of Lender
shall remain in full force and effect and shall be cumulative in nature and
effect.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
Amendment. No amendment, modification, consent or waiver of any provision
of this Agreement, and no consent to any departure by Guarantor therefrom,
shall be effective unless the same shall be in writing signed by a duly
authorized officer of Lender, and then shall be effective only as to the
specific instance and for the specific purpose for which given.
Caption Headings. Caption headings of the sections of this Agreement are
for convenience purposes only and are not to be used to interpret or to
define their provisions. In this Agreement, whenever the context so
requires, the singular includes the plural and the plural also includes
the singular.
Governing Law. This Agreement shall be governed and construed in
accordance with the substantive laws of the State of Louisiana.
Intervention. And now intervenes herein Sonesta International Hotels
Corporation, 200 Clarendon Street, Boston, Massachusetts 02116 ("Sonesta")
who hereby guarantees payment of the Indebtedness and the performance of
Guarantor in accordance with the terms and conditions contained herein.
Sonesta acknowledges all the terms and conditions contained herein,
including all waivers set forth above, and agrees to be solidarily bound
with Guarantor hereunder and acknowledges that demand may be made directly
on Sonesta for payments hereunder without first making any demand for
payment or collection from Guarantor or Borrower. All conditions set forth
herein are adopted by Sonesta and assumed by it for its own account except
that Sonesta does not join in the grant of a security interest on any
deposit accounts it might have with Lender and shall not apply to the
accounts maintained by the Royal Sonesta Hotel.
Prepayment. Guarantor shall have the option of prepaying the Indebtedness
guaranteed hereunder by delivery to Bank at the time of payment all
amounts due hereunder as of said date, i.e. principal and interest accrued
and unpaid to date and all principal to become due which are guaranteed
hereunder for the duration hereof.
Limitations. (a) In the event of a foreclosure sale of the Hotel, the
amount of this Guaranty shall equal the difference between the debt owed
under the Note and the amount received by Lender from the proceeds of the
foreclosure sale or the reasonably equivalent value agreed to by the
parties should the Hotel be transferred by dation en paiement, in excess
of the indebtedness owed to Lender under or in connection with the
Original Term Note, but not in excess of the Maximum Amount. Lender shall
have no duty to file and complete a foreclosure sale of the Hotel prior to
making demand hereunder. The amount guaranteed hereunder shall be due and
payable in accordance with Lender's demands set forth in the "Default"
Section hereinabove. Further, in the event Lender receives funds held in
the Operating Reserves, as defined in the Loan Agreement, after an Event
of Default and is allowed to and does apply the funds so collected to the
principal amount of the debt due under the Note, the amount of this
Guaranty shall accordingly be also reduced. Should any proceeding or
action cause the reversal of the application of such funds to the Note,
the reduction hereunder shall also be reversed and the guaranteed portion
adjusted accordingly.
(b) Lender hereby recognizes that Guarantor and Lender have
entered into that certain Consent Letter dated September 15, 1993, wherein
under certain conditions Guarantor may be released from its obligation to
manage the Hotel, as defined in the Loan Agreement, which Agreement was
confirmed as being applicable to the Note and Guarantor's obligations
hereunder, by Agreement dated effective May 2, 1997. Should Guarantor be
so released from its obligations to perform under the Management Agreement
(other than a default by Guarantor thereunder) this Guaranty shall also be
null and void in all respects from and after the date of such release in
accordance with the terms of the Consent Letter. Guarantor shall remain
liable, however, for obligations guaranteed hereunder which arose prior to
the date of the release. Should Guarantor be released from its obligations
thereunder due to a default by Guarantor, then this Guarantee may remain
in full force and be demandable in accordance with the provisions under
the "Default" section on page 1 hereof.
Severability. If any provision of this Agreement is held to be illegal,
invalid or unenforceable under present or future laws effective during the
term hereof, such provision shall be fully severable. This Agreement shall
be construed and enforceable as if the illegal, invalid or unenforceable
provision had never comprised a part of it, and the remaining provisions
of this Agreement shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its
severance herefrom. Furthermore, in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as a part of
this Agreement, a provision as similar in terms to such illegal, invalid
or unenforceable provision as may be possible and legal, valid and
enforceable.
Successors and Assigns Bound. Guarantor's obligations and liabilities
under this Agreement shall be binding upon Guarantor's successors, heirs,
legatees, devisees, administrators, executors and assigns.
Waive Jury. Guarantor and Lender hereby waive the right to any jury trial
in any action, proceeding, or counterclaim brought by either against the
other.
[CONTINUED ON NEXT PAGE]
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05-01-97 COMMERCIAL GUARANTY Page 5
Loan No. (Continued)
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EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED. NO
FORMAL ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS
GUARANTY IS DATED MAY 1, 1997.
GUARANTOR:
SONESTA LOUISIANA HOTELS CORPORATION
By: /s/ Peter J. Sonnabend
-----------------------
Peter J. Sonnabend
Its: Vice President
SONESTA INTERNATIONAL HOTELS CORPORATION
By: /s/ Peter J. Sonnabend
-----------------------
Peter J. Sonnabend
Its: Vice President
AMENDED AND RESTATED INTERCREDITOR,
PAYMENT PRIORITY AND LIEN PRIORITY AGREEMENT
THIS AGREEMENT (the "Agreement") is effective as of the 6th day of May,
1997, by and among 800 CANAL STREET LIMITED PARTNERSHIP, a Louisiana limited
partnership (together with its successors and assigns, "Borrower"), FIRST
NATIONAL BANK OF COMMERCE, a national banking association (together with its
successors and assigns "FNBC" or "Bank"), CANAL STREET DEVELOPMENT CORPORATION,
a Louisiana public benefit corporation (together with its successors and
assigns, "CSDC"), SONESTA LOUISIANA HOTELS CORPORATION, a Louisiana corporation
(together with its successors and assigns "Manager"), and SONESTA INTERNATIONAL
HOTELS CORPORATION, a New York corporation (together with its successors and
assigns, "Sonesta"), as an amendment to and restatement of that certain
Intercreditor, Payment Priority and Lien Priority Agreement . The capitalized
terms used herein, unless otherwise defined, shall have the meanings ascribed to
them in Article I.
W I T N E S S E T H:
WHEREAS, CSDC, pursuant to the terms of the Sixth Amendment and
Restatement of Hotel Lease Agreement, leased the Project, as hereinafter
defined, to Historic Restoration, Incorporated ("HRI"), effective December 1,
1989; and,
WHEREAS, HRI assigned all of its interest in the Hotel Lease to
Borrower by Assignment dated September 15, 1993; and,
WHEREAS, Borrower entered into that certain Loan Agreement dated as of
September 15, 1993 with FNBC (the "Loan Agreement") wherein Bank agreed to
finance the renovation of the Project, in accordance with the terms and
conditions set forth therein; and
WHEREAS, in accordance with the terms of the Loan Agreement, Bank
agreed to advance to Borrower a Loan in the amount of Twelve Million Six Hundred
Thousand and No/100 ($12,600,000.00) Dollars (the "Loan") to partially finance
the Project which is secured by a Collateral Mortgage on the Project; and,
<PAGE>
WHEREAS, Borrower entered into on September 15, 1993 that certain Loan
Agreement with CSDC (the "CSDC Loan Agreement") wherein CSDC agreed to provide
supplemental financing for the Project; and,
WHEREAS, Manager and Sonesta entered into that certain Continuing
Guaranty dated September 15, 1993 (the "Manager Guaranty") guarantying a certain
portion of the amounts Borrower owes or would owe to Bank under the Term Note,
as defined in the Loan Agreement; and,
WHEREAS, Bank has agreed to advance additional funds to Borrower in the
amount of up to $1,505,000.00 (the "Additional Loan") in accordance with the
terms of that certain Amendment and Supplement to Loan Agreement executed on the
same date hereof (the "Amended Loan Agreement"); and,
WHEREAS, pursuant to the applicable Collateral Documents, Borrower
granted liens to FNBC, CSDC and Manager on the Collateral, as defined therein,
to secure payment of its respective obligations to Bank, CSDC, and Manager under
the applicable Creditor Agreements; and,
WHEREAS, Borrower has granted an additional Collateral Mortgage and
other security instruments to Bank as security for the Additional Loan, as set
forth under the terms of the Amended Loan Agreement; and,
WHEREAS, Manager and Sonesta have executed an additional guaranty (the
"Additional Guaranty") of certain portions of the Indebtedness owed to Bank
under the Additional Loan;
WHEREAS, Manager has provided to Borrower an advance of up to
$500,000.00 ("Manager Advance") to provide a portion of the funds necessary to
complete the Additional Work, as defined in the Amended Loan Agreement, and
Borrower has agreed to provide additional security to Manager for the repayment
of the Manager Advance and sums paid under the Additional Guaranty (the
"Additional Manager Agreement"); and,
WHEREAS, Bank has agreed to allow Borrower to use the $600,000 payment
to be received from Chevron USA under Investor Note No. 2 (the "Owner Funds") to
provide a portion of the funds necessary to complete the Additional Work.
-2-
<PAGE>
WHEREAS, Bank, CSDC, Manager, Sonesta and Borrower wish to, among other
things, (i) recognize the existence of the Additional Loan, the Manager Advance,
the Additional Guaranty, the Bank Agreements, the release by Bank, Manager and
CSDC of, and the use by Owner of, the Owner Funds, and the Manager Advance; (ii)
agree upon the allocations and priority of payments by Borrower to Bank, CSDC
and Manager; (iii) the allocations and priority of payments from proceeds of
Collateral; and (iv) the rights of obligations which each has to the other with
respect to the Collateral and under the Collateral Documents; and,
WHEREAS, it is a condition precedent to the effectiveness of the
Amended Loan Agreement, the advance of Additional Funds by Bank, the Manager
Advance and the Additional Guaranty that this Agreement be entered into by the
parties hereto;
NOW, THEREFORE, for and in consideration of the premises and the mutual
benefits to be received hereunder, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
mutually agree to amend and restate in its entirety the Intercreditor Agreement
as follows.
ARTICLE I
DEFINITIONS
1.1 Terms Defined Above. The terms defined in the recitals hereto shall
have the meanings ascribed thereto.
1.2 Definitions. In addition to the terms defined in the recitals
hereto, the following terms shall have the following meanings. Any capitalized
terms herein not defined shall have the meaning ascribed to same in the Loan
Agreement or the Amended Loan Agreement:
(a) "Additional Continuing Guarantees to Manager" shall mean those
limited guarantees provided by Boettner and Kabacoff to the Manager in
connection with the Manager Advance.
(b) "Additional Manager Collateral Documents" shall mean the
documents whereby a security interest is granted in the Collateral described
therein for the repayment of the Manager Advance, including, without limitation:
(i) that certain Act of Collateral Leasehold Mortgage by Borrower in favor of
Manager (the "Additional Manager Mortgage"), (ii) that certain Collateral
Mortgage Note by Borrower in the amount of $650,000.00 payable to Bearer
-3-
<PAGE>
on demand, paraphed for identification with the Additional Manager Mortgage (the
"Additional Manager Mortgage Note"), (iii) that certain junior and subordinate
Collateral Assignment of Leases and Rents (the "Additional Manager Lease
Assignment"), (iv) that certain junior Security Agreement (Possessory
Collateral) (the "Additional Manager Security Agreement") by Borrower in favor
of Manager pledging the Additional Manager Mortgage Note as security for the
repayment of the Manager Advance, (v) the Additional Continuing Guarantees to
Manager of Edward B. Boettner and M. Pres Kabacoff, and all other documents or
instruments through which collateral is provided to Manager for repayment of the
Manager Advance.
(c) "Adjusted Gross Operating Profit" shall have the meaning
ascribed to same in the Management Agreement.
(d) "Affiliate" shall mean any Person that directly or indirectly
through one or more intermediaries, controls or is controlled by or is under
common control with another Person. The term "control" means possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise. For the purpose hereof, any Person which
owns or controls, directly or indirectly, 10% or more of the equity securities,
voting or otherwise, of another Person shall be deemed to "control" such Person.
(e) "Bank Agreements" shall mean, collectively, (i) the Loan
Agreement, (ii) the Amended Loan Agreement; (iii) the Term Note; (iv) the
Additional Construction Note; (v) the Additional Term Note; (vi) the Manager
Guaranty, (vii) the Additional Guaranty, (viii) the Bank Collateral Documents,
and agreements executed and delivered in connection with the foregoing,
including those documents included in the term "Loan Documents" as defined in
the Loan Agreement and the term "Additional Loan Documents" as defined in the
Amended Loan Agreement.
(f) "Bank Collateral" shall mean all of the Collateral described in
each of the Bank Collateral Documents and where applicable the proceeds of
insurance or escrow accounts covering such Collateral.
(g) "Bank Collateral Documents" shall mean, collectively, the
Collateral Agreements as defined in the Loan Agreement, together with the
Additional Collateral
-4-
<PAGE>
Agreements, as defined in the Amended Loan Agreement and all other documents or
instruments through which Collateral is provided to Bank for repayment of the
Bank Indebtedness.
(h) "Bank Indebtedness" shall mean and include individually,
collectively, interchangeably and without limitation, any and all present and
future loans, extensions of credit, liabilities and/or obligations of every
nature and kind whatsoever that Borrower may now and in the future owe to or
incur in favor of Bank and its successors or assigns, under the "Notes", as
defined under the Amended Loan Agreement, and the Bank Collateral Agreements,
whether such loans, extensions of credit, liabilities and/or obligations are
direct or indirect, or by way of assignment, and whether related or unrelated,
or committed or purely discretionary, and whether absolute or contingent,
voluntary or involuntary, determined or undetermined, liquidated or
unliquidated, due or to become due, together with interest, costs, expenses,
attorneys' fees and other fees and charges whether or not any such indebtedness
may be barred under any statute of limitation or may be otherwise unenforceable
or avoidable for any reason.
(i) "Bank/CSDC Estoppel" shall mean that certain Amended and
Restated Estoppel and Non-Disturbance Agreement between Bank and CSDC dated the
date hereof relative to the rights and obligations of Bank under the Hotel Lease
should it succeed to the interest of Borrower under the Hotel Lease.
(j) "Capital Reserve Account" shall mean that certain separate book
account created by Manager to which is credited out of Gross Revenues from the
Hotel an amount equal to the following percentages of Gross Revenues from the
Hotel for the preceding calendar month:
Years in
operation % of Gross Revenues
--------- -------------------
1 - 5 3%
6 and thereafter 4%
The Capital Reserve Account shall be used pursuant to the terms of Section 2.4
hereafter and the Management Agreement for capital additions and replacements
and any such amount not so expended shall be carried forward to subsequent
periods. The percentage of Gross Revenue set forth above is subject to
adjustment under the Management Agreement.
-5-
<PAGE>
(k) "Collateral" shall mean all of the Property (whether tangible
or intangible) or interests in Property in respect of which a Lien has been or
will be granted under a Collateral Document.
(l) "Collateral Documents" shall mean the Bank Collateral
Documents, the CSDC Collateral Documents, the Manager Collateral Documents, and
the Additional Manager Collateral Documents, together with all of the related
instruments and documents executed and delivered in connection therewith and all
Uniform Commercial Code financing statements and other filings made in
connection therewith and all other agreements, instruments or documents now or
hereafter executed and delivered by Borrower, granting or evidencing any Liens
on any Property now owned or hereafter acquired by Borrower in favor of Bank or
any Lender.
(m) "Commercial Space" shall mean the ground level commercial space
consisting of approximately 22,521 square feet which Borrower will lease to a
third party, or parties, subject to the approval of Bank, CSDC, and Manager.
(n) "Corner Lot Lease" shall mean the lease between HRI and Mercier
Realty and Investment Company under which space at the corner of Dauphine and
Iberville Streets is leased for the exclusive use of the Hotel which has been
assigned by HRI to Borrower.
(o) "Creditor Agreements" shall mean, collectively, the Bank
Agreements, the CSDC Loan Agreements, the CSDC Lease Agreements and the Manager
Agreements.
(p) "CSDC Collateral" shall mean all of the Collateral described in
each of the CSDC Collateral Documents and where applicable the proceeds of
insurance or escrow accounts covering such Collateral.
(q) "CSDC Collateral Documents" shall mean, collectively, (i) that
certain Act of Collateral Leasehold Mortgage by Borrower in favor of CSDC (the
"CSDC Leasehold Mortgage"), (ii) that certain Collateral Mortgage Note in the
amount of $5,600,000, payable to Bearer on demand, paraphed for identification
with the CSDC Leasehold Mortgage, (iii) that certain Security Agreement
(Possessory Collateral) by Borrower in favor of CSDC, (iv) that certain Pledge
and Assignment of Leases and Rents by Borrower in favor of CSDC, (v) that
certain Commercial Security Agreement by Borrower in favor of CSDC, and (vi)
that certain Louisiana UCC-1 Financing Statement by Borrower, as debtor,
together with all other documents
-6-
<PAGE>
or instruments through which collateral is provided to CSDC for repayment of the
CSDC Indebtedness.
(r) "CSDC Debt Reserve" shall mean that certain $500,000 reserve
established and administered pursuant to Section 2.4 hereof, pledged as security
for the Bank Indebtedness.
(s) "CSDC Indebtedness" shall mean, collectively, the CSDC Loan
Indebtedness and the CSDC Lease Indebtedness.
(t) "CSDC Lease Documents" shall mean collectively (i) the Hotel
Lease, together with all amendments and supplements thereto; (ii) the Servitude;
and (iii) any and all documents, instruments and agreements executed and
delivered in connection with the foregoing.
(u) "CSDC Lease Indebtedness" shall mean all debts, liabilities and
obligations of Borrower to CSDC under the CSDC Lease Documents, whether direct
or indirect, absolute or contingent, or due or to become due.
(v) "CSDC Loan" shall mean that certain loan from CSDC to Borrower
of the sum of $5,600,000 for the payment of Soft Costs and other items
identified in the Budget.
(w) "CSDC Loan Agreements" shall mean, collectively (i) the CSDC
Loan Agreement (sometimes referred to as the "Obligor Loan Agreement"), (ii)
that certain promissory note in the amount of $5,600,000.00 by Borrower payable
to the order of CSDC, paraphed for identification with the CSDC Loan Agreement,
(iii) the CSDC Collateral Documents, and (iv) any and all documents,
instruments, and agreements executed and delivered in connection with the
foregoing.
(x) "CSDC Loan Indebtedness" shall mean all debts, liabilities and
obligations of Borrower to CSDC under the CSDC Loan Agreements, whether now
existing or hereafter arising, whether direct or indirect, absolute or
contingent, or due or to become due.
(y) "CSDC/Manager Reserve" shall mean the funds held in an escrow
account (the "CSDC /Manager Reserve Account") pursuant to the Agreement dated
September 15, 1993 (the "CSDC/Manager Reserve Agreement") as security for the
CSDC Loan Indebtedness.
(z) "Debt Service Payment" means with respect to a particular
obligation to repay borrowed money, the monthly payment of principal and/or
interest called for under the terms of such obligation.
-7-
<PAGE>
(aa) "Disposition Proceeds" shall mean all cash and non-cash
proceeds of, and all other revenues or receipts, in whatever form, arising from
the enforcement of any of the remedies provided for under the Collateral
Documents or other disposition of, or realization upon, Property, including
without limitation, all claims of Borrower against third parties for loss of,
damage to or destruction of, or for proceeds payable under, or unearned premiums
with respect to, policies of insurance in respect of, any Property, and any
condemnation or requisition payments with respect to any Collateral, and
including proceeds of all such proceeds, in each case whether now existing or
hereafter arising.
(bb) "Event of Default" shall mean any Event of Default as such
term is defined in any of the Creditor Agreements or any Collateral Documents,
and "Default" means any of the events which with the giving of notice, the lapse
of time, or both, or satisfaction of any other condition, would constitute an
Event of Default under any of the Creditor Agreements or Collateral Documents.
(cc) "Expense or Expenses" shall mean any and all expenses paid or
incurred by Manager in connection with the operation of the Project which are
included in determining Net Income, as determined in accordance with the now
current "Uniform System of Accounts for Hotels", Eighth Revised Edition, 1986
("Uniform System of Accounts for Hotels"), on the accrual basis in accordance
with generally accepted accounting principles consistently applied, except that
Expenses shall not include equipment lease charges, income taxes, depreciation
and amortization, the incentive fee or interest expenses. Without limiting the
generality of the foregoing, Expenses shall have the same meaning herein which
is ascribed to that term under the Management Agreement.
(dd) "GAAP" shall mean generally accepted accounting principles in
the United States of America in effect from time to time applied on a consistent
basis.
(ee) "Governmental Authority" shall mean any sovereign state or
nation or government, any state or other political subdivision thereof and any
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
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(ff) "Gross Operating Profit" shall mean Gross Revenues less
Expenses, except those Expenses described in subsections (i), (vii), (viii), and
(ix) of the definition of Expenses in the Management Agreement.
(gg) "Gross Revenues" means any and all revenues as is more
particularly defined in the Management Agreement.
(hh) "Hotel" means the Furnishings, Equipment and Inventory,
Operating Equipment, Specialized Hotel Equipment, the Building (other than the
Commercial Space), the Hotel Lease, the Servitude, the Corner Lot Lease, the
Hotel Parking Lease, the Site, Consumable Supplies, the Improvements, and the
Additional Improvements, together with all entrances, exits, rights of egress
and ingress, servitudes, easements and appurtenances thereon belonging to or
pertaining.
(ii) "Hotel Lease" means that certain First Amendment to Sixth
Amendment and Restatement of Hotel Lease Agreement dated May 6, 1997, together
with all amendments, supplements, restatements and modifications thereto by and
between CSDC and Borrower of a portion of the property designated as the "D.H.
Holmes Property".
(jj) "Hotel Parking Lease" shall mean that certain sublease between
CSDC and HRI of 150 parking spaces for the Hotel's exclusive use in a garage
located at Iberville Street, New Orleans, Louisiana dated September 15, 1993
assigned to Borrower, as amended.
(kk) "HUD" shall mean the United States Department of Housing and
Urban Affairs.
(ll) "Indebtedness" shall mean the Bank Indebtedness, the CSDC
Indebtedness, and/or the Manager Indebtedness, as applicable.
(mm) "Lien" shall mean any security interest, mortgage, pledge,
hypothecation, assignment, collateral assignment, deposit arrangement,
encumbrance, lien (statutory or other), or preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any lease obligation which is capitalized on a balance sheet of a
Person prepared in accordance with GAAP, and the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction in respect of any of the foregoing).
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(nn) "Management Agreement" shall mean that certain agreement dated
September 15, 1993 entered into by Borrower with Manager for the management of
the Hotel, as defined therein, as amended by First Amendment to Management
Agreement dated as of May ___, 1997.
(oo) "Management Operating Reserve" shall mean that $500,000
reserve established under the Management Agreement and described in Section 2.1
hereof.
(pp) "Manager Advance" shall mean that certain advance of $500,000
by Manager to Borrower plus interest and costs attributable thereto secured by
the Additional Manager Collateral Documents.
(qq) "Manager Advance Agreement" means that certain Manager Advance
Agreement, dated May ___, 1997, among Borrower, Manager and Sonesta relating to
the terms and conditions under which Sonesta and Manager shall execute and
deliver the Additional Guaranty and make the Manager Advance.
