Document:

exhibit10_26.htm

     

    
      

      

    

    
 

    

    

    

    

    

    

    Exhibit
10.26

    

    EXECUTION COPY

    June 18,
2009

    

    

    

    Peter J. Sonnabend, Executive Chairman

    Sonesta
International Hotels Corporation

    116
Huntington Avenue

    Boston,
MA 02116

    

    

    Dear
Peter:

    

    As you know, we have had many
conversations over the past several months regarding SBR-Fortune Associates,
LLLP, a Florida limited liability limited partnership (the "Partnership").  This
letter agreement is intended to supersede all such discussions and
conversations, none of which shall have any force or effect.  All
terms appearing in initial capitalized letters below shall have the meanings
ascribed thereto in the Agreement of Limited Liability Limited Partnership of
the Partnership, dated as of January 17, 2005, as amended by that certain First
Amendment to Agreement of Limited Liability Limited Partnership of SBR-Fortune
Associates, LLLP dated as of February 25, 2005, by that certain Second Amendment
to Agreement of Limited Liability Limited Partnership of SBR-Fortune Associates,
LLLP dated as of March 2, 2005, and by that certain Third Amendment to
Agreement of Limited Liability Limited Partnership of SBR-Fortune Associates,
LLLP dated as of April 15, 2005, as so amended, the ("Partnership
Agreement").

    

    This letter will constitute the
agreement of the Partners and is intended to modify and amend the Partnership
Agreement as follows:

    

    1. All funds
advanced by or on behalf of any of the Partners or from third parties from and
after January 20, 2009 shall be referred to below as "New
Monies."  The repayment of all New Monies and the payment to
HSBC Realty Credit Corporation (USA) ("HSBC") of all sums
due to HSBC pursuant to that certain Loan Agreement, dated as of April 19, 2005,
entered into by HSBC and the Partnership, as amended to the date hereof (the
"HSBC
Indebtedness") shall be governed by the provisions of Paragraph 5(a)
below or as otherwise provided herein.  By their execution below, the
parties have agreed that the sum of the principal amount of the New Monies and
the principal amount of the HSBC Indebtedness shall not exceed Sixty-Eight
Million Dollars ($68,000,000.00) (the "Debt Cap"), unless
Sonesta, in its sole and absolute discretion, elects to permit the funding of
indebtedness in excess of such amount by or on behalf of either the Fortune
Partners or Sonesta. All New Monies funded which, when added to the principal
amount of the HSBC Indebtedness, do not exceed the Debt Cap are referred to as
the "First Tier New
Monies." All New Monies funded which, when added to the principal amount
of the HSBC Indebtedness, exceed the Debt Cap are referred to as the "Second Tier New
Monies."

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Peter J.
Sonnabend, Executive Chairman

    Sonesta
International Hotels Corp.

    June 18,
2009

    Page - 2
-

     

    

     

    2. All New
Monies funded by Sonesta shall bear simple interest at the rate of fifteen
percent (15%) per annum.  All New Monies caused to be funded by the
Fortune Partners from any person or party not controlled by Edgardo Defortuna
("Defortuna")
shall bear simple interest at the rate of thirteen and one-half percent (13.5%)
per annum.  All New Monies caused to be funded by Defortuna or any
person or party controlled by Defortuna (which shall include any funding as to
which any of the Fortune Partners, Defortuna and/or any person or party
controlled by Defortuna bear the ultimate financial risk) shall not bear
interest.  All New Monies shall be funded in the form of a loan and,
in the case of New Monies which are not funded by Sonesta or any of its
affiliates, will be evidenced by a promissory note in the form attached hereto
as Exhibit "A", or in the case of New Monies funded by
Sonesta or any of its affiliates, in the form attached hereto as Exhibit "A-1" (each of the promissory notes evidencing New
Monies are referred to as a "New Monies Promissory
Note"), which in each case shall provide (i) a waiver by the applicable
lender of any rights it may have at law or in equity to initiate insolvency or
Bankruptcy proceedings against the Partnership in connection with the loans
evidenced by each such New Monies Promissory Note, and (ii) for a "maturity
date" as provided in said New Monies Promissory Note.

     

    3. The first
Six Million Dollars ($6,000,000.00) of New Monies to be funded from and after
January 20, 2009, shall be funded (i) fifty percent (50%) by or through Sonesta
and (ii) fifty percent (50%) by or through loans arranged by the Fortune
Partners; it being agreed that New Monies funds shall be contributed from time
to time in a manner that results in the New Monies contributions made on behalf
of Sonesta and the Fortune Partners to remain approximately equal until each has
reached the Three Million Dollar ($3,000,000.00) threshold.  Sonesta
shall not be required to provide any New Monies funds pursuant to this Paragraph
3 until Sonesta has received confirmation that the Fortune Partners or third
parties have satisfied their equivalent New Monies funding
obligation.  From and after the date on which Sonesta and the Fortune
Partners have funded or caused to be funded their respective Three Million
Dollar ($3,000,000.00) New Monies obligations, and except as otherwise provided
herein, such as, for example, upon the election by Sonesta of the Forced Sale
Option, the Fortune Partners shall be solely responsible for causing all further
New Monies to be funded through the borrowing of additional funds from third
parties or Defortuna under additional New Monies Promissory Notes.  As
of the date of execution of this letter agreement, each of Sonesta and the
Fortune Partners have funded or caused to be funded Nine Hundred Thirty-Three
Thousand Nine Hundred Forty Dollars and 04/100 ($933,940.04) of New
Monies.  One hundred percent (100%) of the New Monies funded by the
Fortune Partners to date has been funded by Defortuna.  Each such
funding has been made in accordance with the terms of a New Monies Promissory
Note, dated as of the date hereof (provided that interest shall be retroactive
to the date of actual funding).

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Peter J.
Sonnabend, Executive Chairman

    Sonesta
International Hotels Corp.

    June 18,
2009

    Page - 3
-

     

    

     

    4. 

     

    (a) The
Partners have agreed to sell the Property (and/or all of the Partnership
Interests). During the period commencing on the date hereof and ending on [**],
the Partnership will accept any Bona Fide Offer (defined below) received by it
for an all-cash purchase price of [**] or more. Any Bona Fide Offer that
includes a proposal for purchase money financing shall be subject to the mutual
agreement of the Partners acting reasonably.  As used herein, the term
"Bona Fide
Offer" means a binding written offer to purchase the Property (or all of
the Partnership Interests) from a person or entity reasonably likely to have the
financial resources and/or access to financing necessary to close the offered
transaction, containing terms and conditions that are generally typical in the
then current market for properties similar to the Property, provided that in all
events such Bona Fide Offer must (a) provide for a cash security deposit in an
amount not less than [**], (b) a due diligence period of no more than thirty
(30) days, and (c) at the end of the due diligence period no less than [**] must
be 'hard" (i.e., at risk).

     

    (b) If the
Partnership is not then party to a binding agreement to sell the Property (and
the Partners are not then party to a binding agreement to sell all of the
Partnership Interests), then during the period commencing on [**] and ending on
[**], Sonesta shall have the sole right to cause the Partnership to enter into
an agreement (a "Sonesta Approved
Agreement") to sell the Property (or all of the Partnership Interests)
pursuant to a Bona Fide Offer (provided that the purchase price thereunder may
be less than [**], if such purchase price is acceptable to Sonesta; provided,
however, that the consent of the Fortune Partners shall be required for any
above described proposed transaction whereby Sonesta retains, directly or
indirectly, any non de
minimis interest in the Property (or
Partnership Interests) unless (i) as a result of the transaction, including any
funds advanced by Sonesta or third parties, the Fortune Partners, Defortuna and
third parties funding New Monies on behalf of the Fortune Partners receive at
the closing of said transaction the greater of (A) the amount said parties would
have received pursuant to the provisions of Paragraph 5(a) below if the Property
was sold for an all cash purchase price of [**] or (B) the amount said parties
would receive pursuant to the provisions of Paragraph 5(a) below if the Property
is sold for the consideration set forth in the Sonesta Approved Agreement, and
(ii) the closing date of said transaction is no greater than ninety (90) days
after the date of execution of the Sonesta Approved Agreement.