(rr) "Manager Agreements" shall mean, collectively, (i) the Manager
Guaranty, (ii) the Additional Guaranty, (iii) the Manager Collateral Documents,
(iv) the Additional Manager Collateral Documents; (v) the Management Agreement,
(vi) the CSDC/Manager Reserve Agreement, (vii) those portions of the Manager
Advance Agreement that obligate Borrower with respect to repayment of any amount
advanced by Manager or Sonesta under the Additional Guaranty, and (viii) any and
all documents, instruments and agreements executed and delivered in connection
with the foregoing.
(ss) "Manager Collateral" shall mean all of the Collateral
described in each of the Manager Collateral Documents and the Additional Manager
Collateral Documents and where applicable the proceeds of insurance or escrow
accounts covering such Collateral.
(tt) "Manager Collateral Documents" shall mean, collectively, (i)
that certain junior and subordinate Manager Mortgage, (ii) that certain
Collateral Mortgage Note by Borrower in the amount of $8,000,000.00 payable to
Bearer on demand paraphed for identification with the Manager Mortgage, (iii)
that certain junior and subordinate Collateral Assignment of Leases and Rents,
(iv) that certain junior Security Agreement (Possessory Collateral) by Borrower
in favor of Manager, (v) that certain junior Commercial Security
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Agreement by Borrower to Manager, (vi) those certain UCC-1 Financing Statements
relating to the above by Borrower to Manager, and all other documents or
instruments through which collateral is provided to Manager for certain of the
Manager Indebtedness (expressly excluding the Manager Advance).
(uu) "Manager Indebtedness" shall mean all debts, liabilities and
obligations of Borrower to Manager under the Manager Agreements including, but
not limited to, that reflected on one or more of the grid notes executed by
Borrower in favor of Manager, whether now existing or hereafter arising, whether
direct or indirect, absolute or contingent, or due or to become due and the
Manager Advance.
(vv) "Manager Mortgage" shall mean that certain mortgage dated
September 15, 1993 by 800 Canal Street Limited Partnership on the Hotel
leasehold and other collateral related thereto in favor of Manager as security
for the repayment of any sums advanced under the Manager Guaranty, the
Additional Guaranty, and amounts advanced pursuant to or payable to Manager
under the CSDC/Manager Reserve Agreement, up to the amount of the Maximum
Secured Manager Indebtedness, which Manager Mortgage shall not be used to secure
the Manager Advance or any obligation other than those obligations described in
the Manager Collateral Documents, and which Manager Mortgage shall be cancelled
when, after the time the FNBC Loan, as defined in the Obligor Loan Agreement, is
paid in full and all amounts secured by such Mortgage have been paid in full.
(ww) "Manager Non-Disturbance Agreement" shall mean that certain
non-disturbance and attornment agreement between Bank and Manager wherein Bank
agrees to recognize the Management Agreement and allow Manager to perform its
obligations and derive the benefits under the Management Agreement, should Bank
succeed to the interest of Borrower thereunder, and the amendment and supplement
thereto executed this day.
(xx) "Maximum Secured Manager Indebtedness" shall mean the maximum
amount secured at any time by the Manager Collateral Documents, and shall
include only the sum of (i) the total amount of payments which Manager or
Sonesta is required to make under the Manager Guaranty and the Additional
Sonesta Guaranty (collectively, the "Guaranty Obligations"), plus (ii) the
amount of supplemental base fee payable to Manager pursuant to the
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CSDC/Manager Reserve Agreement (the "Supplemental Base Fee"), the form of which
is annexed to the Management Agreement as exhibit 1.11, plus (iii) all interest,
costs and other fees due to Manager and/or Sonesta by Borrower under the Manager
Agreements (other than fees, default interest, costs or penalties incurred or
accrued as a result of Manager's failure to perform under the Sonesta Guaranty
or the Additional Sonesta Guaranty). By way of example, if the maximum amount of
payments paid to FNBC under the Sonesta Guaranty and the Additional Sonesta
Guaranty totals $5,000,000, then the maximum amount secured shall be $5,000,000
plus the Supplemental Base Fee and all interest, costs and other fees then due
to the Manager and/or Sonesta by Borrower under the Manager Agreements (other
than fees, default interests, costs or penalties incurred or accrued as the
result of Manager's failure to perform under the Sonesta Guaranty or the
Additional Sonesta Guaranty). The limitations set forth herein shall not apply
to any amounts due by Borrower to Manager under the Manager Advance, which is
separately secured by the Additional Manager Collateral Documents and which is
not secured by the Manager Collateral Documents.
(yy) "Operating Reserves" shall mean, and include both the
Management Operating Reserve in the amount of $500,000.00 and the CSDC Debt
Reserve in the amount of $500,000.00. Both of the reserves comprising the
Operating Reserves have been funded out of the CSDC Loan and deposited into
accounts maintained with Bank for application in accordance with Section 2.4
hereof and the Management Agreement for payment of Expenses, the Bank
Indebtedness and CSDC Loan Indebtedness.
(zz) "Person" shall mean an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association, joint
venture, Governmental Authority or other entity of whatever nature.
(aaa) "Principal Reduction Payment" shall mean the payment of
$1,500,000.00 in reduction of the principal amount outstanding under the Bank
Indebtedness in accordance with the terms of the Loan Agreement.
(bbb) "Proceeding" shall have the meaning provided in Section 3.4
hereof.
(ccc) "Project" shall mean the construction, renovation and
erection of improvements for development of the former D. H. Holmes department
store located in Square
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67, Second Municipal District, New Orleans, Louisiana, as a hotel facility and
related commercial space including the incorporation of the Corner Lot Lease and
the Hotel Parking Lease all in accordance with the Plans and Specifications and
the Additional Plans and Specifications.
(ddd) "Property" shall mean all types of immovable, movable or
mixed property and all types of corporeal or incorporeal property.
(eee) "Requirement of Law" shall mean as to any Person, the
certificate of incorporation and bylaws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court of other Governmental Authority, in
each case applicable to or binding upon such Person or any of its Property or to
which such Person or any of its Property is subject.
(fff) "Secured Manager Indebtedness" shall mean the amount of
indebtedness owed to Manager by Borrower and which is secured by the Manager
Collateral Documents and the Additional Manager Collateral Documents.
(ggg) "Servitude" shall mean that certain Servitude of Right of Use
dated as of September 15, 1993, entered into by HRI with CSDC and assigned by
HRI to Borrower.
(hhh) "Garage Lease" shall mean the sublease between CSDC and
Borrower for the entire Garage, executed the same day hereof which is intended
to be implemented, in some circumstances, in place of the Hotel Parking Lease.
ARTICLE II.
PAYMENT PRIORITIES
2.1 Payments to Bank. Borrower shall first make all payments due and
owing under the Bank Agreements for scheduled monthly installments of principal
and interest of the Bank Indebtedness and payment of all other Bank Indebtedness
then due and owing to Bank in accordance with the Loan Agreement. The funds in
the Operating Reserves shall be held by Bank as security for the Bank
Indebtedness pursuant to the terms of the Loan Agreement. Should insufficient
Gross Revenues be available to pay all Expenses and sums due under the Bank
Agreements (other than the Manager Guaranty), Manager shall have the right to
use the funds in the Management Operating Reserve to make payments of regular
monthly payments due
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under the Term Note, the Additional Construction Note, the Additional Term Note,
and the payment of Expenses. Notwithstanding anything herein to the contrary,
should Bank determine that the Principal Reduction Payment may be eliminated
from the Loan Agreement, or that payments toward the Principal Reduction Payment
may be decreased, then conditioned upon the approval of CSDC and Sonesta, this
Agreement may be amended as necessary, solely to eliminate or modify any
provisions regarding the distribution of Adjusted Gross Operating Profit
resulting from the elimination, reduction, or modification of the Principal
Reduction Payment.
2.2 Payment Subordination.
(a) Notwithstanding the provisions of any other document or
agreement to the contrary, as long as no Event of Default has occurred and is
continuing, following payment of (1) equipment lease costs as set forth in the
Management Agreement, (2) Landlord Administrative Expenses pursuant to the Hotel
Lease, and rent payable under the Salmen and Corner Lot Leases, and (3) payment
to Bank of scheduled monthly installments of principal and interest of the Bank
Indebtedness and payment of all other Bank Indebtedness then due, Borrower shall
make payments from Adjusted Gross Operating Profit to be applied in the
following priority:
(i) to CSDC in satisfaction of scheduled monthly
installments of principal and interest on CSDC Loan
Indebtedness;
(ii) to CSDC in satisfaction of the current Fixed Rent,
Percentage Rent, Additional Rent, and Air Rights Rent,
as defined in the Hotel Lease, due under the Hotel
Lease;
(iii) to current Base Commercial Rent Participation;
(iv) repayment of scheduled installments of the Manager
Advance;
(v) to Bank in satisfaction of the Principal Reduction
Payment;
(vi) to CSDC in satisfaction of deferred amounts of CSDC
Loan Indebtedness debt service, including interest;
(vii) to CSDC in satisfaction of deferred amounts of Fixed
Rent and Base Commercial Rent Participation plus
interest, if any, due under the Hotel Lease;
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(viii) to Manager for amounts owed to Manager under the
CSDC/Manager Reserve Agreement. This payment shall only
be made to the extent that the CSDC/Manager Reserve has
not been previously released unto the Manager;
(ix) to repayment of the Sonesta Loan, as defined in the
Management Agreement;
(x) to repayment of Project Expense Loans made to fund
Hotel Project shortfalls (as such term is defined and
as used herein Project Expense Loans shall mean
documented loans made to Borrower by its general or
limited partners to fund Landlord Administrative
Expenses, rent under the Salmen and Corner Lot Leases,
Rent under the Hotel Lease and debt service on the CSDC
Loan Indebtedness in the event that sufficient revenues
were not available from Hotel operations to pay such
expenses at the time the loans were incurred, as
defined in the 800 Canal Street Limited Partnership
Agreement in effect as of the Signing Date hereof);
(xi) to payment to the Manager of its Incentive Fee and then
any Deferred Incentive Fee (as such terms are defined
in the Management Agreement) and as provided under the
Management Agreement;
(xii) to Manager equal to Base Fees deferred pursuant to
Section 8.4 of the Management Agreement, together with
applicable interest thereon;
(xiii) to payment of Revenue Sharing Rental to Landlord;
(xiv) to distribution to the 800 Canal Street Limited
Partnership. Provided, however, any and all
distributions which would go to the General Partner of
the Partnership or Historic Restoration, Incorporated
hereunder are subject to payment to Landlord in the
event that any funds are owed to Landlord pursuant to
(i) the
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Apartment Lease, (ii) any financial guarantee by HRI to
Landlord, or (iii) any other document which provides
for the payment of HRI's net interest or proceeds from
the Hotel Project to cover other monetary obligations
owed to Landlord;
(xv) to Manager in satisfaction of remaining payments due to
Manager under the Management Agreement; and
(xvi) the remainder to Borrower.
(xvii) The payment of Carrying Costs Rent, as defined in the
Hotel Lease, to the extent it exceeds rent due under
the Salmen and Corner Lot Leases and Expenses included
under the Management Agreement, shall be paid by
Borrower out of its own funds and not Adjusted Gross
Operating Profit.
(b) The parties hereby acknowledge that the provisions of
Subsection 2.2(a) above apply to the distribution of Adjusted Gross Operating
Profit produced by the Hotel and, in some instances, the Commercial Space. The
provisions set forth hereafter shall apply solely to funds received and expenses
incurred in connection with the Garage under the Garage Lease and shall
terminate upon payment in full of the Garage Improvement Loan, as defined in the
Amended Loan Agreement between Borrower and Bank.
(c) Notwithstanding the provisions of any other document or
agreement to the contrary, as long as no Event of Default has occurred and is
continuing the parties hereto hereby agree that all revenue produced from the
operation of the Garage pursuant to the Garage Lease shall be used first to pay
operating expenses incurred in connection with the operation of the Garage, and
then to pay Fixed Minimum Rent, pursuant to the provisions of Section 4 of the
Garage Lease; thereafter all excess revenues shall be delivered to Bank in
payment of all principal, interest and other fees owed in connection with the
Garage Improvement Loan, but only to the extent that the Garage Improvement Loan
is used by Borrower to construct the Tenant Improvements. CSDC hereby
specifically acknowledges that (i) it has agreed under the provisions of the
Garage Lease to forego receipt of Percentage Rent under the Garage Lease until
Borrower has received reimbursement for its expenses incurred in constructing
the Tenant
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Improvements, as defined under the Garage Lease, and (ii) Borrower is
entitled to withdraw funds out of the Capital Improvement Fund necessary to
recapture its expenses incurred on the Tenant Improvements, with such funds
removed from the Capital Improvement Fund being delivered to Bank in payment of
all sums due in connection with the Garage Improvement Loan.
The provisions of this Section are not intended to expand or in
any way increase the rights of Borrower as Tenant under the Garage Lease, but
rather are intended to acknowledge the rights of Tenant to forego making
Percentage Rent payments and contributions to the Capital Improvement Fund and,
in turn to use those funds in payment of the Garage Improvement Loan.
2.3 Payment Upon Event of Default.
(a) Notwithstanding the provisions of any other document or
agreement to the contrary, upon the occurrence of an Event of Default (or a
Default) under the Bank Agreements, the occurrence of which shall be
conclusively established by Bank giving written notice thereof, if required
herein, to Manager, CSDC and Borrower, which has not been cured in accordance
with the provisions hereinafter which allow such, all of the Bank Indebtedness
shall first be paid in full before any payment of any of the Manager
Indebtedness or the CSDC Lease Indebtedness and CSDC Loan Indebtedness (except
for payment directed by Bank in satisfaction of Landlord Administrative Expenses
and/or Carrying Costs Rent, as defined in the Hotel Lease). Until the Bank
Indebtedness has been paid in full:
(i) any payment, instrument, debenture or security received
by CSDC or Manager in respect of the CSDC Indebtedness
or the Manager Indebtedness, other than the Deferred
Rent Note by Borrower to CSDC (a copy of which is
annexed to the Hotel Lease as Exhibit 13) and those
funds held in the CSDC/Manager Reserve, the Garage
Reserve or the City Reserve, as defined in the Obligor
Loan Agreement, in which Bank has no lien rights, shall
be held in trust by recipient thereof for the benefit
of Bank and shall be forthwith turned over by them to
Bank (except as may otherwise be required by HUD
pursuant to their rights granted in connection
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with their loan to the City of New Orleans which was in
turn advanced to CSDC and now represents the CSDC
Loan);
(ii) CSDC and Manager shall perform any action and execute
any documents relating to any proceeding filed in
connection with, prior or subsequent to an Event of
Default or Default that Bank requests that it perform
or execute to implement this Agreement which is
consistent with the terms of this Agreement; and
(iii) notwithstanding the above, Manager, so long as it
continues to manage the Hotel under the Management
Agreement, may pay all fees and Expenses provided for
under the Management Agreement.
(b) Following the payment of all of the Bank Indebtedness and other
amounts as set forth in subparagraph (a) above, any remaining payments with
respect to the Manager Indebtedness and the CSDC Lease Indebtedness and CSDC
Loan Indebtedness shall be made in accordance with the priority established in
Section 2.2.
2.4 Use of Reserves.
(a) Operating Reserves. The Operating Reserves are composed of the
CSDC Debt Reserve and the Management Operating Reserves. These Operating
Reserves were established at the commencement of the Term Loan, as defined in
the Loan Agreement, with $1,000,000 from the CSDC Loan. To establish the
reserves, $500,000 was deposited into each of two accounts with Bank: the CSDC
Reserve Account and the Management Reserve Account (collectively, the "Operating
Reserve Accounts"). The Operating Reserve Accounts shall be interest bearing
accounts with said interest to be credited to the account of Borrower. Funds in
the Operating Reserve Accounts shall be held by Bank as security for the Bank
Indebtedness pursuant to the terms of the Commercial Security Agreement as set
forth in Section 3.1(b) of the Loan Agreement. So long as no Event of Default
exists, funds in the CSDC Debt Reserve may be used by Manager to pay current
payments (i.e., not deferred payments) due under the CSDC Loan Indebtedness upon
written notice to CSDC and Bank, in the event that the Hotel does not generate
sufficient cash flow to pay all current debt service, including principal and
interest owed to CSDC. Said notice to CSDC and Bank shall contain a
representation that sufficient
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funds were not available to make the payments due on the CSDC Loan and be
supported by documents deemed sufficient by Manager establishing the need for
the use of the CSDC Debt Reserve. The Management Operating Reserve shall be used
in accordance with the provisions of Section 2.1 hereinabove and the Management
Agreement. Upon the occurrence of an Event of Default, all sums which remain in
the Operating Reserve Accounts shall be held by Bank solely as security for the
Bank Indebtedness and may be applied by Bank to its Indebtedness. Except for the
authority of Manager to make disbursements from the Operating Reserves in
accordance with the provisions hereinabove and in addition to the provisions of
the Management Agreement, no third party shall have any claim to the funds or a
security interest therein other than Bank. Manager may use any funds received
under Section 2.2(xiv) above at the end of each year to replenish the Management
Operating Reserve.
(b) Capital Reserve. The Capital Reserve Account shall be
established upon the commencement of the operations of the Hotel and maintained
and continued in accordance with the terms of the Management Agreement. The
funds in this account, if any, shall continue to be the funds of Borrower. Prior
to an Event of Default funds in this account may be used solely for the purposes
set forth in the Management Agreement. The funds in this account shall be
pledged to Bank. Upon the occurrence of an Event of Default, Bank shall be
authorized to exercise any and all remedies it has against the account subject
to any continuing obligation to maintain the Capital Reserve Account under the
terms of the Management Agreement and the Manager Non-Disturbance and Attornment
Agreement between Manager and Bank. Funds actually deposited in the Capital
Reserve Account may be used, prior to an Event of Default, by Manager to fund
its obligations under Section 3.4(a) of the Management Agreement provided
Manager shall repay any such withdrawals during any year either from excess
Adjusted Gross Operating Profit or from Manager's own funds, in which case such
advances will be treated in the same manner as advances under Section 3.4(a) of
the Management Agreement are treated. Should the Capital Reserve Account not
contain actual funds but be maintained as a book account then any funds which
have been credited to the account out of Gross Revenue but which are not
available when capital additions and replacements are to be made due to
deficiency in Adjusted Gross Operating Profit or which are not available to be
delivered to Bank upon the
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occurrence of an Event of Default shall be provided by Manager out of Manager's
own funds and be treated as an advance under Section 3.4(a) of the Management
Agreement.
(c) CSDC/Manager Reserve. Manager and CSDC have agreed to establish
the CSDC Manager Reserve in accordance with the terms of the CSDC/Management
Reserve Agreement by and between Borrower, CSDC and Manager. Under the terms of
said Agreement, two percent (2%) of Gross Revenue is to be deposited into a
reserve account which is to be used for payment of the CSDC Lease Obligations
and CSDC Loan Obligations. The use of these funds shall be in accordance with
the terms of the CSDC/Manager Reserve Agreement.
(d) Priority of Reserves. The reserves set forth under subsections
(a) through (c) above shall be used in accordance with the order of their
listing herein. In other words, funds available under the CSDC Debt Reserve for
the payment of CSDC Loan Indebtedness shall be exhausted prior to the use of any
funds in the other reserves for such purposes. Funds in the CSDC/Manager Reserve
Account shall be used only upon the complete use of all funds in the CSDC Debt
Reserve and the Contingency Reserve allocated for such purpose.
(e) CSDC and Manager hereby recognize that Bank's lien on the
Operating Reserves and Capital Reserve accounts are superior to the Junior Liens
granted to Manager and CSDC, respectively. Bank, however, acknowledges that it
does not have, and shall not obtain, a security interest in the CSDC/Manager
Reserve, the "Garage Reserve", or the "City Reserve" as the last two terms are
defined in the Obligor Loan Agreement.
ARTICLE III.
ENFORCEMENT OF REMEDIES
3.1 Enforcement of Remedies.
(a) Except as provided in Section 3.2 below, upon the occurrence of
an Event of Default under their respective Creditor Agreements, unless the prior
written consent of Bank is obtained, neither CSDC nor Manager shall exercise or
enforce any rights or remedies under their respective Collateral Documents, or
otherwise with respect to the Liens on any Collateral or under their applicable
Creditor Agreements, applicable law or otherwise against Borrower, including,
without limitation, the delivery of any default notice to Borrower and the
acceleration of any of the obligations comprising the Indebtedness held by CSDC
or Manager. CSDC and
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Manager agree that this limitation on their exercise of their remedies under
their respective Collateral Documents shall commence on the date hereof and
expire upon the earlier of (i) the date the Bank's Indebtedness is paid in full,
and (ii) six (6) months after the original maturity date of the Term Note, as
defined in the Loan Agreement. Provided, however, said period shall be extended
to prohibit any exercise of remedies by CSDC or Manager during any period in
which Bank is exercising its remedies under the Bank Collateral Documents.
(b) Except as specifically provided in the Hotel Lease, it is
hereby understood and agreed that CSDC shall not exercise any rights or remedies
to terminate, cancel or evict Borrower on account of any default by Borrower
under the CSDC Lease Documents. Nevertheless, except as provided otherwise in
the FNBC/CSDC Estoppel, CSDC may take the following actions authorized under the
Hotel Lease in accordance with and subject to the terms of the Hotel Lease: (i)
CSDC's right to declare a default under the Hotel Lease by virtue of the
Lessee's failure to pay any Landlord Administrative Expenses or Carrying Costs
Rent, as defined in the Hotel Lease; (ii) CSDC's authority to invoke its
"Protection Right" under Section 41 of the Hotel Lease; and (iii) cure any
default under the Bank Agreements as set forth in Section 20.G(3) of the Hotel
Lease.
(c) Nothing in this Section 3.1 shall be construed to limit or
restrict the ability or right of Bank to enforce any and all rights and remedies
granted to Bank in any one or more of the Bank Agreements. CSDC, Manager and
Borrower expressly acknowledge and agree that notwithstanding the limitations
and restrictions contained herein on their respective rights and remedies, no
such limitation or restriction applies to Bank or the Bank Agreements, and Bank,
in its sole and absolute discretion, except as specified hereinbelow, may
enforce the rights and remedies granted therein in accordance therewith, without
prior notice to or consent by CSDC or Manager and without any obligation to
pursue in any priority the Bank Collateral, if at all. Notice of an Event of
Default under a Bank Agreement shall be provided as follows:
(i) Bank shall provide Manager with the same notice of
default, if any, under the Bank Agreements and the same
time period to cure, if any, if the default can be
cured by Manager, which Borrower is to receive under
the Bank Agreements;
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(ii) Bank shall provide CSDC with the notice and right to
cure set forth in Section 20.G(3)(e) of the Hotel
Lease.
(d) The parties hereto recognize that various entities have been
granted rights to cure defaults arising under certain documents including, but
not limited to, the Mercier Garage Ground Lease, the Hotel Parking Lease, the
Garage Lease, the Corner Lot Lease, and the Salmen Lease, as such terms are
defined herein or in the Hotel Lease (the "Project Leases"). Without
establishing a priority for the right to cure, the parties recognize that any of
the beneficiaries (the "Benefitted Parties") of the Estoppels, as defined in the
Loan Agreement, executed by the parties to these Project Leases in favor of
Bank, Manager and/or CSDC shall have the right to take action to cure a default
under any Project Lease so long as any benefits which are produced by such
curative action does not prejudice the rights of any other Benefitted Party to
the rights and benefits of the Project Lease; i.e. should a Benefitted Party
cure a default under any of the Project Leases the benefits which are preserved
thereby shall inure to the benefit of all Benefitted Parties (Bank, Manager or
CSDC). The party curing any default shall be entitled to be reimbursed by the
defaulting party as well as by the secured creditor who succeeds to the interest
of the defaulting party after an exercise of its remedies under its Collateral
Documents.
3.2 Action by Junior Lienholder. Notwithstanding the provisions of
subsection 3.1(a) above, Bank hereby agrees that should an event of default
exist under the Manager Collateral Documents, the Additional Manager Collateral
Documents, or the CSDC Collateral Documents due to either Borrower's bankruptcy
(which cannot be cured by Manager's compliance with the General Partner
Substitution Agreement among HRI, Chevron, Sonesta and Contractor) or the
failure of Chevron to make payments when due under any of the Chevron Notes
("Actionable Defaults") then Manager or CSDC may enforce the remedies under
their respective Collateral Documents subject to the rights of Bank, if Bank
does not elect to pursue its remedies under its Collateral Documents within 30
days from the occurrence of the Actionable Defaults, or in the case of a
bankruptcy by Borrower whatever other period Bank may be required by law to wait
before exercising its security rights. Should Bank elect to pursue all of its
remedies then Manager and CSDC, provided Bank is diligently pursuing its
remedies, shall not take any action against the Collateral until the Bank's
Indebtedness is paid off. If Bank
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elects to only pursue a portion of the Collateral, Manager and CSDC shall have
the right to exercise their respective remedies against that portion of the
Collateral not sought by Bank, but subject to any lien in favor of Bank therein.
3.3 Additional Liens. Neither CSDC or Manager shall obtain a Lien on
any Property of Borrower, other than (i) Liens granted to each respective lender
on the Collateral granted pursuant to the terms of the applicable Collateral
Documents, and (ii) Liens granted on the Apartment Lease or the Apartment
Parking Lease, as those terms are defined in the Hotel Lease. Should CSDC or
Manager obtain an additional Lien on any Property of Borrower contrary to the
above provision, said Lien shall be deemed to have been taken by CSDC or
Manager, as the case may be, as agent for Bank and shall benefit Bank as if it
had been granted directly to it and any proceeds received by CSDC or Manager
therefrom shall first be used and applied to the repayment of the Bank
Indebtedness. No document which creates such a Lien, however, can create any
obligations on the part of Bank without the specific assumption of same by Bank.
Borrower shall also be considered a beneficiary of the Manager
Guaranty and the Additional Guaranty to the limited extent of (1) Manager's
agreement to guarantee the scheduled amortized payments under the Term Note, as
provided in the Manager Guaranty and the Additional Term Note, as provided in
the Additional Guaranty, and (2) providing to Borrower the right to declare a
default under the Management Agreement if Manager or Sonesta has not made the
payment demanded by the Bank under the Manager Guaranty or the Additional
Guaranty within three days after the effective date of notice to Manager or
Sonesta of a default on the Indebtedness as defined in the Manager Guaranty and
the Additional Guaranty. The beneficial interest intended to be granted to
Borrower hereby does not extend to or include providing Borrower any right or
advantage not specifically set forth in this paragraph, including the right to
seek and recover any damages for losses that Borrower may sustain as a result of
Manager or Sonesta's performance or failure to perform under the Manager
Guaranty or the Additional Guaranty. In connection therewith, Borrower hereby
waives the right to seek and recover any damages, including any consequential,
compensatory or incidental damages, from Manager or Sonesta in connection with
the Manager Guaranty or the Additional Guaranty, recognizing that the right to
recover damages under such agreement solely reposes in the Bank.
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Borrower may not take any action under either Guaranty without the
prior written consent of Bank.
3.4 Parties' Intent. The parties hereby intend that the provisions of
this Agreement shall be enforceable during any event of any insolvency,
bankruptcy, liquidation, reorganization or other similar proceedings, or any
receivership proceedings in connection therewith, relative to Borrower, and in
the event of any proceedings for voluntary liquidation, dissolution or other
winding up of Borrower, whether or not involving insolvency or bankruptcy
proceedings (a "Proceeding").
ARTICLE IV.
LIEN PRIORITIES AND SUBORDINATION
4.1 Lien Priorities. Notwithstanding the date, manner or order of
perfection of the Liens granted Bank and the Liens granted to CSDC and Manager,
and notwithstanding any provisions of the Uniform Commercial Code in effect in
the State of Louisiana or the Commonwealth of Massachusetts, or any applicable
law or decision, or any provision of the Creditor Agreements, or whether either
Bank, CSDC or Manager holds possession of all or any part of the Collateral, the
following, as between Bank, CSDC and Manager, shall be the relative priority of
the Liens of Bank and the Liens of CSDC and Manager in the Collateral:
(a) Bank shall have a first and prior Lien in and on the Collateral
to secure the Bank Indebtedness. The parties hereto, including, without
limitation, Bank, hereby recognize and acknowledge that, notwithstanding the
fact that the Bank's Additional Collateral Mortgage is in a principal amount in
excess of the Additional Construction Note and/or Additional Term Note, the
subordination of the Liens of CSDC and Manager to the Bank's Liens are limited
solely to amount of funds advanced under the Additional Construction Note, the
Additional Term Note, as defined in the Amended Lease Agreement, together with
advances by Bank to preserve its Collateral pursuant to the Bank Collateral
Agreements. Bank acknowledges that any advances to Borrower in excess of the
Additional Construction Note or Additional Term Note, together with advances by
Bank to preserve its Collateral pursuant to the Bank Collateral Documents, shall
only be secured by the Additional Collateral Mortgage in accordance with the
terms of the Collateral Pledge and Security Agreement, and, otherwise, shall be
subordinate to
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the Liens of CSDC and Manager unless their consent and further subordination
agreement is obtained. Notwithstanding the foregoing, amounts advanced to
Borrower by Manager under the Management Agreement shall not be subordinate to
the portion of the Additional Collateral Mortgage that exceeds the additional
$1,500,000 as the same may be paid down, together with interest, costs and other
sums advanced by Bank under the Bank Collateral Documents;
(b) Manager shall have a second and subordinate Lien therein to
secure the Manager Indebtedness (other than that portion which represents the
Manager Advance) which shall remain superior to the CSDC Lien until the Manager
Mortgage is paid in full and cancelled;
(c) CSDC shall have a third and subordinate Lien therein to secure
the CSDC Loan Indebtedness subordinate to the Lien created by the Bank
Collateral Documents and the Manager Collateral Documents but shall be superior
to the Additional Manager Collateral Documents which secure the Manager Advance;
and
(d) Manager shall have a fourth and subordinate Lien to secure the
Manager Advance which shall remain subordinate to the Bank Indebtedness, the
Manager Indebtedness secured by the Manager Mortgage described in subparagraph
(b) above, and the CSDC Indebtedness.
4.2 Subordination of Hotel Lease.
(a) The CSDC Lease Documents and all rights and privileges granted
thereunder to CSDC shall be subordinate to the Bank Collateral Documents and the
Liens granted to Bank therein.
(b) CSDC acknowledges that it has executed in favor of Bank the
Amended and Restated Bank/CSDC Estoppel which sets forth certain changes in the
Hotel Lease in the event Bank succeeds to the interest of Borrower thereunder.
Likewise, CSDC further acknowledges that Bank and Manager have executed a letter
of consent which sets forth certain changes in the Management Agreement in the
event that Bank succeeds to the position of Borrower thereunder (the "Manager
Consent").
(c) Bank acknowledges that Manager has executed the CSDC/ Manager
Reserve Agreement and agrees that so long as Borrower retains ownership of the
Hotel Lease that it will not interfere or contest the provisions thereof.
However, the parties hereto hereby
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agree that should: (x) Bank execute its rights under its Collateral Documents
and thereby bring about the cancellation of the CSDC Collateral Documents then
(i) any existing collateral which is granted solely to CSDC for its Loan
Indebtedness, i.e., the CSDC/Manager Reserve, may be applied by CSDC to its
outstanding indebtedness; (ii) all obligations to maintain any security for the
CSDC Loan Indebtedness thereafter shall be terminated other than reserves which
are funded by proceeds from sources other than the Hotel or the Manager, i.e.,
Garage Revenues; and (iii) Bank shall have no obligation to reimburse Manager
for funds delivered to CSDC from the CSDC/Manager Reserve which are reimbursable
by Borrower under the CSDC/Manager Reserve Agreement; or (y) a default occur
under the Bank Indebtedness which brings about Rental Subordination under the
Hotel Lease then all funds which are held or generated as security for payment
of the CSDC Lease Indebtedness shall be payable to Bank under the terms of
Section 20 of the Hotel Lease until the FNBC Loan, as defined in the Hotel
Lease, is paid.
Bank further acknowledges that should it accept a dation en
paiement from Borrower that such will have no effect on the validity of the
Manager or CSDC Collateral Documents.
(d) CSDC further agrees that in the event Bank becomes the owner of
the Project that any restrictions on the ability of Manager to modify, extend or
amend the Management Agreement without CSDC's consent shall be inapplicable and
unenforceable so long as Bank remains the Owner/Lessee of the Project. Bank
acknowledges, however, that it has obligations under the Bank/CSDC Estoppel,
however, which will require CSDC's consent to certain changes in the operation
of the Hotel under certain circumstances.
4.3 Subordination.
(a) (i) Subject to the qualification set forth above in Section
4.1(a), Manager and Sonesta do hereby expressly subordinate and make second,
junior and inferior any and all Liens of Manager or Sonesta in or on the
Collateral under, pursuant to or by virtue of the Manager Collateral Documents
and the Additional Manager Collateral Documents to all Liens of Bank in or on
the same Collateral under, pursuant to or by virtue of the Bank Collateral
Documents and Manager and Sonesta agree that all Liens of Bank on the same
Collateral held by Manager shall be unconditionally first, prior and superior to
any and all Liens of Manager
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under, pursuant to or by virtue of the Manager Collateral Documents and the
Additional Manager Collateral Documents.
(ii) Manager, Sonesta, or their successors or assigns or any other
legal holder of the Manager Indebtedness shall not acquire by subrogation,
contract or otherwise any Lien upon or other estate, right or interest in any
Property of Borrower (including but not limited to any which may arise in
respect to real estate taxes, assessments or other governmental charges) which
is or may be prior in right to the Liens granted in favor of Bank.
(b) (i) Subject to the qualifications set forth above in Section
4.1(a), CSDC does hereby expressly subordinate and make junior and inferior (x)
any and all Liens of CSDC in or on the Collateral under, pursuant to or by
virtue of the CSDC Collateral Documents, and (y) except as specifically provided
in the Hotel Lease to the contrary, all rights and privileges of CSDC under,
pursuant to or by virtue of the CSDC Lease Documents, to all Liens of Bank in or
on the same Collateral under, pursuant to or by virtue of the Bank Collateral
Documents and CSDC agrees that all Liens of Bank on the same collateral held by
CSDC shall be unconditionally first, prior and superior to any and all Liens of
CSDC under, pursuant to or by virtue of the CSDC Collateral Documents and those
under the CSDC Lease Documents.
(ii) CSDC, its successors or assigns or any other legal holder of
the CSDC Lease Indebtedness and CSDC Loan Indebtedness shall not acquire by
subrogation, contract or otherwise any Lien upon or other estate, right or
interest in any Property of Borrower (including but not limited to any which may
arise in respect to real estate taxes, assessments or other governmental
charges) which is or may be prior in right to the Liens granted to Bank.
(c) (i) CSDC does hereby expressly subordinate and make junior and
inferior, but only to the extent of the Maximum Secured Manager Indebtedness,
any and all Liens in or on the Collateral of CSDC under, pursuant to or by
virtue of the CSDC Collateral Documents to all Liens of Manager in or on the
Collateral under, pursuant to or by virtue of the Manager Collateral Documents
and CSDC agrees that all Liens of Manager represented by the Manager Collateral
Documents shall be unconditionally prior and superior to any and all Liens of
CSDC under, pursuant to or by virtue of the CSDC Collateral Documents but not in
excess of the Maximum Secured Manager Indebtedness.
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(ii) CSDC, its successors or assigns or any other legal holder of
the CSDC Lease Indebtedness and CSDC Loan Indebtedness shall not acquire by
subrogation, contract or otherwise any Lien upon or other estate, right or
interest in any Property of Borrower (including but not limited to any which may
arise in respect to real estate taxes, assessments or other governmental
charges) which is or may be prior in right to the Liens granted in favor of
Manager as security for the Manager Indebtedness (other than the Manager
Advance) except to the extent CSDC acquires rights of Bank under the Bank
Collateral Documents.
(d) (i) Manager does hereby expressly subordinate and make junior and
inferior, any and all Liens in or on the Collateral of Manager, under, pursuant
to, or by virtue of the Additional Manager Collateral Documents to all Liens of
CSDC in or on the Collateral under, pursuant to or by virtue of the CSDC
Collateral Documents and Manager agrees that all liens of CSDC represented by
the CSDC Collateral Documents shall be unconditionally prior and superior to any
and all Liens of Manager under, pursuant to, or by virtue of the Additional
Manager Collateral Documents.
(ii) With respect to the Manager Advance, Manager, its successors
or assigns, or any other legal holder of the Manager Advance shall not acquire
by subrogation, contract or otherwise any Lien upon or other estate, right or
interest in any Property of Borrower (including, but not limited to, any which
may arise in respect to real estate taxes, assessments or other governmental
charges) which is or may be prior in right to the Liens granted in favor of
CSDC.
4.4 Distribution of Proceeds of Collateral. All Disposition Proceeds
shall be distributed in accordance with the following procedure:
(i) FIRST, to payment of all costs, fees, expenses and
indemnities incurred by Bank pursuant to this Agreement
or any of the Bank Collateral Documents;
(ii) SECOND, to the payment in full of the secured portion
of Bank Indebtedness;
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(iii) THIRD, to discharge, to the extent required by the
Manager Agreements, the Secured Manager Indebtedness
other than the Manager Advance;
(iv) FOURTH, to discharge, all debt and other obligations
owed to CSDC, including all amounts of principal and
interest then outstanding and secured by the CSDC
Collateral Documents, together with any deferred debt
service, interest thereupon, and prepayment penalty or
its equivalent and CSDC Lease Indebtedness;
(v) FIFTH, to payment in full of the Manager Advance and
any sums owed under the Additional Manager Collateral
Documents; and
(vi) SIXTH, the remainder to Borrower.
Until such time as the Bank Indebtedness is paid in full, any
Disposition Proceeds received by CSDC, Manager or Borrower shall be held in
trust for Bank and upon demand by Bank, said amounts shall be disgorged and
shall be promptly distributed to Bank and for application against the Bank
Indebtedness, except as otherwise expressly provided herein.
4.5 Distribution of Property.
(a) Upon any distribution of the Property of Borrower in connection
with any Proceeding (whether in a Proceeding or upon an assignment for the
benefit of creditors or any other marshaling of the assets and liabilities of
Borrower or otherwise), Bank (subject to Manager's right to pay sums which are
provided for under the Management Agreement) shall first be entitled to receive
payment in full of all secured Bank Indebtedness before either Manager or CSDC
shall be entitled to receive any payment in respect of the Manager Indebtedness
or CSDC Lease Indebtedness and CSDC Loan Indebtedness (except for payments
directed by Bank in satisfaction of Landlord Administration Expenses, as defined
in the Hotel Lease and/or Carrying Costs Rent, as defined in the Hotel Lease
charges). Upon any such dissolution, winding up, liquidation or reorganization,
any payment or distribution of the Property of Borrower of any kind or
character, whether in cash, property or securities, to which either Manager or
CSDC would be entitled except for the superior claim thereto by Bank under
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the Bank Collateral Documents (including any such payment or distribution which
may be payable or deliverable by virtue of the provisions of any security
documents which are subordinated as junior in right of payment to the Manager or
CSDC Lease and Loan Indebtedness) shall be made directly to Bank by the
liquidating trustee or agent or other persons making such payment or
distribution (whether a trustee in bankruptcy, a receiver or liquidating trustee
or otherwise) (a "Paying Party"), or if received by Manager or CSDC, by Manager
or CSDC to Bank, to the extent necessary to pay in full the Bank Indebtedness
remaining unpaid. Manager and/or CSDC hereby authorizes and directs each Paying
Party to pay over to Bank upon demand by Bank, all such payments or
distributions upon receipt from Bank of a statement setting forth the status or
balance of the Bank Indebtedness, and without further notice to or consent of
either Manager or CSDC, provided, however, that Manager and CSDC shall be
entitled to receive notice of the amount claimed by the Bank in the statement
and the amount, if any, which is to be paid by the Paying Party from any amounts
which would otherwise belong to CSDC. In furtherance of the foregoing, but not
by way of limitation thereof, in the event Borrower is subject to any
Proceeding, with the result that Borrower is excused from the obligation to pay
all or part of the interest otherwise payable in respect of the Bank
Indebtedness during the period subsequent to the commencement of any such
Proceeding, Manager and CSDC agree that all or such part of such interest, as
the case may be, shall be payable out of, and to that extent diminish and be at
the expense of, reorganization dividends or distributions in respect of the
Manager Indebtedness and/or the CSDC Lease Indebtedness and CSDC Loan
Indebtedness.
(b) In the event any payment or distribution of the Property of
Borrower of any kind or character, whether in cash, property or securities, and
whether or not pursuant to any Proceeding, not permitted by or in accordance
with the provisions of this Agreement shall be received by Manager or CSDC, such
payment or distribution to Manager or CSDC shall not be commingled with other
funds and shall be held in trust for the benefit of, and, if properly the
property of Bank hereunder, shall be paid over or delivered to Bank in precisely
the form received (except for the endorsement or assignment of Manager or CSDC
where necessary). Nothing herein, prior to an Event of Default under the Bank
Agreements, shall affect or limit the
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rights of Manager to the Operating or Capital Reserves required by this
Agreement and the Management Agreement.
4.6 Actions by Bank. Except as provided in the Bank/CSDC Estoppel, the
Manager Guaranty and the Additional Guaranty, Bank may, at any time and from
time to time, without the consent of or notice to either Manager or CSDC and
without impairing or releasing the obligations of either Manager or CSDC under
this Agreement: (i) exercise or refrain from exercising any rights against
Borrower, Guarantors and/or; (ii) apply any sums by whomsoever paid or however
realized to the Bank Indebtedness; (iii) upon notice to CSDC, sell, exchange,
release, surrender, realize upon or otherwise deal with in any manner and in any
order any property whatsoever and by whomsoever at any time pledged or mortgaged
to secure, or howsoever securing, any Bank Indebtedness; (iv) with notice to
CSDC, who may comment thereon but have no right to consent thereto, release any
guarantor and/or anyone liable in any manner for the payment or collection of
the Bank Indebtedness; and (v) settle or compromise all or any part of the Bank
Indebtedness, and subordinate the payment of any part of the Bank Indebtedness
to the payment of any other indebtedness (including any other part of the Bank
Indebtedness). No invalidity, irregularity or unenforceability of all or any
part of the Bank Indebtedness or of any of the Liens securing the same shall
affect, impair or be a defense to this Agreement, which provision shall still be
deemed effective for the purposes of this Agreement.
4.7 Foreclosure. The parties hereto acknowledge that this Agreement and
certain of the various Collateral Documents contain provisions for the proposed
distribution of cash flow from time to time and the distribution of proceeds
from a sale or refinancing (the "Distribution Provisions"). The parties further
acknowledge that these provisions are based upon an assumption that no default
exists under any of the Collateral Documents and that the proceeds are the
result of a voluntary sale or refinancing. To the extent that these Distribution
Provisions are inconsistent with the rights against the collateral (including
cash flow) under the Collateral Documents upon an event of default, as set forth
in Section 4.4 of this Intercreditor Agreement, the Distribution Provisions
shall be disregarded and distribution shall be made in a manner consistent with
the provisions of Section 4.4 above. By way of example, only, should a default
occur under the Bank Agreements, and Bank accelerate its Bank Indebtedness no
further
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payments shall be made to any junior creditor or Borrower and payments due under
the Hotel Lease shall be governed by the provisions of the Hotel Lease and the
Bank CSDC Estoppel. Further, Bank acknowledges that nothing in this Section 4.7
is intended to supersede any of the provisions of either the Bank/CSDC Estoppel
or the Manager Non-Disturbance Agreement or the Manager Consent. Should any
provision hereof be in direct conflict with either the Manager Non-Disturbance
Agreement or the Manager Consent, the provisions of those documents shall
control and supersede the contrary provisions herein.
ARTICLE V.
INDEMNIFICATION AND WAIVER OF SUBROGATION
5.1 Indemnification.
In addition to the indemnification and reimbursement obligations of
Borrower under the applicable Creditor Agreements, Borrower agrees upon demand
to reimburse and indemnify Bank for and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including, without limitation, counsel fees and disbursements) or
disbursements of any kind or nature whatsoever which may be imposed on, incurred
by or asserted against Bank in performing, exercising or enforcing any duty,
right, power, privilege or remedy under this Agreement or under any of the Bank
Agreements or in any way relating to or arising out of this Agreement or under
any of the Bank Agreements, including, without limitation, all liabilities,
costs and expenses incurred by Bank in connection with any judicial or
non-judicial foreclosure sale or other disposition of any of the Collateral or
the remediation or containment of Hazardous Materials on or off the Project;
provided that (A) Borrower shall not be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from Bank's willful misconduct and
(B) in the event litigation arises between or among Bank and either of or both
of CSDC or Manager concerning the priorities of payment hereunder or the rights
and/or obligations of such parties vis-a-vis each other (but not vis-a-vis
Borrower), then the party prevailing in such litigation shall be reimbursed by
the opposing party for all attorneys' fees and expenses and all other charges,
expenses, liabilities and advances incurred by the prevailing party in
connection with such litigation, and Borrower shall have no obligation to
indemnify Bank for any such
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amounts. Without limiting the generality of the foregoing, Borrower shall
reimburse and indemnify Bank for all fees, expenses and disbursements incurred
by the Bank (including, without limitation, the fees and expenses of counsel to
Bank, or of consultants, auditors (including in-house auditors, appraisers or
other professionals retained by Bank or its counsel) in connection with (i) the
preparation, negotiation, execution, delivery, implementation and administration
of the Agreement, the Bank Agreements and all other instruments or agreements
now or hereafter executed and delivered in connection herewith or therewith,
together with any amendments, waivers or consents with respect hereto or
thereto, and (ii) the exercise or enforcement of any right, power, privilege or
remedy under this Agreement, the Bank Agreements, any other instrument or
agreement now or hereafter executed and delivered in connection herewith or
therewith, applicable laws or otherwise in respect of the Liens on any
Collateral granted to Bank, including, without limitation, all such fees,
expenses and disbursements arising from the exercise or enforcement of any such
rights, powers, privileges or remedies in connection with any Proceeding or any
refinancing or restructuring of the credit arrangements provided under any of
the Creditor Agreements, the Collateral Documents and this Agreement in the
nature of a "workout". The indemnification obligations of Borrower and any
additional indemnity provided to Bank, shall survive the termination of this
Agreement. It is understood and agreed that the indemnification obligations of
the Borrower set forth herein constitute additional Bank Indebtedness secured by
the Bank Collateral Documents other than the Manager Guaranty and the Additional
Guaranty.