     

    

     

    

     

    

     

    

     

    

     

    

     

    

     

    

     

    

     

    

     

    

     

    [**] THE
CONFIDENTIAL PORTION HAS BEEN SO OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT AND HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Peter J.
Sonnabend, Executive Chairman

    Sonesta
International Hotels Corp.

    June 18,
2009

    Page - 4
-

     

    

     

    (c) If the
Partnership is not then party to a binding agreement to sell the Property (and
the Partners are not then party to a binding agreement to sell all of the
Partnership Interests), then during the period commencing on [**] and continuing
thereafter, if either the Fortune Partners or Sonesta notifies the other that it
elects to accept the then current all-cash Bona Fide Offer having the highest
proposed purchase price of all then current all-cash Bona Fide Offers, then the
Partnership shall accept such highest all-cash Bona Fide Offer; provided,
however, that if Sonesta notifies the Fortune Partners that Sonesta rejects such
proposed sale (which it may do only if it is not a Fortune Approved Bona Fide
Offer which Sonesta must accept pursuant to Paragraph 4(d)(ii) below), then (i)
the provisions of Paragraph 4(d) below shall apply and from and after the date
of a closing under the Buy Out Option described below, Sonesta shall have the
sole right to cause the Partnership to sell the Property (or all of the
Partnership Interests) on terms and conditions acceptable to Sonesta and (ii)
from and after the date on which Sonesta rejects the proposed Bona Fide Offer,
and notwithstanding anything to the contrary contained in Paragraph 3 above, the
Fortune Partners shall have no obligation to provide any additional funding to
the Partnership.

     

    (d) 

     

    (i) In the
event the Partnership receives a Bona Fide Offer on or after [**] to sell the
Property or to have all of the Partners sell all of the Partnership Interests
which the Fortune Partners desire to accept, the Fortune Partners shall
notify Sonesta in writing of such Bona Fide Offer and their desire to
accept such offer (such notice, an "Acceptable Sale
Notice", which shall include a copy of the Bona Fide Offer in question
[the "Fortune Approved
Bona Fide Offer"]); provided, however, that in order for a Bona Fide
Offer to be capable of constituting a Fortune Approved Bona Fide Offer under
this Paragraph 4(d), in addition to qualifying as a Bona Fide Offer pursuant to
Paragraph 4(a) above, such offer must also (A) provide no financing contingency
and (B) provide a due diligence period of no greater than fifteen (15) days if
no funds are at risk or a due diligence period of up to forty-five (45) days if
an "at risk" deposit of no less than [**] is placed in escrow. In addition, the
Partners have agreed that the first Five Hundred Thousand Dollars ($500,000.00)
of any forfeited due diligence deposit contained in a Fortune Approved Bona Fide
Offer shall be distributed to Sonesta and treated as a reduction in its
Unreturned Capital (provided that any other forfeited deposit shall be
distributed to the Partnership and not Sonesta exclusively).  Sonesta,
within ten (10) Business Days of receipt of the Acceptable Sale Notice, must
notify the Fortune Partners in writing whether Sonesta accepts or rejects the
Fortune Approved Bona Fide Offer.  In the event Sonesta fails to
notify the Fortune Partners in writing within the above described ten (10)
Business Day period, then Sonesta shall be deemed to have accepted the Fortune
Approved Bona Fide Offer and the Partners shall pursue a closing
thereunder.  In the event Sonesta indicates in writing within the
above described ten (10) Business Day period that it rejects the Fortune
Approved Bona Fide Offer, then Sonesta shall be deemed to have elected to
purchase the Partnership Interests of the Fortune Partners (the "Buy-Out
Option").  In the event Sonesta elects the Buy-Out Option, (i)
the Partnership shall not accept the Fortune Approved Bona Fide Offer, and (ii)
the provisions of Paragraph 7.2 shall apply.

     

    

     

    

     

    

     

     

     

    

     

    [**] THE
CONFIDENTIAL PORTION HAS BEEN SO OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT AND HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Peter J.
Sonnabend, Executive Chairman

    Sonesta
International Hotels Corp.