5.2 Waiver of Subrogation. Intervening into this Agreement comes the
Individual Guarantors and the Corporate Guarantors, as defined in the Loan
Agreement, to not only acknowledge and accept the terms contained herein but to
waive all rights of subrogation and substitution which any of them may possess
by virtue of any payment made to Bank under their Guaranties. Accordingly, any
payments made by these Intervenors shall not transfer to them any rights in any
of the Bank Agreements including, without limitation, the Bank Collateral
Documents.
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ARTICLE VI.
Article VI is hereby deleted in its entirety and replaced with the
following provision: CSDC and Manager hereby acknowledge and consent to the
release by Bank of the Proceeds of Investor Note #2 to Borrower who shall use
said Proceeds to complete the Additional Work. In providing their consent CSDC
and Manager further release any security interest held is said Note or the
Proceeds thereof.
ARTICLE VII.
MISCELLANEOUS
7.1 Rights to Cure. Upon the occurrence of an Event of Default under
the Hotel Lease, Bank shall have the right but not the obligation to cure as set
forth therein. Upon the occurrence of an Event of Default under either the CSDC
Loan Agreements or the Manager Agreements, Manager or CSDC, respectively, shall
give written notice thereof to Bank who shall have fifteen (15) days from the
receipt of such notice to cure any monetary default and thirty (30) days for a
non-monetary default. Should the default remain uncured beyond the period
allowed for same, Bank may consider said default to be a default under the Bank
Agreements as set forth therein, but CSDC or Manager shall still have no rights
to enforce their rights under their Collateral Documents without the consent of
Bank except as otherwise provided herein. Any sums advanced by Bank to cure
defaults under the Hotel Lease or the other Creditor Agreements shall be secured
by the Bank's Collateral Documents.
7.2 Specific Performance. Each party hereto hereby agrees that Bank,
CSDC, Manager and Sonesta, shall be authorized to demand specific performance of
the provisions set forth in this Agreement in accordance with the terms of this
Agreement. Each party hereto hereby irrevocably waives any defense based on the
adequacy of a remedy at law which might be asserted by any party hereto against
any other party hereto as a bar to the remedy of specific performance of such
provisions brought in any action by such party.
7.3 Successors and Assigns. This Agreement shall be binding upon, and
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns. No Person (including Borrower) other than
Bank, CSDC, Manager, and Sonesta and their respective successors and assigns
shall have any rights under this Agreement. It is
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acknowledged that Boh Brothers and Broadmoor, parties to the Intercreditor
Agreement, have been removed as parties hereto since they no longer have an
interest in the Project or any security interest therein due to the completion
of the Construction Contract and the Completion Guarantee, as defined therein.
7.4 Assignments and Participations. CSDC and Manager respectively agree
that it shall not transfer or assign its interest in the Indebtedness held by it
or any promissory note or other instrument evidencing such Indebtedness, or sell
any participation therein, without the consent of Bank which will not be
unreasonably withheld or delayed. Provided, however, Manager or Sonesta may
assign its Indebtedness without Bank's consent to any institutional lender as
part of a financing of its corporate assets, and CSDC may assign its
Indebtedness without Bank's consent to the City or HUD so long as any such
assignment by Manager, Sonesta or CSDC shall be subject to all of the provisions
hereof and all relevant Creditor Agreements.
7.5 Creditor Agreements.
(a) Each of CSDC and Manager agree that it shall not, after the
date hereof, without the prior written consent of Bank, which shall not be
unreasonably withheld or delayed, amend, renew, extend, restate or otherwise
modify in any manner their respective Creditor Agreements or the Hotel Lease to
which it is a party, except, subject to the limitations of Section 7.15, CSDC
may amend the CSDC Loan Agreements as requested by HUD.
(b) CSDC and Manager hereby acknowledge that no Default or Event of
Default under the Creditor Agreements to which it is a party exists as of the
date hereof nor has been or will be caused by the execution, delivery and
performance of this Agreement, the Creditor Agreements to which it is a party,
the Collateral or by the attachment and/or perfection of any Liens granted
pursuant to the Collateral Documents.
7.6 Notices. All notices, requests, demands and other communications
provided for hereunder shall be in writing and shall be personally delivered or
sent by first class mail, certified mail return receipt requested, or overnight
mail, or by telex or telegram (no later than 4:00 p.m. at the place of delivery)
with confirmation in writing mailed first class, in all cases with postage or
charges prepaid, to the applicable party at the address indicated below:
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In the case of Bank:
First National Bank of Commerce
201 St. Charles Ave., 28th Floor
New Orleans, Louisiana 70170
Attention: Lantz E. Harvey
Telecopy No.: 561-1535
In the case of CSDC:
Canal Street Development Corporation
1515 Poydras Street, Suite 1200
New Orleans, Louisiana 70112
Attention: Glenn A. Haydel
Telecopy No.: 565-8135
In the case of Sonesta:
Sonesta International Hotels Corporation
200 Clarendon Street
Boston, Massachusetts 02116
Attn: Office of the Treasurer
Telecopy No.: (617) 421-5402
In the case of Manager:
Sonesta Louisiana Hotels Corporation
c/o Sonesta International Hotels Corporation
200 Clarendon Street
Boston, Massachusetts 02116
Attn: Office of the Treasurer
Telecopy No.: (617) 421-5402
In the case of Borrower:
800 Canal Street Limited Partnership
210 Baronne Street, Suite 1717
New Orleans, Louisiana 70112
Attention: Maurice Pres Kabacoff
Telecopy No.: 525-3932
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or, as to each party, at such other address as shall be designated by such party
complying as to delivery with the terms of this Section. Any notice sent
pursuant hereto via certified mail return receipt requested, certified fee and
normal postage prepaid, shall be deemed to have been received on the earlier of
actual receipt thereof, refusal or the third (3rd) day after the postmarked date
indicated on the Receipt for Certified Mail (PS Form 3800, June 1985, or any
successor form). Except as otherwise expressly provided herein, all notices,
requests, demands and other communications hereunder shall be effective when
received and shall be deemed received when delivered if sent by overnight mail
and deemed received when sent if sent by fax.
Manager agrees to provide CSDC with a copy of any notice which it
provides to Bank under this Agreement.
7.7 Waiver of Jury Trial. BORROWER, CSDC, MANAGER AND SONESTA MUTUALLY
WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING IN ANY COURT ARISING ON, OUT OF
OR IN ANY WAY RELATING TO THIS AGREEMENT, THE CREDITOR AGREEMENTS, OR ANY
AMENDMENT OR SUPPLEMENT HERETO OR THERETO OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY.
7.8 Execution by Borrower.
(a) Borrower is a signatory to this Agreement solely for purposes
of (i) consenting to and agreeing to be bound by the provisions of this
Agreement, including, without limitation, the application of payment provisions
in Article II hereof and application of proceeds provisions of Section 4.4 of
this Agreement, (ii) acknowledging and approving the provisions agreed to herein
by Manager, and (iii) agreeing to the indemnification provisions of Article V.
Borrower agrees and acknowledges that it has no right to enforce any provision
of this Agreement. Without limiting the generality of the foregoing, Borrower
acknowledges that one of the purposes of this Agreement is to clarify the
priorities of payments as among Bank for distribution to Bank, CSDC and Manager
with respect to their respective Indebtedness. Borrower irrevocably waives the
right to direct the application of any proceeds of Collateral or any other
payment in respect of any Indebtedness. Borrower consents and agrees to (i) the
sharing and distribution of proceeds realized under the Collateral Documents or
otherwise among
-37-
<PAGE>
Bank, CSDC and Manager on the terms and conditions set forth in this Agreement
and (ii) the effect such sharing and distribution has on the calculation of the
Indebtedness held by Bank, CSDC and Manager and on Borrower's obligations under
the applicable Creditor Agreements and Collateral Documents. Borrower further
agrees that the Indebtedness which it owes to Bank, CSDC and Manager shall for
all purposes be deemed paid (or cash collateralized) only to the extent that
proceeds of Collateral or other payments are applied against such Indebtedness.
To the extent any application of proceeds of Collateral or other payments to any
Indebtedness (the "First Indebtedness") is reversed and reapplied to any other
Indebtedness (the "Second Indebtedness"), Borrower agrees that the First
Indebtedness shall be reinstated, and the Second Indebtedness shall be deemed
paid to the extent such proceeds of Collateral or other payments are applied
against such Second Indebtedness.
(b) Borrower, Manager, Sonesta, CSDC and Bank further acknowledge
that to the extent permitted by law, each will request during the pendency of
any bankruptcy proceeding by Borrower or foreclosure pursuant to which a keeper
may or must be designated that Manager be appointed to operate the Hotel under
the Management Agreement and in connection therewith be allowed to use any funds
produced by the Hotel to (i) pay Expenses under the Management Agreement, and
(ii) to establish and satisfy any cash collateral account requirements
established in the Proceeding.
7.9 Credit Decisions. Bank, CSDC and Manager severally represents and
warrants that each has made and will continue to make such independent
investigation of the financial condition and affairs of Borrower as Bank, CSDC
and Manager deems appropriate in connection with its entering into this
Agreement and the other Collateral Documents and the making and continuance of
the credit facilities contemplated by the Creditor Agreements and that Bank or
CSDC or Manager, in connection with such investigation, has not relied upon any
information provided to Bank or CSDC or Manager by Bank or CSDC or Manager.
7.10 No Partnership or Joint Venture. Neither the execution of this
Agreement, any Collateral Documents nor any agreement to share in profits or
losses arising out of the transactions contemplated herein, is intended to be,
nor shall it be construed to be, the formation
-38-
<PAGE>
of a partnership or joint venture among Bank, CSDC, Manager or Sonesta, or among
any combination thereof.
7.11 Governing Law and Severability. This Agreement was negotiated in
the State of Louisiana and for all purposes shall be governed by and construed
in accordance with the laws of said State. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
7.12 Counterparts. This Agreement may be executed by one or more
parties to this Agreement in any number or counterparts, and all of said
counterparts when taken together shall be deemed to constitute one and the same
instrument.
7.13 Amendments, Waivers and Consents. All amendments, waivers and
consents with respect to any provision of this Agreement, including the
amendment of the priority of payments (other than Article VI hereof) shall be
effective only if the same shall be in writing and signed by Bank, CSDC and
Manager. No failure or delay on the part of Bank, CSDC or Manager in exercising
any right, power or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy include
any other or further exercise thereof or the exercise of any other right, power
or remedy hereunder. Remedies herein provided for are cumulative and
non-exclusive of any remedies provided by law.
7.14 Conflict with Other Agreements. Except as provided in Section 4.7
hereof, the parties hereto agree that in the event of any conflict between the
provisions of this Agreement, on the one hand, and the provisions of any of the
Creditor Agreements or the Collateral Documents, on the other hand, the
provisions of this Agreement shall control unless otherwise agreed to in writing
by all parties hereto.
7.15 Agreement to Cooperate. Each of the parties hereto agrees to
cooperate fully with each other, to the end that the terms and provisions of the
Agreement may be promptly and fully carried out. Each party hereto also agrees,
from time to time, to execute and deliver any and all other agreements,
documents or instruments and to take such other actions, all as may be
-39-
<PAGE>
reasonably necessary or desirable to effectuate the terms, provisions and the
intent of this Agreement and the Creditor Agreements.
7.16 Term. This Agreement shall expire on the earlier to occur of (a)
the refinancing of the Bank Indebtedness, and (b) payment of the Bank
Indebtedness; provided, however, the provisions hereof shall continue during the
pendency of any action by Bank to enforce its rights under the Bank Collateral
Documents. Provided further, however, that the provisions of Sections 1.2(ww)
and (yy), 4.1, 4.3(c) and 4.3(d) shall survive the termination of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
multiple counterparts effective as of the date written above.
FIRST NATIONAL BANK OF COMMERCE
/s/ Neil J. ???????
_________________________________ /s/ Lantz E. Harvey
/s/ Rose H. Delaney By: _______________________________
_________________________________ Lantz E. Harvey
Its: Vice President
CANAL STREET DEVELOPMENT
CORPORATION
/s/ ??????????????? /s/ Glenn A. Haydel
_________________________________ By: _______________________________
Glenn A. Haydel
/s/ Neil J. ???? President
_________________________________ Its: ___________________________
SONESTA INTERNATIONAL HOTELS
CORPORATION
/s/ Christine Moynihan /s/ Peter J. Sonnabend
_________________________________ By: _______________________________
/s/ Maureen Greenberg Peter J. Sonnabend
_________________________________ Its: Vice President and Secretary
-40-
<PAGE>
SONESTA LOUISIANA HOTELS
CORPORATION
/s/ Christine Moynihan /s/ Peter J. Sonnabend
_________________________________ By: _______________________________
/s/ Maureen Greenberg Peter J. Sonnabend
_________________________________ Its: Vice President
800 CANAL STREET LIMITED
PARTNERSHIP
By: Historic Restoration, Incorporated
Its: General Partner
/s/ Neil J. ???????????? /s/ Maurice Pres Kabacoff
___________________________________ By: _________________________________
/s/ Rose H. Delaney Maurice Pres Kabacoff
___________________________________ Its: President
HISTORIC RESTORATION,
INCORPORATED
/s/ Neil J. ???????????? /s/ Maurice Pres Kabacoff
___________________________________ By: _________________________________
/s/ Rose H. Delaney Maurice Pres Kabacoff
___________________________________ Its: President
HRI MANAGEMENT CORPORATION
/s/ Neil J. ???????????? /s/ Meyers Thomas
___________________________________ By: _________________________________
/s/ Rose H. Delaney Meyers Thomas
___________________________________ Its: President
-41-
<PAGE>
HISTORIC CONSTRUCTION
INCORPORATED
/s/ Neil J. ???????????? /s/ Charles A. Rutledge
___________________________________ By: _________________________________
/s/ Rose H. Delaney Charles A. Rutledge
___________________________________ Its: President
/s/ Neil J. ???????????? /s/ Maurice Pres Kabacoff
___________________________________ ______________________________________
/s/ Rose H. Delaney MAURICE PRES KABACOFF
___________________________________
/s/ Neil J. ???????????? /s/ Edward B. Boettner
___________________________________ ______________________________________
/s/ Rose H. Delaney EDWARD B. BOETTNER
___________________________________
-42-
<PAGE>
ACKNOWLEDGMENT
STATE OF LOUISIANA
PARISH OF ORLEANS
BEFORE ME, the undersigned Notary Public, duly commissioned, qualified
and empowered to act in and for the Parish and State aforesaid, personally came
and appeared:
LANTZ E. HARVEY
to me known, who declared and acknowledged before me, Notary, and the
undersigned competent witnesses, that he is the Vice President of FIRST NATIONAL
BANK OF COMMERCE (the "Bank"), that as such duly authorized agent, by and with
the authority of the Board of Directors of Bank, he signed and executed the
foregoing Amended and Restated Intercreditor Payment Priority and Lien Priority
Agreement as the free and voluntary act and deed of Bank, for and on behalf of
Bank, and for the objects and purposes therein set forth.
THUS DONE AND PASSED, in the State and Parish aforesaid, on this 6th
day of May, 1997, after due reading of the whole.
WITNESSES:
/s/ Neil J. ??????????? /s/ Lantz E. Harvey
- ---------------------------------- -----------------------------------
LANTZ E. HARVEY
/s/ Rose H. Delaney
- -----------------------------------
/s/ Michael J. ????????
---------------------------------------
NOTARY PUBLIC
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<PAGE>
ACKNOWLEDGMENT
STATE OF LOUISIANA
PARISH OF ORLEANS
BEFORE ME, the undersigned Notary Public, duly commissioned, qualified
and empowered to act in and for the Parish and State aforesaid, personally came
and appeared:
GLENN A. HAYDEL
to me known, who declared and acknowledged before me, Notary, and the
undersigned competent witnesses, that he is the President of CANAL STREET
DEVELOPMENT CORPORATION (the "Corporation"), that as such duly authorized agent,
by and with the authority of the Board of Directors of the Corporation, he
signed and executed the foregoing Amended and Restated Intercreditor Payment
Priority and Lien Priority Agreement as the free and voluntary act and deed of
the Corporation, for and on behalf of the Corporation, and for the objects and
purposes therein set forth.
THUS DONE AND PASSED, in the State and Parish aforesaid, on this ____
day May, 1997, after due reading of the whole.
WITNESSES:
/s/ ??????????????????? /s/ Glenn A. Haydel
- ---------------------------------- -----------------------------------
GLENN A. HAYDEL
/s/ Neil J. ????????
- -----------------------------------
/s/ ????????
---------------------------------------
NOTARY PUBLIC
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<PAGE>
ACKNOWLEDGMENT
STATE OF MASSACHUSETTS
SUFFOLK COUNTY
BEFORE ME, the undersigned Notary Public, duly commissioned, qualified
and empowered to act in and for the Parish and State aforesaid, personally came
and appeared:
PETER J. SONNABEND
to me known, who declared and acknowledged before me, Notary, and the
undersigned competent witnesses, that he is the Vice President and Secretary of
SONESTA INTERNATIONAL HOTELS CORPORATION (the "Corporation"), that as such duly
authorized agent, by and with the authority of the Board of Directors of the
Corporation, he signed and executed the foregoing Amended and Restated
Intercreditor Payment Priority and Lien Priority Agreement as the free and
voluntary act and deed of the Corporation, for and on behalf of the Corporation,
and for the objects and purposes therein set forth.
THUS DONE AND PASSED, in the State and Parish aforesaid, on this 2nd
day of May, 1997 after due reading of the whole.
WITNESSES:
/s/ Christine Moynihan /s/ Peter J. Sonnabend
- ---------------------------------- -----------------------------------
PETER J. SONNABEND
/s/ Maureen Greenberg
- -----------------------------------
/s/ Karen K. Pettiford
---------------------------------------
NOTARY PUBLIC
My Commission Expires 4/17/2003
-45-
<PAGE>
ACKNOWLEDGMENT
STATE OF MASSACHUSETTS
SUFFOLK COUNTY
BEFORE ME, the undersigned Notary Public, duly commissioned, qualified
and empowered to act in and for the Parish and State aforesaid, personally came
and appeared:
PETER J. SONNABEND
to me known, who declared and acknowledged before me, Notary, and the
undersigned competent witnesses, that he is the Vice President of SONESTA
LOUISIANA HOTELS CORPORATION (the "Corporation"), that as such duly authorized
agent, by and with the authority of the Board of Directors of the Corporation,
he signed and executed the foregoing Amended and Restated Intercreditor Payment
Priority and Lien Priority Agreement as the free and voluntary act and deed of
the Corporation, for and on behalf of the Corporation, and for the objects and
purposes therein set forth.
THUS DONE AND PASSED, in the State and Parish aforesaid, on this 2nd
day of May, 1997 after due reading of the whole.
WITNESSES:
/s/ Christine Moynihan /s/ Peter J. Sonnabend
- ---------------------------------- -----------------------------------
PETER J. SONNABEND
/s/ Maureen Greenberg
- -----------------------------------
/s/ Karen K. Pettiford
---------------------------------------
NOTARY PUBLIC
My Commission Expires 4/17/2003
-46-
<PAGE>
ACKNOWLEDGMENT
STATE OF LOUISIANA
PARISH OF ORLEANS
BEFORE ME, the undersigned Notary Public, duly commissioned, qualified
and empowered to act in and for the Parish and State aforesaid, personally came
and appeared:
MAURICE PRES KABACOFF
to me known, who declared and acknowledged before me, Notary, and the
undersigned competent witnesses, that he is the President of Historic
Restoration, Incorporated, the General Partner of 800 CANAL STREET LIMITED
PARTNERSHIP (the "Partnership"), that as such duly authorized agent, by and with
the authority of the Partnership pursuant to its Articles of Partnership, he
signed and executed the foregoing Amended and Restated Intercreditor Payment
Priority and Lien Priority Agreement as the free and voluntary act and deed of
Historic Restoration, Incorporated and thereby the Partnership, for and on
behalf of the Partnership, and for the objects and purposes therein set forth.
THUS DONE AND PASSED, in the State and Parish aforesaid, on this 6th
day of May, 1997 after due reading of the whole.
WITNESSES:
/s/ Neil J. ??????????? /s/ Maurice Pres Kabacoff
- ---------------------------------- -----------------------------------
MAURICE PRES KABACOFF
/s/ Rose H. Delaney
- -----------------------------------
/s/ Michael J. ????????
---------------------------------------
NOTARY PUBLIC
-47-
<PAGE>
ACKNOWLEDGMENT
STATE OF LOUISIANA
PARISH OF ORLEANS
BEFORE ME, the undersigned Notary Public, duly commissioned, qualified
and empowered to act in and for the Parish and State aforesaid, personally came
and appeared:
MAURICE PRES KABACOFF
to me known, who declared and acknowledged before me, Notary, and the
undersigned competent witnesses, that he is the President of HISTORIC
RESTORATION, INCORPORATED (the "Corporation"), that as such duly authorized
agent, by and with the authority of the Board of Directors of the Corporation,
he signed and executed the foregoing Amended and Restated Intercreditor Payment
Priority and Lien Priority Agreement as the free and voluntary act and deed of
the Corporation, for and on behalf of the Corporation, and for the objects and
purposes therein set forth.
THUS DONE AND PASSED, in the State and Parish aforesaid, on this 6th
day of May, 1997 after due reading of the whole.
WITNESSES:
/s/ Neil J. ??????????? /s/ Maurice Pres Kabacoff
- ---------------------------------- -----------------------------------
MAURICE PRES KABACOFF
/s/ Rose H. Delaney
- -----------------------------------
/s/ Michael J. ????????
---------------------------------------
NOTARY PUBLIC
-48-
<PAGE>
ACKNOWLEDGMENT
STATE OF LOUISIANA
PARISH OF ORLEANS
BEFORE ME, the undersigned Notary Public, duly commissioned, qualified
and empowered to act in and for the Parish and State aforesaid, personally came
and appeared:
MEYERS THOMAS
to me known, who declared and acknowledged before me, Notary, and the
undersigned competent witnesses, that he is the President of HRI MANAGEMENT
CORPORATION (the "Corporation"), that as such duly authorized agent, by and with
the authority of the Board of Directors of the Corporation, he signed and
executed the foregoing Amended and Restated Intercreditor Payment Priority and
Lien Priority Agreement as the free and voluntary act and deed of the
Corporation, for and on behalf of the Corporation, and for the objects and
purposes therein set forth.
THUS DONE AND PASSED, in the State and Parish aforesaid, on this 6th
day of May, 1997 after due reading of the whole.
WITNESSES:
/s/ Neil J. ??????????? /s/ Meyers Thomas
- ---------------------------------- -----------------------------------
MEYERS THOMAS
/s/ Rose H. Delaney
- -----------------------------------
/s/ Michael J. ????????
---------------------------------------
NOTARY PUBLIC
-49-
<PAGE>
ACKNOWLEDGMENT
STATE OF LOUISIANA
PARISH OF ORLEANS
BEFORE ME, the undersigned Notary Public, duly commissioned, qualified
and empowered to act in and for the Parish and State aforesaid, personally came
and appeared:
CHARLES A. RUTLEDGE, JR.
to me known, who declared and acknowledged before me, Notary, and the
undersigned competent witnesses, that he is the President of HISTORIC
CONSTRUCTION INCORPORATED (the "Corporation"), that as such duly authorized
agent, by and with the authority of the Board of Directors of the Corporation,
he signed and executed the foregoing Amended and Restated Intercreditor Payment
Priority and Lien Priority Agreement as the free and voluntary act and deed of
the Corporation, for and on behalf of the Corporation, and for the objects and
purposes therein set forth.
THUS DONE AND PASSED, in the State and Parish aforesaid, on this 6th
day of May, 1997 after due reading of the whole.
WITNESSES:
/s/ Neil J. ??????????? /s/ Charles A. Rutledge, Jr.
- ---------------------------------- -----------------------------------
CHARLES A. RUTLEDGE, JR.
/s/ Rose H. Delaney
- -----------------------------------
/s/ Michael J. ????????
---------------------------------------
NOTARY PUBLIC
-50-
<PAGE>
ACKNOWLEDGMENT
STATE OF LOUISIANA
PARISH OF ORLEANS
BEFORE ME, the undersigned Notary Public, duly commissioned, qualified
and empowered to act in and for the Parish and State aforesaid, personally came
and appeared:
MAURICE PRES KABACOFF
to me known, who declared and acknowledged before me, Notary, and to the
undersigned competent witnesses, that he is the identical person who executed
the foregoing Amended and Restated Intercreditor Payment Priority and Lien
Priority Agreement in writing, that his signature thereto is his own true and
genuine signature, and that he executed said instrument of his own free will and
accord, and for the uses, purposes and considerations therein expressed.
THUS DONE AND PASSED in the State and Parish aforesaid, on this 6th
day of May, 1997, after due reading of the whole.
WITNESSES:
/s/ Neil J. ??????????? /s/ Maurice Pres Kabacoff
- ---------------------------------- -----------------------------------
MAURICE PRES KABACOFF
/s/ Rose H. Delaney
- -----------------------------------
/s/ Michael J. ????????
---------------------------------------
NOTARY PUBLIC
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<PAGE>
ACKNOWLEDGMENT
STATE OF LOUISIANA
PARISH OF ORLEANS
BEFORE ME, the undersigned Notary Public, duly commissioned, qualified
and empowered to act in and for the Parish and State aforesaid, personally came
and appeared:
EDWARD B. BOETTNER
to me known, who declared and acknowledged before me, Notary, and to the
undersigned competent witnesses, that he is the identical person who executed
the foregoing Amended and Restated Intercreditor Payment Priority and Lien
Priority Agreement in writing, that his signature thereto is his own true and
genuine signature, and that he executed said instrument of his own free will and
accord, and for the uses, purposes and considerations therein expressed.
THUS DONE AND PASSED in the State and Parish aforesaid, on this 6th
day of May, 1997, after due reading of the whole.
WITNESSES:
/s/ Neil J. ??????????? /s/ Edward B. Boettner
- ---------------------------------- -----------------------------------
EDWARD B. BOETTNER
/s/ Rose H. Delaney
- -----------------------------------
/s/ Michael J. ????????
---------------------------------------
NOTARY PUBLIC
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7/30/97
LOAN AGREEMENT
This Agreement dated this ___ day of July, 1997, is by and
between Sonesta Miami Beach Hotel Company, Inc. ("Sonesta") and Skip Properties
N.V. ("Skip Properties").
WHEREAS, Sonesta and Skip are contemporaneously herewith
entering into agreements under which an affiliate of Sonesta shall provide
design and pre-opening services in connection with a hotel and condominium
project being developed by Skip Properties and its affiliates, and Sonesta shall
operate the hotel on its completion; and
WHEREAS, Sonesta has agreed to loan up to $4,150,000 to Skip
Properties in connection with the hotel project, subject to the terms and
provisions set forth herein.
NOW THEREFORE, for consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties agree as follows:
I. Definitions. Capitalized terms used in this Agreement which are defined in
that certain "Management Agreement", of even date, between the parties, shall
have the same meaning in this Agreement unless a contrary meaning is
specifically set forth. In addition, as used herein:
1.1 "Advance" shall mean an advance of the Loan from Sonesta to Skip
Properties under this Agreement.
1.2 "Events of Default" shall have the meaning set forth in Section VI.
1.3 "Interest Rate" shall mean the interest rate agreed to by both
parties which is the "Prime Rate" charged by United States Trust Company,
Boston, Massachusetts (or such other U.S. banking institution as the parties
shall agree upon), plus one (1) percentage point. ("Default Interest Rate" shall
mean the Interest Rate, plus four (4) percentage points.)
1.4 "Loan" shall mean the aggregate principal amount of Four Million
One Hundred Fifty Thousand Dollars ($4,150,000.00) which Sonesta shall, if
requested by
<PAGE>
Skip Properties, advance to Skip Properties as a loan under and subject to the
terms of this Agreement or, where the context may require, the amount thereof
then outstanding.
1.5 "Mortgage(s)" shall mean the mortgage(s) executed by Skip
Properties and delivered to Sonesta to secure Skip Properties' obligations under
the Promissory Note(s), which Mortgage(s) shall be in recordable form and
otherwise contain such terms and be in such form as the parties shall agree.
1.6 "Promissory Note(s)" shall mean the promissory note(s), the form of
which is attached hereto as Exhibit A, which shall be executed by Skip
Properties and delivered to Sonesta pursuant to subsection V (i), below.
II. Loan Advances, Application(s). Sonesta agrees to advance the Loan to (or on
behalf of) Skip Properties as follows:
1. $150,000.00 of the Loan shall be applied to compensate John
Olson for architectural services pertaining to the Hotel, and
to compensate Sonesta International Hotels Corporation
("Sonesta International") for the design services of its Vice
President-Design, Mary Jane Rosa, pertaining to the Hotel and
Condominiums.
2. $1,000,000 of the Loan shall be advanced to cover (i) the
Pre-Opening Fee ($150,000) payable to Sonesta International
under that certain "Development and Pre-Opening Services
Agreement", of even date, between Skip Properties and Sonesta
International, and (ii) $850,000 of Pre-Opening Expenses.
3. $3,000,000 of the Loan shall be advanced to Skip Properties as
described in subsection V (B) below.
III. Security for Commitment to Advance the Loan. If required by Skip
Properties, Sonesta shall evidence its commitment to advance the Loan by
providing to Skip Properties
(i) the written guaranty of Sonesta International;
(ii) a commercial letter of credit in favor of Skip Properties in
the face amount of not more than $3,000,000; or
(iii) such other evidence as the parties shall agree upon.
2
<PAGE>
All costs of providing such evidence shall be borne by Skip Properties, and Skip
Properties agrees to reimburse Sonesta promptly, but in any event within ten
(10) days of invoicing, for any and all costs Sonesta or Sonesta International
incurs in providing such evidence to Skip Properties, including without
limitation all costs and charges regarding the commercial letter of credit.
Skip Properties' ability to draw on any such letter of credit shall be
subject to the conditions set forth in subsections V(B) (x), (y), and (z),
below.
IV. Repayment of Loan. Skip Properties shall repay the Loan as follows: On the
first anniversary of the Commencement Date, and on each anniversary thereof,
Skip Properties shall pay Sonesta one tenth (1/10) of the Loan, together with
all interest accrued to that date at the Interest Rate. Any unpaid and
outstanding portion of the Loan, and any unpaid interest, shall be payable to
Sonesta on the tenth (10th) anniversary of the Commencement Date.
Notwithstanding the foregoing, if the Annual Profit and Loss Statement
(as defined in Section 4.1 of the Management Agreement) for any Calendar Year
(or Fractional Year) indicates that Gross Operating Profit for that year
exceeded $2,633,333--so that Skip Properties was entitled to receive $2,400,000
from the Hotel operation ("Owner's Return" ($1,700,000), plus 75% of Cash
Flow)--fifty percent (50%) of such Gross Operating Profit in excess of
$2,633,333 shall be applied to reduce the Loan in addition to the regular annual
payments provided for in the preceding paragraph.
Any payments Sonesta receives from (or on behalf of) Skip Properties in
repayment of the Loan shall be applied first to costs and expenses due
hereunder, then to outstanding interest, and then to principal.
Sonesta, as Operator, shall be entitled to pay itself amount(s) due and
owing on account of the Loan out of amounts otherwise distributable to Skip
Properties, as Owner, under the Management Agreement.
Notwithstanding any other provision herein to the contrary, unless Skip
Properties shall have paid to Sonesta all accrued interest on those portions of
the Loan described in subsections II 1 and 2, above ("Pre-Opening Interest
Accrual")_, on or before the date Sonesta funds that portion of the Loan
described in subsection
3
<PAGE>
II 3, above, the Pre-Opening Interest Accrual shall be added to the principal of
the loan as of the Commencement Date.
V. Conditions to Advances. Notwithstanding any provision herein to the contrary,
(A) Sonesta shall have no obligation to advance those portions of the Loan
described in subsection II, 1 and 2, above ($150,000 and $1,000,000,
respectively), unless and until the following conditions have been satisfied:
(i) Skip Properties has properly executed and delivered to Sonesta
the Promissory Note(s) in the amount of $1,150,000 and, if
requested by Sonesta, the Mortgage(s) to secure such
Promissory Note(s), which Mortgage(s) shall be subordinate to
institutional construction financing;
(ii) Skip Properties has delivered to Sonesta such evidence of
corporate authorization and enforceability as Sonesta may
reasonably require; and
(iii) the Hotel and Condominium are (a) actively under
construction/renovation, and (b) expected to be completed
within twelve (12) months; and
(B) Sonesta shall have no obligation to advance that portion of the Loan
described in subsection II 3, above, unless and until (x) the Hotel and
Condominium have been fully constructed and the Commencement Date has occurred
under the Management Agreement, (y) all costs and expenses in connection with
creating the Hotel and Condominium have been paid and lien waivers have been
obtained from all contractors, subcontractors, and suppliers, and copies thereof
have been provided to Sonesta, and (z) Skip Properties has executed and
delivered to Sonesta the Promissory Note(s) in the amount of $3,000,000,
Mortgage(s), and the Mortgage(s) when recorded will not be subordinate to any
other mortgage, lien, or other encumbrance intended to secure any obligation of
Skip Properties (or any of its Affiliates) except Mortgage(s) granted to Sonesta
in accordance with this Agreement.
VI. Default/Acceleration. Sonesta shall have no obligation to make any Advances
of the Loan to Skip Properties, and any outstanding portions of the Loan,
together with interest thereon, shall be immediately due and payable to Sonesta
in the event of any of the following ("Events of Default"):
(1) the termination, for any reason, of the Management Agreement;
4
<PAGE>
(2) a default by Skip Properties in performing any of its
obligations under any agreement between Skip Properties (or
any of its Affiliates) and Sonesta (or any of its Affiliates)
which remains outstanding fifteen (15) days after written
notice to Skip Properties (or such longer time as may be
required using all due diligence, but in no event exceeding
thirty (30) days in the aggregate ); or
(3) any circumstance which, in Sonesta's reasonable judgment,
makes it appear likely that Skip Properties will not be able
to repay the Loan as contemplated hereunder, which
circumstance continues fifteen (15) days after written notice
to Skip Properties (or such longer time as may be required
using all due diligence, but in no event exceeding thirty (30)
days in the aggregate).
Upon the occurrence of an Event of Default, interest shall accrue on the Loan at
the Default Interest Rate until the Loan, and all accrued interest, is paid to
Sonesta in full.
VII. Miscellaneous
7.1 Notices. All notices, demands, consents and other communications
which any party is required or may desire to give to or made upon the other
party or parties hereunder shall be in writing and signed by the party giving
same, and shall be delivered personally (upon an officer, general partner or
officer of a general partner of the other party if such party is not an
individual or to such individual as may be noted in the addresses stated below)
to the other party or parties, sent by overnight courier (i.e. Federal Express,
DHL, etc.), or sent by certified or registered mail of the United States Postal
Service return receipt requested, postage prepaid, addressed to the other party
or parties as follows (or to such other address or person as either party or
person entitled to notice may by notice to the other specify):
To Skip Properties:
Skip Properties N.V.
c/o Sasson Management Corp.
10501 N.W. 7th Avenue
Miami, Florida 33150
With copies concurrently delivered to:
Mr. Zakay Sasson
16495 N.E. 32nd Avenue
Eastern Shores, Florida 33180
5
<PAGE>
Mr. Enrique Fefer
16425 Collins Avenue, Apt. 2216
Miami Beach, Florida 33160
Bennett Feldman, Esq.
2655 LeJeune Road, Suite 508
Coral Gables, Florida 33134
To Sonesta Hotels:
Sonesta Hotels of Florida, Inc.
200 Clarendon Street
Boston, Massachusetts 02116
Attention: Office of the Treasurer
With a copy concurrently delivered to:
Burns & Levinson
125 Summer Street
Boston, Massachusetts 02110
Attention: Lawrence M. Levinson, Esq.
Unless otherwise specified, notices shall be deemed given when received, but if
delivery is not accepted, on the earlier of the date delivery is refused or the
third day after the same is deposited with the United States Postal Service.
7.2 Governing Law. This Agreement shall be governed by and construed
according to the laws of the State of Florida.
7.3 Modification. This Agreement may not be changed, waived, discharged
or terminated orally, but only by an instrument or instruments in writing,
signed by all parties hereto.
7.4 Headings. Article and Section headings are inserted for convenience
of reference only, and are in no way to be construed as part hereof or as a
limitation on the scope of the particular provisions to which they refer.
6
<PAGE>
7.5 Promissory Note and Mortgage. The Promissory Note and/or Mortgage
shall contain any of the provisions of this Agreement that either party may
request.
IN WITNESS WHEREOF, the parties have set their hands and seals as of
the date first-above written.
SKIP PROPERTIES N.V.
By its Managing Directors
/s/ Enrique Fefer
Attest:__________________ By: _____________________________
Enrique Fefer
Title: Managing Director
/s/ Zakay Sasson
Attest: _________________ By: _____________________________
Zakay Sasson
Title: Managing Director
SONESTA MIAMI BEACH HOTEL
COMPANY, INC.
/s/ ????????????? /s/ Peter J. Sonnabend
Attest:_________________ By: ______________________________
Assistant Secretary Peter J. Sonnabend
Sonesta International Title: Vice President
Hotels Corporation
7
<PAGE>
EXHIBIT A
MORTGAGE NOTE
$________________ Miami Beach, Florida
As of ______________, 1997
FOR VALUE RECEIVED, the undersigned, SKIP PROPERTIES N.V., a Netherlands
Antilles company ("Maker"), hereby promises to pay to the order of SONESTA MIAMI
BEACH HOTEL COMPANY, INC., a Florida corporation ("Payee"), its successors and
assigns, c/o Sonesta International Hotels Corporation, at 200 Clarendon Street,
Boston, Massachusetts 02116, or at such other place as the holder of this
Mortgage Note (the "Note") may from time to time designate in writing, in lawful
money of the United States of America, the principal sum of ____________________
($__________________), with interest thereon as follows:
1. Subject to the provisions of Paragraph 2 hereof, the unpaid principal
balance of this Note and all accrued and unpaid interest shall bear interest
from the date of funding at the floating rate which is at all times equal to the
announced "prime" or "base lending rate" of United States Trust Company, Boston,
Massachusetts, or its successors (as announced by said bank, the "Prime Rate"),
plus one (1) percentage point. The parties hereto acknowledge that the Prime
Rate is a rate for reference purposes and is not necessarily the most favorable
rate available from such bank. The interest rate hereunder shall change
effective on the same day as any changes in the Prime Rate. Interest shall
compound monthly on the last day of each month. The entire unpaid principal
balance of this Note together with all accrued but unpaid interest thereon and
any unpaid late charges, if not sooner paid, shall be due and payable on the
tenth (10th) anniversary of the "Commencement Date" (as such term is defined in
that certain Management Agreement, dated July __, 1997, by and between Maker, as
"Owner", and Payee, as "Operator" (the "Maturity Date").
2. Principal and interest shall be due and payable in annual installments
(individually, an "Installment Payment") commencing on the first anniversary of
the Commencement Date and on each succeeding anniversary of the Commencement
Date ("Payment Date") as follows: The Installment Payment due on each Payment
Date shall be equal to one tenth (1/10th) of the then outstanding principal
balance of this Note.
3. In addition to the payment(s) due on the Payment Date set forth in
Paragraph 2 hereof, Maker shall also pay to Payee, on the date which is five (5)
business days after Maker's receipt from Payee of an unaudited financial
statement (the "Unaudited Statement") showing the profit or loss of the
operations of the Mortgaged Property (hereinafter defined) for the
calendar year immediately preceding such Payment Date, together with the
calculation of Gross Operating Profit, an amount equal to fifty percent (50%) of
Gross Operating Profit for such calendar year in excess of $2,633,333. Each
payment made by Maker pursuant to the Unaudited Statement shall be subject to
adjustment as follows: (i) if the Annual Profit and Loss Statement for the
Mortgaged Property (issued by Payee to Maker pursuant to Section 4.1 of the
Management Agreement) for the period covered by the Unaudited Statement shall
indicate that Maker has underpaid the Installment Payment, Maker shall pay the
deficiency to Payee within five (5) business days after Maker's receipt of
<PAGE>
the Annual Profit and Loss Statement; and (ii) if, however, such Annual
Profit and Loss Statement shall indicate that Maker has overpaid the Annual
Installment, Payee shall pay the amount of the overpayment to Maker within five
(5) business days after Maker's receipt of the Annual Profit and Loss Statement.
4. This Note may be prepaid in whole or in part at any time and from time
to time without penalty.
5. Any payments Payee receives from or on behalf of Maker on account of
amounts due under this Note shall be applied first to costs and expenses due
hereunder, then to outstanding interest, and then to principal.
6. This Note is secured by a Mortgage and Security Agreement (the
"Mortgage") of even date herewith executed and delivered by Maker to Payee
encumbering certain real estate and property therein described (the "Mortgaged
Property"), located in the city of Miami Beach, Dade County, State of Florida.
7. The entire unpaid principal balance of this Note and all accrued but
unpaid interest thereon shall become immediately due and payable, at the option
of Payee, upon the earliest to occur of any of the following events
("Acceleration Events"):
(a) the occurrence of an Event of Default (as defined in the Mortgage);
(b) the termination of the Management Agreement by the "Owner" or
"Operator" thereunder; or
(c) a sale or conveyance of all or substantially all of the Mortgaged
Property ("Sale"), including, without limitation, a sale of all or any portion
of the Mortgaged Property as a condominium, interval ownership or time sharing
unit or a sale or conveyance of the Mortgaged Property by foreclosure sale or
deed in lieu thereof.
Delay or failure to exercise the foregoing option with respect to any
Acceleration Event shall not constitute a waiver of the right to exercise the
same with respect to that or any subsequent Acceleration Event.
8. Should default in the payment of any Installment Payment due hereunder
continue beyond fifteen (15) days from the due date of such payment, Maker shall
pay a late charge to compensate Payee for the added expense and inconvenience
incurred by Payee and caused by such delay in payment. It is acknowledged by
Maker and Payee that the actual amount necessary to adequately compensate Payee
in such case would be impractical and extremely difficult to calculate. Maker
and Payee therefore agree that the amount of such late charge shall be two
percent (2%) of the amount of such late payment. Upon the occurrence of an
Acceleration Event, and during the continuance thereof, the interest rate
applicable to the entire unpaid principal balance of this Note shall be the
interest rate described in Section 1, above, plus four (4) percentage points.
9. Except as expressly provided for the Mortgage, Maker hereby waives
presentment for payment, demand, protest, notice of protest or dishonor, notice
of acceleration of maturity, and all defenses on the ground of extension of time
for the payment hereof, and agrees to continue and remain bound for the payment
of principal, interest and all
2
<PAGE>
other sums payable hereunder notwithstanding any change or changes by way of
release, surrender, exchange, or substitution of any security for this Note or
by way of any extension or extensions of time for the payment of principal and
interest. The rights and remedies of the holder as provided herein or in the
Mortgage shall be cumulative and concurrent and may be pursued singularly,
successively or together at the sole discretion of the holder, and may be
exercised as often as occasion therefore shall occur.
10. Nothing herein contained, nor any transaction related thereto, shall
be construed or so operate as to require Maker to pay interest at a greater rate
than the maximum allowed by applicable law. Should any interest or other charges
paid or payable by Maker in connection with this Note or any other document
delivered in connection herewith, result in the computation or earning of
interest in excess of the maximum allowed by applicable law, then any and all
such excess shall be and the same is hereby waived by Payee or the then holder
hereof, and any and all such excess paid shall be automatically credited against
and in reduction of the balance due under this Note, and the portion of such
excess which exceeds the balance due under this Note shall be paid by Payee or
the then holder hereof to Maker.
11. All notices and other communications between the parties under this
Note shall be deemed to have been properly given and shall be effective if
delivered in accordance with the provisions of the Mortgage.
12. As used herein, the terms "Maker" and "Payee" shall be deemed to
include their respective successors and assigns, whether by voluntary action of
the parties or by operation of law.
13. If this Note is placed in the hands of an attorney for collection,
Maker hereby agrees to pay the holder hereof in addition to the sums above
stated, all costs of collection, including reasonable attorneys' fees and other
legal costs.
14. Neither this Note nor the method set forth herein for the computation
and payment of interest is intended to create, nor shall be construed as
creating, a partnership, joint venture or any other relationship between Maker
and Payee other than that of the debtor and creditor.
15. This Note shall be governed by and construed in accordance with the
laws of the State of Florida.
IN WITNESS WHEREOF, Maker has executed this Note as of the day and year
first above written.
SKIP PROPERTIES N.V.
By its Managing Directors
/s/ Zakay Sasson
By: ____________________________________
Authorized Signatory: Zakay Sasson
/s/ Enrique Fefer
By: ____________________________________
Authorized Signatory: Enrique Fefer
3
FRONT COVER:
"Laps in the Sky", shot for Sonesta by renowned photographer Frank Herholdt of
London, is one image found in the Company's new award-winning print advertising
campaign. Launched in September 1997, the campaign is themed, "This is what you
came to find", and can be found in the pages of Gourmet, Travel & Leisure, The
New York Times Sunday Magazine and other national lifestyle magazines.
<PAGE>
REPORT TO SHAREHOLDERS
- --------------------------------------------------------------------------------
We are happy to report a good year for Sonesta in 1997 with revenues and
profits increasing substantially over 1996. This is predominantly due to strong
demand for hotel rooms in the United States resulting in higher average room
rates. Most of our overseas properties improved as well.
The Royal Sonesta Hotels in Boston (Cambridge), which Sonesta owns, and in
New Orleans, which Sonesta leases, both had excellent years. The extensive
renovation of 200 rooms at the Boston property is now complete, and other
improvements include new communication systems to meet the needs of our
technologically oriented customers.
The Sonesta Beach Resort Anguilla, which Sonesta purchased in November
1995, had a better year in 1997, but occupancy is not building as quickly as we
would like. We recognize that it will take time to build awareness of the
Resort, and its upscale destination, but we are confident in the long-term
success of this property.
Among our managed properties, Chateau Sonesta Hotel in New Orleans
continues to prosper. With the addition of more function space and a Canal
Street entrance, the Hotel is well positioned. Sonesta Beach Resort, Key
Biscayne also strongly exceeded 1996 results. A number of loans the Company
extended to the owner of the Resort--both in connection with the sale of the
hotel in 1984 and in the aftermath of Hurricane Andrew in 1992--matured at the
end of the year and have not been repaid. Discussions to arrive at an amicable
resolution of this situation are continuing. Sonesta Beach Resort Bermuda also
improved over 1996, while Sonesta Beach Resort & Casino Curacao continues to
struggle financially. Many islands in the Caribbean continue to face major
challenges in attracting tourists and groups, and are being impacted by the
significant increase in cruise ship supply.