    June 18,
2009

    Page - 5
-

     

    

     

    (ii) Notwithstanding
anything to the contrary contained in Paragraph 4(c) or Paragraph 4(d)(i) above,
Sonesta must accept (and shall be deemed to accept) any Fortune Approved Bona
Fide Offer otherwise described in Paragraph 4(d)(i) which provides for
either:  (A) a purchase price that after deducting for reasonably
anticipated closing costs would result in sales proceeds [**], or (B) a purchase
price that after deducting for reasonably anticipated closing costs would result
in sales proceeds [**].  In the event Fortune proffers a Fortune
Approved Bona Fide Offer which provides for a purchase price that after
deducting for reasonably anticipated closing costs would result in sales
proceeds [**], but less than [**], then, in such event, Sonesta may reject such
Fortune Approved Bona Fide Offer, in which event, it shall be deemed to have
elected the Buy-Out Option, provided that, as a condition to doing so, Sonesta
must provide an indemnity to Defortuna from Sonesta International Hotels
Corporation, a New York corporation, in an amount equal to the lesser of (i)
[**], or (ii) [**].  Such indemnity shall be provided in a written
agreement containing operative indemnity provisions identical to those contained
in Section 5 of the Release and Indemnity Agreement referred to in Paragraph 7.1
below.

     

    (iii) In the
event of a sale under Paragraph 4(d)(ii)(A) above, Defortuna must either
(x)  pay to Sonesta upon the closing of such sale an amount equal to [**],
in which event the guaranty provided by Defortuna described in Paragraph 8 below
shall be extinguished in its entirety upon such payment, or (y) not make any
payment to Sonesta in which event  the guaranty provided by Defortuna
described in Paragraph 8 below shall remain in full force and
effect.

     

    5. 

     

    (a) Assuming
the Fortune Partners have not defaulted in funding New Monies (as described in
and required by Paragraph 3 above) beyond the applicable Cure Period (as defined
in Paragraph 6(a)) (or for such additional cure period of time provided in the
Partnership Agreement in the event Sonesta elects the Partnership Agreement
Default Option) or if the Fortune Partners default in their New Monies funding
obligations and Sonesta elects the "Third Fork Option"
described in Paragraph 7.3 below, the net proceeds derived from any sale of the
Property or all of the Partnership Interests will be distributed as
follows:

     

    (i) first, to
the payment of the HSBC Indebtedness;

     

    (ii) next, to
the payment of all Partnership liabilities, excluding (x) any amounts payable to
any of the Partners (which exclusion includes amounts payable in respect of
project administration fees or other fees or compensation payable to the Fortune
Partners and Hotel Shutdown Payments payable to Sonesta (which Hotel Shutdown
Payments shall be added to the Unreturned Capital of Sonesta)) and (y) all New
Monies;

     

    (iii) next, to
the principal and interest on all New Monies Promissory Notes issued in respect
of First Tier New Monies (with all accrued interest being payable to all First
Tier New Monies lenders pari passu (in proportion to which the accrued interest
payable to each such lender in respect of the First Tier New Monies bears to the
total outstanding interest payable to all such lenders in respect of the First
Tier New Monies)) prior to the pari passu repayment of outstanding principal in
respect of the First Tier New Monies;

     

     

     

     

     

     

     

    
 

    

    

    [**] THE
CONFIDENTIAL PORTION HAS BEEN SO OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT AND HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Peter J.
Sonnabend, Executive Chairman

    Sonesta
International Hotels Corp.

    June 18,
2009

    Page - 6
-

     

    

     

    (iv) next, to
the payment of the Sales Incentive Amount (as such term in defined in Paragraph
5(b) below) to Fortune International Management, Inc.;

     

    (v) next, to
the principal and interest on all New Monies Promissory Notes issued in respect
of Second Tier New Monies (with all accrued interest being payable to all Second
Tier New Monies lenders pari passu (in proportion to which the accrued interest
payable to each such lender in respect of the Second Tier New Monies bears to
the total outstanding interest payable to all such lenders in respect of the
Second Tier New Monies)) prior to the pari passu repayment of outstanding
principal in respect of the Second Tier New Monies; and

     

    (vi) then, the
remaining proceeds shall be distributed pari passu to the Fortune Partners in an
amount equal to the Fortune Residual Distribution (as such term is defined in
Paragraph 5(b) below) and to Sonesta in an amount equal to the Sonesta Residual
Distribution (as such term is defined in Paragraph 5(b) below).

     

    (b) For
purposes of Paragraph 5(a) above, the following terms shall be defined as
follows:

     

    (i) The
"Sales Incentive
Amount" shall be $1.5 million plus the Additional Amount as determined by
reference to the "gross sales price" of the Property or Partnership Interests,
as the case may be, as follows:

     

    
      	
              Gross Sales Price

            	
              Additional Amount

            
	
              less
      than [**]

            	
              $0

            
	
              [**]
      up to but less than [**]

            	
              $250,000

            
	
              [**]or
      more

            	
              $500,000

            

    

    

     

    For purposes of this letter agreement,
the "gross sales price" shall equal the cash and fair market value of any
property received in the sale transaction, any portion of the purchase price to
be paid subsequent to the closing of the sale transaction, including the face
amount of any promissory notes received in the sale transaction and the face
amount of any and all liabilities of the Partnership assumed by the purchaser
upon the closing of the sale transaction.  In calculating the “gross
sales price,” closing costs shall be allocated in conformity with the standard
of practice for similar commercial transactions in Miami-Dade County,
Florida.

     

    (ii) The
"Fortune Residual Distribution" shall mean that portion of the aggregate
proceeds distributable to the Partners pursuant to Paragraph 5(a)(vi) above
determined by the product of (A) fifty percent (50%), and (B) a fraction the
numerator of which shall be the Capital Contributions of the Fortune Partners
and the denominator of which is the Capital Contributions of all of the
Partners.  For example, if, on or before October 31, 2009, the
aggregate proceeds distributable to the Partners pursuant to Paragraph 5(a)(vi)
above is Twenty Million Dollars ($20,000,000.00) and the Capital Contributions
of the Fortune Partners is Thirty-Eight Million Dollars ($38,000,000.00) and the
aggregate Capital Contributions of Sonesta is Fifty-Eight Million Dollars
($58,000,000.00), the Fortune Residual Distribution would be

     

    

     

     

     

    
 

    

    [**] THE
CONFIDENTIAL PORTION HAS BEEN SO OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT AND HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Peter J.
Sonnabend, Executive Chairman

    Sonesta
International Hotels Corp.

    June 18,
2009

    Page - 7
-

     

    

     

     [$20,000.000
x 50% x (38 / 38+58) = $3,958,333]

     

    

    (iii) The
"Sonesta Residual Distributions" shall mean the excess of (A) the aggregate
proceeds distributable to the Partners pursuant to Paragraph 5(a)(vi) above,
over (B) the Fortune Residual Distributions.  Accordingly, under the
example set forth in Paragraph 5(b)(ii) above, the Sonesta Residual
Distributions shall be

     

    [$20,000,000
- $3,958,333 = $16,041,667]

     

    

     

    6. 

     

    (a) If the
Fortune Partners default in funding New Monies as provided in Paragraph 3 above,
then (i) the Fortune Partners shall promptly deliver written notice of the facts
and circumstances of such non-payment to Sonesta and (ii) the Fortune Partners
shall be in default hereunder.  Upon being notified of such default by
Fortune or becoming aware of such default independently, Sonesta shall promptly
provide the Fortune Partners a written default notice related thereto and the
Fortune Partners shall be permitted a period of thirty (30) days from the date
of receipt of the written notice from Sonesta to cure such default (the "Cure
Period").  If the Fortune Partners do not cure such default
within the Cure Period, then within fifteen (15) Business Days following the
expiration of the Cure Period, Sonesta shall provide written notice (the "Election Notice") to
the Fortune Partners in which Sonesta must affirmatively elect to either (x)
pursue its rights under Section 5.3 of the Partnership Agreement (the "Partnership Agreement
Default Option"), (y) pursue the "Third Fork Option"
provided in Paragraph 7.3 below, or (z) elect to cause the assignment of the
Partnership Interests of the Fortune Partners in accordance with Paragraph 7.1
hereof (the "Forced
Sale Option"); provided that as a condition precedent to exercising the
Forced Sale Option or the Partnership Agreement Default Option, Sonesta must,
simultaneous to its exercise of the Forced Sale Option or Partnership Agreement
Default Option, as the case may be, fund the amount of the Fortune Partners’
default.  Immediately upon the delivery of the Election Notice to the
Fortune Partners by Sonesta under this Paragraph 6(a) to exercise the Forced
Sale Option, all rights to exercise control over the day-to-day management of
the Partnership shall automatically vest in Sonesta (or its designee), and such
rights to control the day-to-day operations of the Partnership shall remain
vested in Sonesta (or its designee), unless and until the provisions of the last
sentence of Paragraph 18 are applicable.