In Egypt, Sonesta Hotels, Resorts and Nile Cruises were having their best
year ever, until the tragic incident in Luxor in November 1997 crippled tourism
to the country. Since Sonesta does not have an ownership position in any of the
properties, the financial impact will primarily result in reduced fee income.
The Sonesta St. George Hotel Luxor opened in October 1997 and is a truly
spectacular hotel. The cruise ships continue to provide some of the best
accommodations and service on the Nile and Sonesta Beach Resort Sharm El Sheikh
- --one of the finest resorts in the Middle East--is being significantly expanded.
We anticipate that 30 additional guest rooms and suites, and upgraded facilities
at the Sonesta Hotel Cairo will be completed by the end of 1998, making that
Hotel one of the best in Cairo. At the end of 1997, Sonesta ceased managing the
Sonesta Beach Resort Hurghada and the neighboring Ambassador Club property. The
condition of those properties did not provide a guest experience consistent with
our other properties in Egypt. Sonesta has manage-ment contracts for additional
hotels in Nuweiba and Taba, Egypt and for a hotel in Bahrain, which are all in
various stages of development.
Our licensed properties, the Aruba Sonesta Resorts, continue to do well
and are benefiting from the addition of a large conference center. At the end of
February 1998 we ended our association with the hotel in Santiago, Chile, which
had been operating under a Sonesta license arrangement.
We have signed a management agreement to operate the Sonesta Sasson Beach
Resort Miami Beach, which when completed will be a combination of a fully
renovated hotel and a new suite hotel in a condominium tower. We anticipate this
project will be completed by late 1999 or early 2000.
Other endeavors of Sonesta include the development of its Training By
Design division, which offers management development, team building and skills
training to Sonesta Hotels, and outside companies--both hotel operators and
service companies outside the hospitality industry.
The hotel industry continues to prosper, with significant growth in room
rates and limited building, especially in the full service segment. While major
hotel chains are being acquired or merged, we remain a niche hotel company
providing our guests with a unique, personal experience that reflects the
destination. We are focused on our mission of meeting or exceeding the
expectations of our guests, owners, employees and suppliers. We plan to remain
independent and believe our conservative approach to expansion will result in
financial stability and consistency of product for years to come.
If you would like to know more about Sonesta hotels worldwide, please
consult our Web page at sonesta.com.
We appreciate the support of you, our shareholders, as well as of our many
customers and employees.
/s/ Roger P. Sonnabend
Roger P. Sonnabend
Chairman of the Board and Chief Executive Officer
/s/ Stephanie Sonnabend
Stephanie Sonnabend
President
March 13, 1998
1
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
5-YEAR SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
(In thousands except for per share data)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues ......................................... $68,468 $ 62,590 $ 55,840 $ 53,321 $ 48,592
Operating income ................................. 3,349 1,768 2,659 2,906 1,652
Net interest expense ............................. (1,758) (825) (823) (1,286) (250)
Equity in net loss of hotels ..................... -- (89) (656) (637) --
Gain (loss) on sales of assets ................... 22 213 548 (90) 3,005
Other ............................................ (3) 254 828 72 93
---------- -------- -------- -------- --------
Income before income taxes ....................... 1,610 1,321 2,556 965 4,500
Federal, foreign and state income tax provision
(benefit) ....................................... 677 1,134 (219) 501 1,801
--------- -------- -------- -------- --------
Net income ..................................... $ 933 $ 187 $ 2,775 $ 464 $ 2,699
========= ======== ======== ======== ========
Per share of common stock:
Basic and diluted earnings ....................... $ .44 $ .09 $ 1.33 $ .22 $ 1.30
========= ======== ======== ======== ========
Cash dividends declared .......................... $ .30 $ .30 $ .30 $ .30 $ .30
========= ======== ======== ======== ========
Working capital deficit .......................... $(5,802) $ (5,044) $ (5,834) $ (3,318) $ (1,586)
Net property and equipment ....................... 44,431 41,930 38,362 28,431 30,432
Total assets ..................................... 76,416 68,971 69,240 60,114 59,787
Long-term debt and capitalized lease obligations
including currently payable portion ............. 31,456 24,801 26,293 21,204 20,591
Redeemable preferred stock ....................... 294 294 294 294 294
Common stockholders' equity ...................... 23,450 23,152 23,626 21,520 21,693
Common stockholders' equity per share ............ 11.34 11.19 11.41 10.37 10.45
Total revenues including hotels operated under
management contracts ............................ 173,093 163,765 144,002 132,853 100,872
Common shares outstanding at end of year ......... 2,068 2,068 2,071 2,075 2,075
</TABLE>
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
-----------------------------------
1997 1996
---------------- ----------------
High Low High Low
------- ------ ------ -------
First .......... 10-3/4 9 8-1/2 6-1/2
Second ......... 9-7/8 8-7/8 9 7-3/4
Third .......... 10-3/4 8-7/8 11 8-1/2
Fourth ......... 16 9-3/4 11 9-15/16
The Company's common stock trades on The NASDAQ Stock Market under the symbol
SNSTA. As of March 10, 1998 there were 522 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
Offices.
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
- --------------------------------------------------------------------------------
The Company's consolidated financial statements include the revenues,
expenses, assets and liabilities of the Royal Sonesta Hotel, Boston (Cambridge),
the Sonesta Beach Resort Anguilla, B.W.I., and the Royal Sonesta Hotel, New
Orleans. The Boston (Cambridge) property is owned by the Company, and the New
Orleans hotel is operated under a long-term lease. The Sonesta Beach Resort
Anguilla was purchased by the Company in November 1995, and opened in January
1996. The financial statements also include the revenues and expenses from the
management of properties located in the United States, Caribbean and Middle
East.
Results of Operations
Revenues
TOTAL REVENUES
(in thousands)
-------------------------------------------
NO. OF
ROOMS 1997 1996 1995
------- --------- --------- ---------
Sonesta Beach Resort
Anguilla, BWI 100 $ 4,071 $ 2,717 $ --
Royal Sonesta Hotel
Boston (Cambridge) 400 25,521 22,891 20,969
Royal Sonesta Hotel
New Orleans 500 31,491 30,802 29,318
Management and
service fees 6,884 6,026 5,320
Other revenues 501 154 233
------- ------- -------
Total revenues $68,468 $62,590 $55,840
======= ======= =======
1997 versus 1996: Revenues in 1997 increased by $5,878,000 compared to
1996. The Company's Boston (Cambridge) Hotel had increased revenues in 1997 of
approximately $2,630,000, primarily because of a 13% increase in average room
rate and an 11% increase in food and beverage revenues. The Company's Royal
Sonesta Hotel New Orleans had an increase in revenues of $689,000 in 1997
compared to 1996 due to a 2% increase in average room rate and a 3% increase in
food and beverage revenues. In its first full year of operations, the Company's
Sonesta Beach Resort Anguilla had increased revenues in 1997 of $1,354,000 due
to an 11% increase in occupancy and a 31% increase in average room rate. The
remaining revenue increase of $1,205,000 was primarily from increases in
management and service fee income, in particular from the Company's managed
hotels in New Orleans, Key Biscayne and Sharm El Sheikh, Egypt. In 1998 the
Company expects fee income from its Egyptian properties to decrease, following
the terrorist attack in Luxor in November 1997, and the adverse effect this has
on tourism in Egypt.
1996 versus 1995: Revenues in 1996 increased by $6,750,000 compared to
1995. The Company's Boston (Cambridge) hotel had increased revenues in 1996 of
approximately $1,922,000, primarily because of an 8% increase in average room
rate and a 10% increase in food and beverage revenues. The Company's Royal
Sonesta Hotel New Orleans had an increase in revenues of $1,484,000 in 1996
compared to 1995 due to a 4% increase in average room rate and a slight increase
in occupancy. The Company's Sonesta Beach Resort Anguilla, which opened January
18, 1996, had revenues of $2,717,000. The remaining revenue increase of $627,000
was primarily from increases in management and service fee income, in particular
from the Company's managed hotels in New Orleans, Bermuda, and Sharm El Sheikh,
Egypt.
Operating Income
OPERATING INCOME/(LOSS)
(in thousands)
-----------------------------------------
1997 1996 1995
------------ ------------ -----------
Sonesta Beach Resort
Anguilla, BWI $(1,803) $(2,782) $ --
Royal Sonesta Hotel
Boston (Cambridge) 4,366 3,602 2,518
Royal Sonesta Hotel
New Orleans 1,928 2,281 1,568
------- ------- ------
Operating income from hotels
after management
and service fees 4,491 3,101 4,086
Management activities and other (1,142) (1,333) (1,427)
------- ------- ------
Operating income $ 3,349 $ 1,768 $2,659
======= ======= ======
1997 versus 1996: Operating income in 1997 was $3,349,000, compared to
operating income of $1,768,000 in 1996, an increase of approximately $1,581,000.
The Boston (Cambridge) hotel had an increase in operating income of $764,000,
primarily because of increased revenues of $2,630,000, offset by an increase in
expenses of $1,866,000, primarily in costs and operating expense, depreciation
and real estate tax expense. Operating loss at the Sonesta Beach Resort Anguilla
decreased by $979,000 in 1997 due to an increase in revenues of $1,354,000,
offset by an increase in expenses of $375,000. Operating income at the Royal
Sonesta New Orleans decreased by $353,000 in 1997 due to an increase in expenses
of $1,042,000, primarily in operating expenses and rent expense, offset by an
increase in revenues of $689,000. In 1996, the New Orleans hotel's rent expense
was lower because of higher capital expenditures during that year, which the
Company deducts when calculating percentage rent due. The Company's operating
loss from management activities and other sources decreased by $191,000 because
of increased revenues of $1,205,000, which exceeded the increase in expenses of
$1,014,000 related to these areas.
1996 versus 1995: Operating income in 1996 was $1,768,000, compared to
operating income of $2,659,000 in 1995, a decrease of approximately $891,000.
The Company's Anguilla resort had an operating loss of $2,782,000 in 1996,
caused primarily by disappointing revenues as a result of the negative effects
that Hurricane Luis, which struck the island in September 1995, had on the hotel
business in Anguilla. In addition, because the hotel's facilities were not ready
for opening until January 18, 1996, the resort was unable
3
<PAGE>
- --------------------------------------------------------------------------------
to take full advantage of the 1996 winter season business. The Boston
(Cambridge) hotel had an increase in operating income of $1,084,000, primarily
because of increased revenues of $1,922,000, offset by an increase in expenses
of $838,000, primarily in costs and operating expense. Operating income at the
Royal Sonesta Hotel New Orleans increased by $713,000 in 1996 due to an increase
in revenues of $1,484,000, offsetting an increase in expenses of $771,000, which
increase was primarily in cost and operating and administrative and general
expenses. The Company's operating loss from management activities and other
sources decreased by $94,000 because of increased revenues of $627,000, which
exceeded the increase in expenses of $533,000 related to these activities. The
increase in expenses primarily related to costs for management of the Company's
Egyptian properties, and costs related to development of potential new hotel
properties.
Other Income and Deductions
A gain on sale of $175,000 in 1996 resulted from a reduction of accrued
costs related to a prior year sale of certain assets in Cambridge,
Massachusetts. A gain on sale of $535,000 in 1995 resulted from a settlement,
for amounts less than previously recorded, of liabilities related to the sale by
the Company of the Amsterdam Sonesta Hotel in 1991.
The Company recognized an insurance gain of $817,000 in 1995 as a result
of flooding at the Royal Sonesta Hotel New Orleans. In 1996, the Company
recorded a $200,000 gain from a casualty related to the Sonesta Beach Resort
Anguilla, which it acquired in 1995 (see Note 2--Operations).
Included in equity in net loss of hotels are losses of $706,000 and
$657,000 in 1996 and 1995, respectively, which reflect the Company's 22% share
of the losses of the Sonesta Beach Resort & Casino in Curacao (see Note
3--Investments in Hotels). Included in equity in net loss of hotels in 1996 is
income of $617,000 related to the Company's participation in a joint venture to
construct a hotel in New York City (see Note 2--Operations).
Interest income decreased by $160,000 in 1997 compared to 1996. This was
due to a $550,000 increase in interest recorded in 1996 on the Company's notes
receivable from the owner of Sonesta Beach Resort Key Biscayne. This decrease in
1997 was partially offset by increases in interest income on the Company's cash
balances, and income from loans to the owner of Sonesta Beach Resort Sharm El
Sheikh (see Note 4--Long-Term Receivables and Advances). Interest income in 1996
increased by $317,000 compared to 1995. This was primarily because the Company
recorded interest income in 1996 of $1,100,000 on its receivables related to
Sonesta Beach Resort, Key Biscayne, compared to $550,000 in 1995. The Company
recorded the additional income in 1996 on these receivables because of improved
cash flow of the hotel.
Interest expense in 1997 increased by $774,000 compared to 1996. This was
primarily due to the additional indebtedness following the refinancing of the
mortgage loan on the Royal Sonesta Hotel Boston (Cambridge), and the additional
loan for the Sonesta Beach Resort, Anguilla (see Note 6--Long-Term Debt).
Interest expense in 1996 increased by $319,000 versus 1995, primarily due to
interest on the additional indebtedness related to the purchase of the Sonesta
Beach Resort Anguilla in November 1995.
Federal, State and Foreign Income Taxes
The 1996 provision for income taxes is higher than the statutory rate due
primarily to certain losses in 1996 from the Company's Sonesta Beach Resort
Anguilla, B.W.I., which are not deductible for U.S. income taxes. The 1995 tax
benefit results primarily from a reversal of deferred federal income tax
previously provided on foreign earnings which, during 1995, were permanently
invested outside the United States.
Liquidity and Capital Resources
The Company had cash and cash equivalents of approximately $5,581,000 at
December 31, 1997. The Company has $7,000,000 available under two lines of
credit (see Note 5--Borrowing Arrangements). No amounts were outstanding under
these lines at December 31, 1997.
The Company had a working capital deficit of approximately $5,802,000 at
December 31, 1997. This was primarily caused by accrued percentage rent of
approximately $5,544,000 for the year ending December 31, 1997, related to the
Royal Sonesta Hotel New Orleans, which is operated by the Company under a
long-term lease. This rent is payable in March of the following year, and will
be paid from the Company's available cash balances, and borrowings under its
lines of credit, if needed.
In January 1997 the Company refinanced the mortgage loan on the Royal
Sonesta Hotel Boston (Cambridge). The net proceeds of this refinancing were
approximately $5,357,000, of which $1,040,000 is held in escrow by the lender at
December 31, 1997 for certain improvements to the hotel. These escrow funds are
included in Other long-term assets at December 31, 1997. Of the proceeds of the
refinancing, an amount of $3,861,000 was spent during 1996 and 1997 on
improvements to the hotel.
The Company increased the mortgage loan on the Sonesta Beach Resort
Anguilla by $1,700,000 in March 1997. These funds were used to partially finance
improvements to the resort made during the winter of 1996/97. Principal
repayments of $500,000 originally due on September 1, 1997 and March 1, 1998
under the mortgage loan on Sonesta Anguilla (see Note 6--Long-Term Debt) were
deferred by the lender. To achieve this, the Company agreed to the cancellation
of a $500,000 line of credit it had with the same lender.
4
<PAGE>
- --------------------------------------------------------------------------------
The Company is committed to loan an additional amount of $500,000 to the
owner of the Sonesta Beach Resort, Sharm El Sheikh, Egypt, once certain
improvements to the resort are completed (see Note 4 (d)-- Long-Term Receivables
and Advances).
The Company entered into agreements to operate a hotel in Miami Beach,
Florida. The Company is committed to loan up to $4,150,000 to the hotel, once
the hotel is substantially ready for opening, which is expected to be in late
1999 or 2000.
Company management believes that its present cash balances plus its
available borrowing capacity are more than adequate to meet its cash
requirements for 1998 and beyond.
Year 2000 Disclosure
During 1997, the Company committed to address issues related to required
changes in computer systems for the year 2000. Issues arise because certain
computer systems and related software currently in use may have been designed to
recognize only dates that relate to the twentieth century. Accordingly, if no
changes are implemented, the computer systems would interpret "1/1/00" as
January 1, 1900 instead of January 1, 2000. Additionally, some equipment, such
as alarm and building environmental systems, telephone systems, and fax
machines, being controlled by microprocessor chips, may not deal appropriately
with a year "00".
The Company expects that by December 31, 1998, all year 2000 issues will
have been addressed, either by programming changes implemented by third party
vendors to purchased systems, or through the upgrading or purchase of year
2000-compliant hardware and equipment. Extensive testing is expected in 1998 and
1999. Management believes there is no material risk that the Company will fail
to address year 2000 issues in a timely manner. The Company expects that costs
related to the year 2000 issue will not be material, and that most issues will
be dealt with by in-house information systems staff.