     

    (b) In the
event that Sonesta elects the Partnership Agreement Default Option, the terms of
Section 5.3 of the Partnership Agreement shall apply, the amount advanced by
Sonesta to cure defaults shall be treated as a Default Financing and the Cure
Period provided in Paragraph 6(a) above shall be considered to be and shall
satisfy the thirty (30) day cure period required to be provided pursuant to
Section 5.3(a) of the Partnership Agreement.

     

    (c) In the
event that Sonesta elects the Forced Sale Option, the provisions of Paragraph
7.1 below shall apply.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Peter J.
Sonnabend, Executive Chairman

    Sonesta
International Hotels Corp.

    June 18,
2009

    Page - 8
-

     

    

     

    7.1           Effect of Forced Sale
Option

     

    (a)           In
the event Sonesta elects the Forced Sale Option either (i) within the time
period provided in Paragraph 6(a) above or (ii) after Sonesta has elected the
Third Fork Option as provided and in accordance with Paragraph 7.3 below (and
after the expiration of the applicable cure period provided therein without a
cure by the Fortune Partners), Sonesta shall direct the Escrow Agent (as such
term is defined in Paragraph 7.1(b) below) to insert the "Effective Date" in
each of the Escrowed Documents (as such term is defined in Paragraph 7.1(b)
below) and deliver the original Escrowed Documents from escrow to the party in
whose favor the particular Escrow Document has been executed, with copies of
each of the Escrow Documents provided to both Sonesta and the Fortune
Partners.  As used herein, the term “Effective Date” means
the date the Escrow Agent receives the Election Notice electing the Forced Sale
Option.

     

    (b)           In
order to effectuate the provisions of this Paragraph 7.1 and in order to assure
an expedited closing in the event Sonesta elects to exercise the Forced Sale
Option, the following documents (the "Escrowed Documents")
shall be executed, in the forms attached hereto, contemporaneously with the
execution of this letter agreement, and deposited with Bilzin Sumberg Baena
Price & Axelrod LLP (the "Escrow Agent") to be
held in escrow in accordance with the terms of this letter agreement and the
Escrow Agreement referred to below:

     

    
      	
              (i)  

            	
              Sales
      Incentive Amount Promissory Note in the form attached hereto as Exhibit "B";

            

    

     

    (ii) Assignments
of Partnership Interest;

     

    
      	
              (iii)  

            	
              Release
      and Indemnity Agreement in the form attached hereto as Exhibit "C";
and

            

    

     

    (iv) Escrow
Agreement.

     

    7.2           Effect of Buy-Out
Option.

     

    (a) In the
event Sonesta elects the Buy-Out Option pursuant to Paragraph 4(d) above,
Sonesta shall direct the Escrow Agent to insert the "Effective Date" in each of
the Escrowed Documents and deliver the original Escrowed Documents from escrow
to the party in whose favor the particular Escrow Document has been executed,
with copies of each of the Escrow Documents provided to both Sonesta and the
Fortune Partners.  As used in this Paragraph 7.2, the term “Effective Date” means
the date on which date the Escrow Agent receives a copy of a written notice from
Sonesta notifying the Fortune Partners of Sonesta’s election of the Buy-Out
Option in accordance with Paragraph 4(d)(i) above.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Peter J.
Sonnabend, Executive Chairman

    Sonesta
International Hotels Corp.