Selected Quarterly Financial Data
Selected quarterly financial information for the years ended December 31,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(in thousands except for per share data)
1997
--------------------------------------------------
<S> <C> <C> <C> <C>
1st 2nd 3rd 4th
---- --- --- ---
Revenues $16,947 $ 18,629 $ 15,294 $ 17,598
Operating income 41 2,026 787 495
Net income (loss) (359) 969 215 108
Net income (loss) per share of common stock $ (0.17) $ 0.47 $ 0.10 $ 0.04
1996
--------------------------------------------------
1st 2nd 3rd 4th
--------- -------- -------- --------
Revenues $14,182 $ 16,754 $ 14,846 $ 16,808
Operating income (loss) (543) 1,562 294 455
Net income (loss) (630) 733 (14) 98
Net income (loss) per share of common stock $ (0.30) $ 0.36 $ (0.01) $ 0.04
</TABLE>
5
<PAGE>
[logo] ERNST & YOUNG LLP [bullet] 60 State Street [bullet] Phone: 617 570 8400
Boston Fax: 617 367 9133
Massachusetts 02109
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Sonesta International Hotels Corporation
We have audited the accompanying consolidated balance sheets of Sonesta
International Hotels Corporation as of December 31, 1997 and 1996 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Sonesta
International Hotels Corporation at December 31, 1997 and 1996 and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
March 13, 1998
6
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the three years ended December 31, 1997
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Rooms ............................................................. $ 39,864,616 $ 36,275,739 $ 32,551,516
Food and beverage ................................................. 16,423,045 15,165,619 13,424,233
Management, license and service fees .............................. 6,884,440 6,026,487 5,319,995
Parking, telephone and other ...................................... 5,295,948 5,122,609 4,543,974
------------ ------------ ------------
68,468,049 62,590,454 55,839,718
------------ ------------ ------------
Costs and expenses:
Costs and operating expenses ...................................... 28,035,454 26,359,988 23,008,941
Advertising and promotion ......................................... 5,520,283 5,420,235 4,575,267
Administrative and general ........................................ 12,653,368 11,893,456 9,655,961
Human resources ................................................... 1,607,143 1,480,969 1,184,021
Maintenance ....................................................... 5,016,595 4,662,437 4,138,701
Rentals ........................................................... 6,499,015 5,882,124 6,108,269
Property taxes .................................................... 1,184,700 951,416 1,091,705
Depreciation and amortization ..................................... 4,602,317 4,171,714 3,418,006
------------ ------------ ------------
65,118,875 60,822,339 53,180,871
------------ ------------ ------------
Operating income ................................................... 3,349,174 1,768,115 2,658,847
------------ ------------ ------------
Other income (deductions):
Interest expense .................................................. (2,861,590) (2,087,458) (1,768,974)
Interest income ................................................... 1,102,980 1,262,974 946,046
Equity in net loss of hotels ...................................... -- (89,068) (656,625)
Foreign exchange gain (loss) ...................................... (2,815) 163 11,321
Gain on sales of assets ........................................... 22,471 212,552 548,159
Gain from casualty ................................................ -- 254,082 817,246
------------ ------------ ------------
(1,738,954) (446,755) (102,827)
------------ ------------ ------------
Income before income taxes ......................................... 1,610,220 1,321,360 2,556,020
Federal, foreign and state income tax provision (benefit) ......... 677,620 1,133,916 (219,025)
------------ ------------ ------------
Net income ......................................................... $ 932,600 $ 187,444 $ 2,775,045
============ ============ ============
Basic earnings per share of common stock ........................... $ .44 $ .09 $ 1.33
=== === ====
Dividends paid per common share .................................... $ .30 $ .30 $ .30
Dividends paid per preferred share ................................. $ 1.25 $ 1.25 $ 1.25
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 5,581,055 $ 3,691,741
Accounts and notes receivable:
Trade, less allowance of $117,658 ($107,974 in 1996) for doubtful accounts 6,549,190 6,048,479
Interest receivable ....................................................... 399,669 140,263
Other ..................................................................... 1,268,314 820,893
----------- -----------
Total accounts and notes receivable ..................................... 8,217,173 7,009,635
Current portion of deferred taxes .......................................... 351,110 317,460
Inventories ................................................................ 792,570 851,460
Prepaid expenses ........................................................... 770,818 1,007,434
----------- -----------
Total current assets ................................................ 15,712,726 12,877,730
Long-term receivables and advances .......................................... 14,296,215 13,566,998
Investments in hotels ....................................................... -- 563,120
Property and equipment, at cost:
Land and land improvements ................................................. 3,010,132 2,877,358
Buildings .................................................................. 40,272,336 37,792,040
Furniture and equipment .................................................... 19,879,381 17,318,550
Leasehold improvements ..................................................... 2,910,894 3,139,807
Projects in progress ....................................................... 1,435,372 2,036,495
----------- -----------
67,508,115 63,164,250
Less accumulated depreciation and amortization ............................. 23,077,348 21,234,324
----------- -----------
Net property and equipment .............................................. 44,430,767 41,929,926
Other long-term assets ...................................................... 1,976,678 32,977
----------- -----------
$76,416,386 $68,970,751
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capitalized lease obligations ..... $ 3,729,585 $ 1,005,123
Accounts payable ........................................................ 4,961,162 5,483,893
Advance deposits ........................................................ 2,088,586 2,323,505
Federal, foreign and state income taxes ................................. 582,582 706,241
Accrued liabilities:
Salaries and wages ..................................................... 1,808,283 1,775,000
Rentals ................................................................ 5,549,167 5,030,767
Interest ............................................................... 215,006 23,389
Employee benefits ...................................................... 1,408,491 566,973
Other .................................................................. 1,172,343 1,006,608
------------ ------------
10,153,290 8,402,737
------------ ------------
Total current liabilities ...................................... 21,515,205 17,921,499
Long-term debt ........................................................... 27,726,510 23,795,462
Deferred federal and state income taxes .................................. 2,494,352 2,282,002
Other non-current liabilities ............................................ 936,446 1,525,511
Commitments and contingencies
Redeemable preferred stock, $25 par value, at redemption value ........... 293,917 293,917
Common stockholders' equity:
Common stock:
Class A, $.80 par value:
Authorized--10,000,000 shares
Issued--3,051,088 shares at stated value ............................... 3,488,382 3,488,382
Retained earnings ....................................................... 28,087,133 27,789,537
Treasury shares--982,873 at cost ........................................ (8,125,559) (8,125,559)
------------ ------------
Total common stockholders' equity ..................................... 23,449,956 23,152,360
------------ ------------
$ 76,416,386 $ 68,970,751
============ ============
</TABLE>
9
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
For the three years ended December 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK TREASURY SHARES
------------------------- ------------------------------
No. of No. of
shares Amount shares Amount
----------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Balance January 1,
1995 ...................... 3,051,088 $3,488,382 (975,807) $(8,063,557)
Purchase of 4,044
shares .................... -- -- (4,044) (33,797)
Cash dividends on
common stock
($.30 per share) .......... -- -- -- --
Cash dividends on
preferred stock
($1.25 per share) ......... -- -- -- --
Net income ................. -- -- -- --
--------- ---------- -------- -----------
Balance December 31,
1995 ...................... 3,051,088 3,488,382 (979,851) (8,097,354)
Purchase of 3,022
shares .................... -- -- (3,022) (28,205)
Cash dividends on
common stock
($.30 per share) .......... -- -- -- --
Cash dividends on
preferred stock
($1.25 per share) ......... -- -- -- --
Net income ................. -- -- -- --
--------- ---------- -------- -----------
Balance December 31,
1996 ...................... 3,051,088 3,488,382 (982,873) (8,125,559)
Cash dividends on
common stock
($.30 per share) .......... -- -- -- --
Cash dividends on
preferred stock
($1.25 per share) ......... -- -- -- --
Net income ................. -- -- -- --
--------- ---------- -------- -----------
Balance December 31,
1997 ...................... 3,051,088 $3,488,382 (982,873) $(8,125,559)
========= ========== ======== ===========
<CAPTION>
TOTAL
-------------- ------------------------------
Retained No. of shares Stockholders'
earnings outstanding equity
-------------- --------------- --------------
<S> <C> <C> <C>
Balance January 1,
1995 ...................... $26,095,476 2,075,281 $21,520,301
Purchase of 4,044
shares .................... -- (4,044) (33,797)
Cash dividends on
common stock
($.30 per share) .......... (621,978) -- (621,978)
Cash dividends on
preferred stock
($1.25 per share) ......... (13,371) -- (13,371)
Net income ................. 2,775,045 -- 2,775,045
----------- --------- -----------
Balance December 31,
1995 ...................... 28,235,172 2,071,237 23,626,200
Purchase of 3,022
shares .................... -- (3,022) (28,205)
Cash dividends on
common stock
($.30 per share) .......... (619,715) -- (619,715)
Cash dividends on
preferred stock
($1.25 per share) ......... (13,364) -- (13,364)
Net income ................. 187,444 -- 187,444
----------- --------- -----------
Balance December 31,
1996 ...................... 27,789,537 2,068,215 23,152,360
Cash dividends on
common stock
($.30 per share) .......... (621,664) -- (621,664)
Cash dividends on
preferred stock
($1.25 per share) ......... (13,340) -- (13,340)
Net income ................. 932,600 -- 932,600
----------- --------- -----------
Balance December 31,
1997 ...................... $28,087,133 2,068,215 $23,449,956
=========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
For the three years ended December 31, 1997
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash provided (used) by operating activities
Net income ................................................... $ 932,600 $ 187,444 $ 2,775,045
Items not (providing) requiring cash
Pension expense ............................................. 338,667 210,164 201,464
Depreciation and amortization ............................... 4,602,317 4,171,714 3,418,006
Amortization of loan costs .................................. 81,315 -- --
Deferred federal and state income taxes ..................... 178,700 (16,215) (1,663,589)
Gain from casualty .......................................... -- (254,082) (817,246)
Gain on sales of assets ..................................... (22,471) (212,552) (548,159)
Other ....................................................... (188,674) -- (3,377)
Equity in net loss of hotels ................................ -- 89,068 656,625
Changes in assets and liabilities
Accounts and notes receivable ............................... (428,035) (1,249,954) (270,385)
Refundable income taxes ..................................... -- -- 958,737
Inventories ................................................. 58,890 (195,414) (2,464)
Prepaid expenses ............................................ 279,703 (544,628) (137,965)
Accounts payable ............................................ (523,331) 1,426,406 (115,248)
Advance deposits ............................................ (234,919) 1,002,367 90,476
Federal, foreign and state income taxes ..................... (123,659) 295,539 120,475
Accrued liabilities ......................................... 873,601 (450,217) 2,867,403
------------- ------------ ------------
Cash provided by operating activities ...................... 5,824,704 4,459,640 7,529,798
Cash provided (used) by investing activities
Proceeds from sales of assets ............................... 34,400 64,822 26,630
Proceeds from casualty insurance ............................ -- 54,082 867,119
Expenditures for property and equipment ..................... (7,115,089) (7,755,680) (6,421,400)
Cash in escrow .............................................. (1,880,000) -- --
Cash reimbursed from escrow ................................. 840,000 -- --
Investments in hotels ....................................... -- (102,434) (1,349,986)
Proceeds from sale of investment in hotel ................... -- 5,791,631 --
New loans and advances ...................................... (2,403,293) (727,220) (75,000)
Payments received on long-term receivables and advances ..... 852,716 1,004,073 1,132,123
------------- ------------ ------------
Cash used by investing activities .......................... (9,671,266) (1,670,726) (5,820,514)
Cash provided (used) by financing activities
Changes in notes payable .................................... -- (562,060) (437,940)
Proceeds from issuance of long-term debt .................... 24,580,000 -- --
Cost of financing ........................................... (423,125) -- --
Payments on long-term debt .................................. (17,732,247) (1,168,111) (801,332)
Payments on capitalized lease obligations ................... (54,348) (73,930) (99,443)
Purchase of common and preferred stock ...................... -- (28,455) (33,797)
Cash dividends paid ......................................... (634,404) (634,132) (635,955)
------------- ------------ ------------
Cash provided (used) by financing activities ............... 5,735,876 (2,466,688) (2,008,467)
Net increase (decrease) in cash ............................... 1,889,314 322,226 (299,183)
Cash and cash equivalents at beginning of year ................ 3,691,741 3,369,515 3,668,698
------------- ------------ ------------
Cash and cash equivalents at end of year ...................... $ 5,581,055 $ 3,691,741 $ 3,369,515
============= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Basis of Presentation and Significant Accounting Policies
Basis of Presentation:
Sonesta International Hotels Corporation (the Company) is engaged in the
operation of hotels in Boston (Cambridge), Massachusetts, New Orleans, Louisiana
and Anguilla, British West Indies. The Anguilla hotel was purchased in November
1995, and opened in January 1996. The Company also operates, under management
agreements, hotels in Bermuda; Curacao, Netherlands Antilles; Key Biscayne,
Florida; New Orleans, Louisiana; and in Cairo, Sharm el Sheikh, Luxor, El Gouna
and Port Said, Egypt. The Company also manages two Nile River cruise ships in
Egypt. Sonesta has granted licenses, for which it receives fees, for the use of
its name for two hotels on the island of Aruba and, until February 28, 1998, a
hotel in Santiago, Chile.
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Operations:
The consolidated financial statements include the results of operations of
wholly owned and leased properties and fee income from managed and licensed
properties. The equity method of accounting is used for the Company's
investments in certain hotels. Under the equity method, original investments are
recorded at cost and adjusted by the Company's share of undistributed earnings
or losses of these hotels.
Foreign Currency Translation:
Assets and liabilities denominated in foreign currency are translated at
end of year rates, and income and expense items are translated at weighted
average rates during the period. The net result of such translation is charged
or credited to the income statement.
Inventories:
Merchandise and supplies are stated at the lower of cost (first-in,
first-out method) or market.
Revenues:
Revenues are generally recognized as services are provided.
Advertising:
The cost of advertising is generally expensed as incurred.
Property and Equipment:
Depreciation and amortization of items of property and equipment are
computed generally on the straight-line method based on the following estimated
useful lives:
Land and land improvements:
Owned properties 50 years
Leases Term of leases
Buildings:
Owned properties 20 to 40 years
Capital leases Initial lease periods
Furniture and equipment:
Located in owned properties 5 to 10 years
Located in leased properties 5 to 10 years or remaining
lease terms, including
option terms
Leasehold improvements Remaining lease terms,
including option terms
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of:
The carrying values of long-lived assets, which include property and
equipment and all intangibles, are evaluated periodically in relation to the
operating performance and future undiscounted cash flows of the underlying
assets. Adjustments are made if the sum of expected future net cash flows is
less than book value if impairment indicators are present.
Income Taxes:
The Company and its United States subsidiaries file a consolidated federal
income tax return. Where appropriate, federal and foreign income taxes are
provided on earnings of foreign subsidiaries that are intended to be remitted to
the parent company.
Fair Value of Financial Instruments:
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable and long-term debt. The Company's
financial instruments also include certain guarantees of indebtedness (see Note
8--Commitments and Contingencies). The Company believes that the carrying value
of the financial instruments approximates their fair values. The Company has
made this determination for its long-term debt due to the fact that a
significant portion of the debt was refinanced in 1997, and the majority of the
remaining debt has a variable interest rate that fluctuates with the LIBOR rate.
With respect to long-term receivables and advances, which consist principally of
amounts relating to Sonesta Beach Resort Key Biscayne, management has concluded
that it is not practicable to estimate the fair value of these instruments due
to the uncertainty of the amounts and timing of future cash flows. Management
believes that the aggregate fair value exceeds the carrying value of these
receivables. Detailed information concerning these receivables is included in
Note 4--Long-Term Receivables and Advances.
Impact of Recently Issued Accounting Standards:
In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings Per Share" ("Statement 128"). Statement 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. Earnings per share amounts
for all periods have been presented to conform with Statement 128 requirements
(see Note 7--Stockholders' Equity).
12
<PAGE>
- --------------------------------------------------------------------------------
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("Statement 130"). Statement 130
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general
purpose financial statements. Statement 130 requests that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. It does not require a
specific format for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for the period in that
financial statement. This statement is effective for fiscal years beginning
after December 15, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. This statement will have
no impact on the financial condition or results of operations of the Company,
but may require certain changes in the Company's disclosure requirements.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related Information"
("Statement 131"). Statement 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. Statement 131 also establishes standards for related disclosures
about products and services, geographic areas, and major customers. This
statement is effective for fiscal years beginning after December 15, 1997. In
the initial year of application, comparative information for earlier years is to
be restated. This statement will have no impact on the financial condition or
results of operations of the Company, but may require changes in the Company's
disclosure requirements.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassification:
Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform to the 1997 presentation.
Statement of Cash Flows:
Cash and cash equivalents consists of cash on hand and short-term, highly
liquid investments with maturities of less than 91 days when acquired, which are
readily convertible into cash.
Cash paid for interest in 1997, 1996, and 1995 was approximately
$2,670,000, $2,237,000 and $1,739,000, respectively. Cash paid for income taxes
in 1997, 1996, and 1995 was approximately $623,000, $816,000 and $365,000,
respectively.
As discussed in Note 2, the Company assumed $6,490,000 of indebtedness in
connection with the acquisition of a hotel property in Anguilla, B.W.I. in
November 1995.
2. Operations
The Sonesta St. George Hotel Luxor, Egypt, opened in October 1997. The 220
room full-service hotel is operated by the Company under a long-term management
agreement, under which it will receive management fees based on revenues, and
incentive fees based on operating profits, as defined in the agreement. The
Company has loaned $250,000 to the owner of the hotel for working capital.
During the first quarter of 1997, the Company loaned $1,000,000 to the
owner of the Sonesta Hotel Cairo, Egypt, to partially finance improvements to
the hotel which include additional rooms. The owner of the hotel also agreed to
extend the management agreement until May 2012. The original agreement was to
expire in 2002, and the owner had the right to convert the agreement to a
license agreement as of 1997, which would have substantially reduced the
Company's management fee income.
In December 1994, Company subsidiaries entered into a partnership through
which it acquired a 50% interest in a building in New York City, with the intent
to develop a hotel. In October 1995, the Company notified its partner of its
intention not to proceed with the development. The partnership sold its interest
in the building in July 1996, and the Company received a payment of $5,792,000,
which consisted of its cash investment in the partnership of $5,175,000, and
distribution of income of $617,000. This income is included in Equity in net
loss of hotels in the consolidated statement of operations for the year ended
December 31, 1996.
On November 28, 1995, a wholly-owned subsidiary of the Company purchased
the Casablanca Resort in Anguilla, British West Indies. The 100-room resort
suffered extensive damage from Hurricane Luis in September 1995, and the Seller
remained obligated following the sale to restore all damage done to the
property. The hotel reopened as the Sonesta Beach Resort Anguilla in January
1996. The purchase price for the assets and personal property was approximately
$10,050,000, including transfer taxes and expenses of $450,000, and an estimate
of $400,000 for credits the Company is entitled to for certain expenses related
to the hotel property and operations until March 1, 1996. The resort is situated
on 49 acres of land leased from the Government of Anguilla; there are 93 years
remaining in the lease term. The purchase was financed in part by the assumption
of an existing mortgage loan of $4,990,000 (see Note 6--Long-Term Debt). The
Seller provided
13
<PAGE>
- --------------------------------------------------------------------------------
$1,500,000 in loans, of which $1,000,000 is payable in November 1998 (see Note
6--Long-Term Debt), and $500,000 was paid in March 1996. The remaining portion
of the purchase price, approximately $3,560,000, was paid in cash. The actual
amount for credits for expenses from the Seller mentioned above was $468,000,
and is included in Accounts receivable--other at December 31,1997. In March
1996, the Company received an assignment of certain expected insurance proceeds
from the Seller to satisfy this receivable. In the event such insurance proceeds
prove insufficient to pay this receivable, the Company has the right to deduct
any remaining amount from the Seller's loan which is due in November 1998 (see
Note 6--Long-Term Debt). As part of the purchase of the resort, the Company also
acquired the rights to the insurance claim for business interruption proceeds as
of March 1, 1996. The insurance carrier has not recognized the claim that has
been submitted by the Company. Included in Gain from casualty at December 31,
1996 is income of $200,000 which the Company is entitled to under the Purchase
and Sale Agreement in the event there is no recovery on its insurance claim. As
permitted by the agreements with the Seller, the Company has reduced the
$1,000,000 loan from the Seller by this amount (see Note 6--Long-Term Debt). The
Company is contesting the rejection of the claim by the insurance company. No
other amounts which may be recoverable have been reflected in the Financial
Statements. In 1996 the Company entered into a 50-year lease agreement for two
acres of beachfront land adjacent to the resort. The Company paid $435,000 for
the right to use this land, which amount is included in Land and land
improvements, and is being amortized over the lease term.
The Sonesta Beach Resort in Key Biscayne, Florida is operated by the
Company under a long-term management agreement. The hotel suffered extensive
damage from Hurricane Andrew in August 1992. After repairs were completed, the
hotel reopened in October 1993. During 1993 and 1994, the Company loaned
approximately $5,475,000 to the owner of the resort (see Note 4--Long-Term
Receivables). Of these loans, a total of approximately $2,791,000 was spent on
building improvements and certain furniture, fixtures and equipment for the
hotel. The balance of $2,684,000 enabled the owner to meet all of its
obligations related to the hotel, including the cost of reconstruction and
reopening . In addition to the above loans, the Company has outstanding notes
receivable from the owner of the hotel related to the sale of the property by
the Company in 1984 (see also Note 4--Long-Term Receivables). At December 31,
1997, the Company's receivable from the Key Biscayne property aggregated
$11,560,000. Included in these receivables is a second mortgage loan of
$7,306,000, which was due on December 31, 1997, but was not paid. The hotel's
owner and the Company have been in amicable discussions regarding the transfer
of ownership of the hotel to an entity controlled by the Company in exchange for
a release of the owner's obligations to the Company. In case these negotiations
are not successful, the Company retains the right to foreclose on its second
mortgage.
In December 1994, Company subsidiaries entered into agreements to acquire
a 50% interest in a partnership to develop a 320-room beach resort and casino in
Guanacaste, Costa Rica. The Company has advanced $563,000, to acquire the hotel
site and for other project-related expenses. As permitted under the partnership
agreements, in March 1997 the Company notified its partner that it did not
intend to proceed with the project. The Company has foreclosed on a mortgage it
held on the hotel site as security for its advances. The land it acquired as a
result of the foreclosure is included in Other long-term assets at a value of
$450,000, pending the expected sale of the property. The remaining portion of
the receivable is included in Long-term receivables and advances.
In April 1995 the Company opened the Chateau Sonesta Hotel in New Orleans,
Louisiana. The 243-room full-service hotel is located adjacent to the French
Quarter. The Company operates this hotel under a long-term management agreement,
and receives management and marketing fees based on revenues, and incentive fees
based on cash flow.
In May 1995, heavy rains in New Orleans caused damage to the Royal Sonesta
Hotel, which is operated by the Company under a long-term lease. The Company
received net insurance proceeds of $867,000. The assets and personal property
damaged by this casualty were substantially depreciated, and accordingly the
Company recorded a gain on casualty in 1995 of $817,000, which included $180,000
for recovery of lost income.
A gain on sale of assets of $175,000 in 1996 resulted from a reduction of
accrued costs related to a prior year sale of certain assets in Cambridge,
Massachusetts. In the first quarter of 1995, the Company recognized a gain on
sale of assets of $535,000. This was the result of a settlement, for amounts
less than previously recorded, of liabilities related to the sale of the
Company's Amsterdam Sonesta Hotel in 1991. In 1994, the Company settled a
dispute related to foreign taxes on the same transaction, which resulted in
refundable federal income taxes of $959,000. The Company received payment for
this in March 1995, together with interest.
Gross revenues for hotels operated by the Company under management
contracts, by geographic area, are summarized below:
(in thousands)
(unaudited)
------------------------------------
1997 1996 1995
---------- ---------- ----------
United States $ 35,970 $ 33,284 $27,850
Caribbean 43,554 42,925 39,266
Egypt 31,985 30,992 26,366
-------- -------- -------
$111,509 $107,201 $93,482
======== ======== =======
14
<PAGE>
- --------------------------------------------------------------------------------
Costs and operating expenses for owned and leased hotels are summarized
below:
(in thousands)
---------------------------------
1997 1996 1995
--------- --------- ---------
Direct departmental costs:
Rooms $ 9,691 $ 8,928 $ 8,077
Food and beverage 13,244 12,332 10,651
Heat, light and power 2,392 2,315 1,692
Other 2,708 2,785 2,589
------- ------- -------
$28,035 $26,360 $23,009
======= ======= =======
Direct departmental costs include payroll expense and related payroll
burden, the cost of food and beverage consumed and other departmental costs.
Segment data by geographic area of the Company's revenues, operating
income and identifiable assets follows:
(in thousands)
Revenues
-----------------------------------
1997 1996 1995
---------- ---------- ---------
United States $60,615 $56,597 $53,129
Other 7,853 5,993 2,711
------- -------- -------
Consolidated $68,468 $62,590 $55,840
======= ======== =======
Operating Income
-----------------------------------
1997 1996 1995
-------- -------- -------
United States $ 3,571 $ 3,452 $ 2,089
Other (222) (1,684) 570
-------- -------- -------
Consolidated $ 3,349 $ 1,768 $ 2,659
======== ======== =======
Identifiable Assets
-----------------------------------
1997 1996 1995
-------- -------- -------
United States $54,185 $50,501 $53,109
Caribbean 15,554 14,303 11,631
Other 725 619 1,130
Corporate 5,952 3,548 3,370
-------- -------- -------
Consolidated $76,416 $68,971 $69,240
======== ======== =======
3. Investments in Hotels
Included in the consolidated balance sheets of the Company are the
following investments, at equity:
(in thousands)
------------------------------
December 31, December 31,
1997 1996
-------------- -------------
Guanacaste hotel project,
Costa Rica $ -- $563
Sonesta Beach Resort & Casino,
Curacao, N.A. -- --
---- ----
$ -- $563
==== ====
In December 1994, Company subsidiaries entered into agreements to acquire
a 50% interest in a partnership to develop a 320-room beach resort and casino in
Guanacaste, Costa Rica. The Company advanced $563,000 to the project. As
permitted under the partnership agreements, in March 1997 the Company notified
its partner that it did not intend to proceed with the project (see Note
2--Operations).
In May 1994 the Company acquired a 22% equity interest in the Sonesta
Beach Resort & Casino, Curacao for a payment of $2,000,000. Included in the
Company's statements of operations for 1996 and 1995 is equity in net loss of
$706,090 and $656,625, respectively, which represents the Company's share of the
losses for these years. The Company is not required to fund its share of the
losses in excess of its $2,000,000 investment, so losses have only been recorded
up to an amount which brought the recorded investment to zero. The following
tables present summarized financial information of the hotel for 1997, 1996 and
1995:
(in thousands)
-------------------------------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
Statements of 1997 1996 1995
Operations -------------- -------------- -------------
Revenues $17,224 $17,552 $18,563
Costs and expenses 21,737 21,623 21,772
------- ------- -------
Net loss $ 4,513 $ 4,071 $ 3,209
======= ======= =======
(in thousands)
-------------------------------------------
December 31, December 31, December 31,
1997 1996 1995
Balance Sheets -------------- -------------- -------------
Current assets $ 2,467 $ 3,394 $ 3,200
Non-current assets 32,737 35,957 39,041
--------- -------- --------
$ 35,204 $ 39,351 $ 42,241
========= ======== ========
Current liabilities $ 5,451 $ 13,615 $ 6,146
Long-term liabilities 43,682 35,152 41,440
Shareholders capital
deficiency (13,929) (9,416) (5,345)
--------- -------- --------
$ 35,204 $ 39,351 $ 42,241
========= ======== ========
Included in the hotel's costs and expenses is depreciation expense of
approximately $3,716,000, $3,700,000, and $3,578,000 for 1997, 1996 and 1995,
respectively.
4. Long-Term Receivables and Advances
(in thousands)
------------------------------
December 31, December 31,
1997 1996
-------------- -------------
The Sonesta Beach Resort,
Key Biscayne, Florida:
Second mortgage receivable,
14-1/2% interest (of which
11% is payable quarterly and
3-1/2% deferred until
maturity)
due 12/31/97 (a) $ 5,000 $ 5,000
Deferred interest receivable (a) 2,306 2,306
$6,500,000 fourth mortgage
receivable, 10% simple
interest due 12/31/04, net of
$5,500,000 reserve (a) 1,000 1,000
Loans to owner (b) 3,254 4,007
------- -------
Total Key Biscayne receivables 11,560 12,313
Sharm El Sheikh (c) -- 10
Sharm El Sheikh (d) 1,000 500
Cairo, Egypt, net of discount (e) 851 --
Other 1,268 781
------- -------
Total long-term receivables 14,679 13,604
Less: current portion 383 37
------- -------
Net long-term receivables $14,296 $13,567
======= =======
15
<PAGE>
- --------------------------------------------------------------------------------
(a) The Company's mortgage notes receivable are subordinate to a first mortgage
of $22,431,000 at December 31, 1997. The maturity date of the first mortgage
loan is October 1, 2000. The Company has not recorded as income the deferred
portion of interest on the second mortgage since July 1, 1992. The Company's
total receivable recorded at December 31, 1997 from Sonesta Beach Resort Key
Biscayne was $11,560,000 (see also (b) below). Of these receivables, an
amount of $7,306,000 was due on December 31, 1997 (see Note 2--Operations).
The Company believes that the value of the hotel exceeds the amount of the
first mortgage and the Company's total receivable recorded at December 31,
1997. Management bases this belief on its evaluation of sales of comparable
hotel properties in the recent past, and the cash flow generated by the
resort.
(b) Under five separate agreements, a subsidiary of the Company loaned
$5,475,000 to the resort's owner during 1993 and 1994. These loans earn
interest at rates ranging from the prime rate (81/2% at December 31, 1997)
to 141/2%. Of these loans, an amount of $2,684,000, and interest thereon, is
secured by second and third mortgages on the hotel property. Principal and
interest are payable out of hotel cash flow remaining after payment of first
and second mortgage loan interest, and a payment to the resort's owner equal
to 3/4 of 1% of revenues of the resort. These loans are also subject of the
negotiations between the Company and the hotel's owner (see Note
2--Operations).
(c) A subsidiary of the Company loaned $800,000 to the owner of the Sonesta
Beach Resort, Sharm El Sheikh which opened in May 1994. The principal
balance of this loan has been repaid in full.
(d) The Company has agreed to loan $1,500,000 to the owner of the Sonesta Beach
Resort, Sharm El Sheikh, to finance certain improvements to the resort,
including construction of 160 additional guestrooms, conference and other
hotel facilities. The loan bears interest at the prime rate (81/2% at
December 31, 1997) with repayment in eight annual installments of $187,500,
together with interest, commencing January 1, 1998. At December 31, 1997,
the Company has advanced $1,000,000, and the remaining $500,000 will be
advanced once the improvements are substantially completed.
(e) This loan, made in February 1997 to the owner of the Sonesta Hotel Cairo,
will be repaid with two payments of $330,000 each on March 1, 1998 and 1999,
and a final payment of $340,000 on March 1, 2000. There is no interest due
during the term of the loan (see also Note 2--Operations).
In connection with its Key Biscayne notes receivable, the Company recorded
interest income of $550,000, $1,100,000 and $550,000 in 1997, 1996 and 1995,
respectively. Cash payments received were $1,303,000, $1,565,000, and
$1,003,000, respectively.
5. Borrowing Arrangements
The Company has a $2,000,000 line of credit which expires on September 30,
1998. This line of credit bears interest at the prime rate (81/2% at December
31, 1997). The terms of the line require a certain minimum net worth, a minimum
amount of unrestricted cash or available credit lines during part of each
calendar year, and approval for additional borrowings by the Company. No amount
was outstanding under this line at December 31, 1997.
A subsidiary of the Company has a $5,000,000 line of credit which expires
on December 31, 2000. The terms of the loan require certain minimum levels of
earnings and net worth, limit cash dividends and purchases of the Company's
stock, and specify a maximum defined debt to net worth ratio. The loan is
secured by the Company's leasehold interest in the Royal Sonesta Hotel, New
Orleans, and by a Company guaranty. The interest rate is prime less one-eighth
percent, and the commitment fee on the unused portion of the line is .65% per
annum. No amount was outstanding under this line at December 31, 1997.
A foreign subsidiary had an operating line of credit of $500,000, which
the Company cancelled in 1997.
There were no short-term borrowings during 1997. During 1996 and 1995
average short-term borrowings were approximately $875,000 and $240,000 at
average interest rates of 8.3% and 8.8%, respectively. The maximum amounts of
short-term borrowings outstanding during 1996 and 1995 were $4,640,000 and
$2,110,000, respectively.
6. Long-Term Debt
(in thousands)
-----------------------
1997 1996
---------- ----------
Charterhouse of Cambridge Trust and
Sonesta of Massachusetts Inc.:
First mortgage note (a) $22,416 $17,068
Sonesta Hotels of Anguilla, Ltd:
First mortgage note (b) 6,190 4,690
Note from Seller (c) 800 800
Sonesta Curacao Hotel Corporation, N.V.:
Bank term loan (d) 2,000 2,000
Other -- 188
------- -------
31,406 24,746
Less current portion of long-term debt 3,679 951
------- -------
Total long-term debt $27,727 $23,795
======= =======
(a) The mortgage loan on the Royal Sonesta Hotel Boston (Cambridge) was
refinanced in January 1997. The new loan is secured by a first mortgage on
the Royal Sonesta Hotel Boston (Cambridge) property. This property is
included in fixed assets at a net book value of approximately $23,032,000 at
December 31, 1997. The interest rate on the new loan is 8.86% for the term
of the loan, and monthly payments for interest and principal are $203,802.
The mortgage loan matures in December 2003, and no prepayments are allowed
during the first three years of the loan. The previous loan had a floating
16
<PAGE>
- --------------------------------------------------------------------------------
interest rate equal to LIBOR plus two percentage points, and required
monthly principal payments of $66,777.
(b) The loan is secured by a first mortgage on the Sonesta Beach Resort Anguilla
property, and an assignment to the lender of the hotel's furniture, fixtures
and equipment. The property is included in fixed assets at a book value of
$13,885,000 at December 31, 1997. In addition, an amount of $1,900,000 is
secured by a Company guaranty. The loan was increased by $1,700,000 in March
1997 to partially finance improvements to the resort made during the winter
of 1996/97. Principal payments of $500,000 for 1997 and 1998 were deferred,
after the Company in August 1997 agreed to cancel a line of credit it had
with the same lender (see Note 5-- Borrowing Arrangements). The loan
requires minimum principal payments of $400,000, $725,000, $3,965,000, and
$1,100,000 in the years 1998, 1999, 2000 and 2001, respectively. In
addition, principal payments are required equal to 25% of the hotel's annual
excess cash flow, as defined. The interest rate on the loan is LIBOR plus
21/4 percentage points. The interest rate at December 31, 1997 was 8%.
(c) This loan from the Seller of the Sonesta Beach Resort Anguilla is for a
three year period ending November 28, 1998. The interest rate is 8% per
annum. The Company has reduced this loan by $200,000 to which it is entitled
under the agreements with the Seller, and has further rights to offset
certain receivables from the Seller from this loan (see Note 2--Operations).
(d) This loan matures June 30, 1998. No principal payments are required during
the term. The interest rate was 9 3/4% at December 31, 1997, and is subject
to periodic review by the bank. This loan may be prepaid on 60 days notice.
The loan is secured by a Company guaranty, and by an assignment of the right
to receive fees under the management agreement for the Sonesta Beach Resort
& Casino, Curacao.
Aggregate principal payments for the next five years subsequent to
December 31, 1997, are as follows:
Year (in thousands)
- -------------- ---------------
1998 $ 3,679
1999 1,248
2000 4,536
2001 1,724
2002 681
Thereafter 19,538
7. Stockholders' Equity
Basic Earnings per Share
The following table sets forth the computation of basic earnings per
share. As the Company has no dilutive securities, there is no difference between
basic and diluted earnings per share of common stock:
1997 1996 1995
------------- ------------- -------------
Numerator:
Net income $ 932,600 $ 187,444 $2,775,045
Preferred stock dividends (13,340) (13,364) (13,371)
---------- ---------- ----------
Numerator for earnings per
share $ 919,260 $ 174,080 $2,761,674
========== ========== ==========
Denominator:
Weighted number
of shares outstanding 2,068,215 2,070,057 2,072,933
========== ========== ==========
Earnings per share
of common stock $ 0.44 $ 0.09 $ 1.33
========== ========== ==========
Preferred Stock
The 5% cumulative preferred stock is subject to redemption at $27.50 per
share plus accrued dividends to the date of redemption. At December 31, 1997 and
1996, 395,535 shares were authorized, and 10,672 shares were outstanding.
Preferred stock sinking fund requirements to December 31, 1997 have been
satisfied by the exchange in prior years of common stock for preferred stock and
by the purchase and retirement of preferred stock. No dividends on common stock
may be declared or paid and no common stock may be purchased or redeemed, unless
preferred stock sinking fund requirements are met.
8. Commitments and Contingencies
A subsidiary of the Company purchased the Sonesta Beach Resort Anguilla in
November 1995 (see Note 2--Operations). The hotel is located on 49 acres of land
leased from the Government of Anguilla. There are 93 years remaining on the
lease. In 1996, the same subsidiary of the Company entered into a 50 year lease
for an additional two acres of beachfront land adjacent to the Anguilla hotel
site. The Company operates the Royal Sonesta Hotel, New Orleans, Louisiana,
under a lease. In September 1994 the Company exercised its first of three
10-year options to extend the lease. The lease requires payment of a percentage
rent based on net profits, as defined. The Company leases space for its
executive offices in Boston, Massachusetts, which lease will expire in 2004. The
Company provides for rent expense on a straight line basis over the term of the
lease. The Company is also committed, under various leases, for certain other
property, equipment and real estate.
Minimum fixed rentals, principally on real estate, payable subsequent to
December 31, 1997 (exclusive of real estate taxes, insurance and other occupancy
costs) are as follows:
(in thousands)
------------------------------------
Operating Leases Capital Leases
------------------ ---------------
Period
1998 $ 917 $ 54
1999 889 --
2000 795 --
2001 755 --
2002 759 --
Thereafter 11,550 --
------- ----
$15,665 54
=======
Less interest amounts at various 4
rates ----
Present value of minimum fixed 50
rentals
Less current portion 50
----
Total long-term capitalized lease $ --
obligation ====
17
<PAGE>
- --------------------------------------------------------------------------------
Rentals charged to operations are as follows:
(in thousands)
-------------------------------
1997 1996 1995
-------- -------- ---------
Real Estate:
Fixed rentals $ 935 $ 813 $ 814
Percentage rentals
based on defined
operating profits 5,544 5,031 5,269
Other rentals 20 38 25
------ ------ ------
$6,499 $5,882 $6,108
====== ====== ======
The Company manages the Chateau Sonesta Hotel in New Orleans under a
long-term management agreement. The hotel opened in April 1995. The Company
guarantees debt service payments of approximately $1,500,000 per year on the
hotel's first mortgage in the original amount of $12,600,000 for a period of 5
years following the opening of the hotel. In 1997, the Company guaranteed
additional debt service payments of up to a total of $285,000 on an additional
hotel loan of $1,300,000. The proceeds from this loan, together with a loan of
$500,000 that the Company made to the hotel, were used to expand and improve the
hotel. If advances are made under these guarantees, they will be secured by a
mortgage. No advances were required under these guarantees to date.
The Company is committed to loan $1,500,000 to the owner of the Sonesta
Beach Resort, Sharm El Sheikh, of which $1,000,000 was advanced at December 31,
1997 (see Note 4--Long-Term Receivables and Advances).
The owner of the Sonesta Beach Resort Bermuda, which the Company operates
under a management agreement, has the right to terminate the agreement upon a
sale of the property. The Company is entitled to a $2,000,000 termination fee in
the event the owner sells the hotel.
The Company entered into agreements during 1997 to operate a hotel in
Miami Beach, Florida. The hotel is expected to open in late 1999 or 2000. The
Company is committed to loan up to $4,150,000 to the owner of the hotel. This
loan will be funded once the hotel is substantially completed.
The Company operates the Sonesta Beach Resort & Casino Curacao under a
management agreement. The owner of the hotel has the right to terminate the
agreement if the hotel does not achieve certain levels of operating income. For
1997, the hotel did not achieve the stipulated level of income. In the event the
owner exercises its right to terminate the agreement, the Company is entitled to
receive back its $2,000,000 investment in the hotel (see Note 3--Investments in
Hotels).
The Company has incentive compensation plans 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
$1,047,700 in 1997, $928,700 in 1996 and $998,400 in 1995.
9. 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's pension cost for the Plan was computed as follows:
(in thousands)
---------------------------------
1997 1996 1995
--------- --------- ---------
Service cost $616 $606 $484
Interest cost 929 936 903
Return on plan assets (947) (920) (856)
Amortization of:
Unrecognized net transition asset (88) (88) (88)
Unrecognized prior service cost 65 65 65
Unrecognized net loss 53 172 55
---- ---- ----
$628 $771 $563
==== ==== ====
The following table sets forth the funded status of the Plan at December
31, 1997 and 1996:
(in thousands)
----------------------
1997 1996
---------- ---------
Actuarial present value of accumulated
benefit obligation:
Vested $10,314 $9,007
Nonvested 197 214
------- ------
Accumulated benefit obligation 10,511 9,221
Effect of assumed increase in
compensation levels 3,698 3,096
------- ------
Projected benefit obligation 14,209 12,317
Market value of Plan assets 13,917 11,685
------- ------
Projected benefit obligation in excess of
Plan assets 292 632
Unrecognized net gain 1,295 592
Unrecognized prior service cost (721) (785)
Unrecognized net transition asset 705 793
------- ------
Accrued pension liability $1,571 $1,232
======= ======
The Plan's assets include equity and fixed income securities, short-term
investments and cash.
Assumptions used to develop the pension costs were:
1997 1996 1995
--------- --------- ---------
Assumed discount rate 7.0% 7.25% 7.0%
Assumed rate of compensation increases 4.0% 4.0% 4.0%
Expected weighted average rate of return
on Plan assets 8.5% 8.5% 8.5%
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. employ-
18
<PAGE>
- --------------------------------------------------------------------------------
ees of the Company are eligible to participate in the Savings Plan.
Participating employees may choose to invest their contributions in each one of
seven mutual funds, which include equity funds, balanced funds and a money
market fund. The Savings Plan does not provide for contributions by the Company.
10. Legal Proceedings
A wholly-owned subsidiary of the Company, Sonesta Hotels of Anguilla
Limited ("SHAL"), and two executive officers of the Company were named as
defendants in a lawsuit filed in October 1997, in Anguilla, B.W.I., by the
former owner of a resort hotel which the subsidiary purchased in November 1995,
and the principals of that entity. The Statement of Claim in this lawsuit, which
was substantially amended in January 1998, alleges, inter alia, that the
defendants have not complied with certain "implied terms" of the agreements
between them and with the terms of an alleged oral agreement. The plaintiffs in
this action are seeking relief from their contractual obligations, entitlement
to certain financial benefits, and certain equitable relief. In late February
1998 defendants filed a "Defense and Counterclaim" to plaintiffs' "Amended
Statement of Claim". The parties have engaged in settlement discussions which to
date have not been fruitful. In the absence of a settlement SHAL expects to
vigorously defend against this action, and to vigorously prosecute its
counterclaims, and expects a favorable outcome.
The Company is from time to time subject to routine litigation incidental
to its business, and generally covered by insurance. The Company believes that
the results of such litigation will not have a materially adverse effect on the
Company's financial condition.
11. Income taxes
The table below allocates the Company's income tax expense (benefit) based
upon the source of income:
<TABLE>
<CAPTION>
(in thousands)
1997 1996 1995
-------------------- ----------------------- -----------------------
Domestic Foreign Domestic Foreign Domestic Foreign
---------- --------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes $2,252 $ (642) $4,174 $ (2,853) $2,100 $ 456
====== ====== ====== ======== ====== ========
Federal, foreign and state income tax provision (benefit):
Current federal income tax (benefit) $ 470 $ (230) $1,128 $ (440) $ 970 $ (873)
State and foreign taxes, principally current 172 86 285 178 187 1,230
Deferred federal income tax (benefit) 260 (81) 228 (245) 121 (1,854)
------ ------ ------ -------- ------ --------
$ 902 $ (225) $1,641 $ (507) $1,278 $ (1,497)
====== ====== ====== ======== ====== ========
</TABLE>
A reconciliation of net tax expense (benefit) applicable to income before
provision for income taxes at the statutory rate follows:
<TABLE>
<CAPTION>
(in thousands)
--------------------------------
1997 1996 1995
------ --------- -----------
<S> <C> <C> <C>
Expected provision for taxes at statutory rate $547 $ 449 $ 869
State income taxes, net of federal benefit 113 188 123
Tax on foreign losses, not deductible for federal income taxes -- 459 --
Reversal of deferred taxes on foreign earnings permanently invested overseas -- -- (1,629)
Other 17 38 418
---- ------ --------
$677 $1,134 $ (219)
==== ====== ========
</TABLE>
<PAGE>
Deferred tax 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:
<TABLE>
<CAPTION>
(in thousands)
-------------------------------------
1997 1996 1995
-------- --------- --------------
<S> <C> <C> <C>
Reversal of deferred taxes on unremitted foreign earnings, now permanently
invested overseas $ -- $ -- $(1,629)
Losses from foreign subsidiary, not reported for tax purposes -- (240) (223)
Tax depreciation more than book depreciation 26 107 333
Pension contribution more (less) than pension expense 174 (164) (1)
Other temporary differences (22) 281 (144)
----- ------ ---------
$ 178 $ (16) $(1,664)
===== ====== =========
</TABLE>
19
<PAGE>
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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, 1997 and 1996 relate to the following:
<TABLE>
<CAPTION>
(in thousands)
---------------------
1997 1996
--------- ---------
<S> <C> <C>
Current deferred tax asset
Expenses accrued but deferred for tax purposes $ 351 $ 317
------ ------
Current deferred tax asset $ 351 $ 317
====== ======
Long-term deferred tax liabilities (assets)
Depreciation book tax difference $3,524 $3,498
Pension expense in excess of contributions (146) (320)
Expenses accrued but deferred for tax purposes (162) (172)
Losses from foreign subsidiary, not currently deductible (680) (680)
State tax benefits of $590,000 ($570,000 in 1996) from net operating loss
carry-forwards, net of
valuation allowances -- --
Other (42) (44)
------ ------
Deferred tax liability $2,494 $2,282
====== ======
</TABLE>
At December 31, 1997 and 1996, the Company had state net operating loss
carry-forwards of approximately $6,500,000 and $6,000,000, respectively, for
income tax purposes. Of the total carry-forwards available at December 31, 1997,
approximately $1,000,000, $400,000, $1,800,000 and $2,100,000 expire in the
years 1999 through 2002, respectively. For financial reporting purposes
valuation allowances of $590,000 and $570,000 have been recognized at December
31, 1997 and 1996, respectively, to offset the deferred tax assets related to
those carry-forwards.
Unremitted foreign earnings on which no deferred taxes have been provided
approximated $900,000 and $3,600,000 at December 31, 1997 and 1996,
respectively. Deferred taxes of approximately $306,000 and $1,224,000 would have
been provided for 1997 and 1996, respectively, had the earnings not been
permanently invested overseas.
20
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
Executive Offices, John Hancock Tower, 200 Clarendon Street
Boston, Massachusetts 02116 (617) 421-5400 Fax 421-5402
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SONESTA DIRECTORS
George S. Abrams(2) Paul Sonnabend(1) Roger P. Sonnabend(1)
Winer & Abrams Chairman of the Executive Chairman of the Board and
Attorneys at Law Committee and Chief Financial Chief Executive Officer,
Officer, Sonesta International Sonesta International
Hotels Corporation Hotels Corporation
Vernon R. Alden(2)(3)
Director and Trustee of
Several Organizations Peter J. Sonnabend Stephen Sonnabend
Vice Chairman, General Counsel Senior Vice President,
& Secretary, Sonesta Sonesta International
Joseph L. Bower(1)(2)(3) International Hotels Corporation Hotels Corporation
Professor, Harvard
Business School
Stephanie Sonnabend Jean C. Tempel(3)
President, Sonesta International Special Limited Partner, TL Ventures
Lawrence M. Levinson(1)(2)(3) Hotels Corporation
Partner, Burns & Levinson
Attorneys at Law
(1)Member Executive Committee (2)Member Audit Committee (3)Member Compensation Committee
- -----------------------------------------------------------------------------------------------------------------------
SONESTA OFFICERS
Roger P. Sonnabend Christopher Baum Jacqueline Sonnabend
Chairman of the Board Vice President- Executive Vice President
and Chief Executive Officer Sales & Marketing
Peter J. Sonnabend
Michael Levie Vice Chairman,
Stephanie Sonnabend Vice President-Egypt General Counsel and Secretary
President
Felix Madera Hans U. Wandfluh
Paul Sonnabend Vice President-International Vice President
Chairman of the Executive Committee
and Chief Financial Officer Boy A. J. van Riel David Rakouskas
Vice President and Treasurer Assistant Secretary
Stephen Sonnabend and Corporate Controller
Senior Vice President Mary Jane Rosa
Vice President-Design
- ------------------------------------------------------------------------------------------------------------------------
SONESTA HOTELS AND OTHER OPERATIONS
Royal Sonesta Hotel Sonesta Sasson Resort Hotel & Sonesta St. George Hotel,
Boston (Cambridge), Condominiums Luxor, Egypt(2)
Massachusetts(1) Miami Beach, Florida(2)
(Opening 1999/2000) Sonesta Beach Resort
Royal Sonesta Hotel Nuweiba, Egypt(2)
New Orleans, Louisiana(1) (Opening 1999)
Sonesta Beach Resort
Sharm el Sheikh, Egypt(2)
Sonesta Beach Resort Sonesta Taba Resort & Casino
Anguilla, B.W.I.(1) Sonesta Hotel Taba, Egypt(2)
Cairo, Egypt(2) (Opening Fall 1999)
Chateau Sonesta Hotel Sonesta Hotel Sonesta Beach Plaza Hotel
New Orleans, Louisiana(2) Port Said, Egypt(2) Manama, Bahrain(2)
(Opening 1998)
Sonesta Beach Resort Sonesta Paradisio Hotel
Southampton, Bermuda(2) El Gouna, Egypt(2) Aruba Sonesta Resort & Casino
Oranjestad, Aruba(3)
Sonesta Beach Resort & Casino Sonesta Nile Goddess Cruise Ship
Curacao, Netherlands Antilles(2) Cairo, Egypt(2) Aruba Sonesta Suites & Casino
Oranjestad, Aruba(3)
Sonesta Beach Resort Sonesta Sun Goddess Cruise Ship
Key Biscayne, Florida(2) Cairo, Egypt(2)
(1)Owned or Leased (2)Operated under Management Agreement (3)Licensed
For reservations, call toll free 800-SONESTA (800-766-3782)
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</TABLE>
INDEPENDENT AUDITORS
Ernst & Young LLP, 60 State Street, Boston, Massachusetts 02109
TRANSFER AGENT AND REGISTRAR
Mellon Securities Trust Company, 111 Founders Plaza, Suite 1100, East Hartford,
Connecticut 06108
ALPHABETICAL LIST OF WHOLLY-OWNED SUBSIDIARIES
Anguilla Hotel Management, Inc.
Brewster Wholesale Corporation
Charterhouse of Cambridge Trust
Florida Sonesta Corporation
Hotel Corporation of America
Hotel Corporation of Georgia
Key Biscayne Land Corporation
Newo Aruba N.V.
Royal Sonesta, Inc.
S.I.A. Advertising, Inc.
Sonesta Charitable Foundation, Inc.
Sonesta Costa Rica, S.A.
Sonesta Curacao Hotel Corporation, N.V.
Sonesta Hotels of Anguilla Limited
Sonesta Hotels of Florida, Inc.
Sonesta International Hotels Limited:
Hotel Corporation of America (Bermuda) Limited
Port Royal Company, Limited
Sonesta Licensing Corporation
Sonesta Louisiana Hotels Corporation
Sonesta of Massachusetts, Inc.
Sonesta Miami Beach Hotel Company, Inc.
Sonesta Middle East Hotel Corporation
TBD, Inc.
[logo] ERNST & YOUNG LLP [] 60 State Street [] Phone: 617 570 8400
Boston Fax: 617 367 9133
Massachusetts 02109
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Sonesta International Hotels Corporation
We have audited the accompanying consolidated balance sheets of Sonesta
International Hotels Corporation as of December 31, 1997 and 1996 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Sonesta
International Hotels Corporation at December 31, 1997 and 1996 and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
March 13, 1998
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<NAME> Sonesta International Hotels Corp.
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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