    June 18,
2009

    Page - 9
-

     

    

     

    (b) In
addition to the release of the Escrowed Documents, as a condition to a closing
under the Buy-Out Option, Sonesta shall pay to the holders of the New Monies
Promissory Notes the sum of all principal and interest due under the New Monies
Promissory Notes held by them to the extent proceeds would have been available
for such payments under the transaction contemplated by the Fortune Approved
Bona Fide Offer, which payments shall be made on or before the earliest to occur
of (i) ninety (90) days following the Effective Date (as such term is defined in
Paragraph 7.2(a) above), (ii) the closing date of a sale of the Property (or all
or substantially all of the Partnership Interests) or (iii) the date of
admission of a new partner into the Partnership. In addition, the following
amounts shall be paid to the extent proceeds would have been available for such
payments under the transaction contemplated by the Fortune Approved Bona Fide
Offer on the earliest to occur of (x) twelve (12) months after the Effective
Date (as such term is defined in Paragraph 7.2(a) above), (y) the date of
admission of a new partner into the Partnership, or (z) the closing date of a
sale of the Property (or all or substantially all of the Partnership
Interests):  (A) to Fortune International Management, Inc., the Sales
Incentive Amount and (B) to the Fortune Partners an amount equal to fifty
percent (50%) of the Fortune Residual Distributions to which Fortune would have
been entitled if the Property or Partnership Interests, as the case may be, were
sold for the sales price provided in the Fortune Approved Bona Fide
Offer.

     

    7.3           Third Fork
Option.

     

    In the event Sonesta elects
the Third Fork Option pursuant to Paragraph 6(a) above, then in
such event, all of the provisions of this letter agreement other than Paragraphs
7.1, 7.2, 11 and 14 shall remain operative.   Notwithstanding the
election by Sonesta of the Third Fork Option, Sonesta may thereafter either (i)
fund the amount of the Fortune Partners' default and invoke the Forced Sale
Option described in Paragraph 7.1 above; provided, however that as a condition
to electing the Forced Sale Option pursuant to this Paragraph 7.3, Sonesta must
first provide the Fortune Partners with written notice that it has funded the
Fortune Partners' default amount and provide the Fortune Partners with a period
of thirty (30) days from receipt of said notice to cure the default, and in the
event the Fortune Partners do not cure said default, the provisions of Paragraph
7.1 shall apply or in the event the Fortune Partners do cure said default within
said thirty (30) day period, the default shall be deemed cured for all purposes
of this letter agreement or (ii) fund the amount of the Fortune Partners'
default and invoke the Partnership Agreement Default Option.

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Peter J.
Sonnabend, Executive Chairman

    Sonesta
International Hotels Corp.

    June 18,
2009

    Page - 10
-

     

    

     

    8. Except as
provided in Paragraph 4(d)(iii) hereof, upon the occurrence of a (i) sale
of the Property (whether effected directly or via merger or consolidation of the
Partnership), (ii) sale of all or substantially all of the Partnership Interests
(whether effected directly or via merger or consolidation of the Partnership or
via the sale of all or substantially all of the equity interests in Sonesta or
Florida Sonesta Corporation), (iii) admission of one (1) or more persons or
entities as partners in the Partnership (or the Partnership closing on a loan
which contains either a conversion feature allowing the holder to acquire equity
in the Partnership or provides for some level of participation by the lender in
the Partnership's revenues, profits or cash flow), or (iv) the entering into by
the Partnership of a joint venture or similar arrangement pursuant to which a
third party or parties obtain(s) more than a de minimis direct or indirect
interest in the Property, Defortuna shall be deemed released from any and all of
his individually guaranteed obligations under the Partnership Agreement,
including but not limited to those obligations set forth in Sections 4.4(a)(4),
4.4(c)(3), 7.2 and 8.6(e) of the Partnership Agreement.  As a condition to
a closing of any of the transactions described in this Section 8, the Release
and Indemnity Agreement in the form attached hereto as Exhibit "8" shall be executed and delivered by all of the
parties thereto.

     

    9. As of the
Effective Date of the Release and Indemnity Agreement attached hereto in the
form of Exhibit "C" or the Release or Indemnity
Agreement attached hereto in the form of Exhibit "8" and
continuing for so long as Sonesta has an interest in the Property, Defortuna
agrees not to make any public statements which disparage Sonesta or the Property
or which are materially likely to impair the value or marketability of the
Property (which agreement shall not prohibit the Fortune Partners and/or
Defortuna from maximizing the value of projects that are competitive to the
Property).

     

    10. Notwithstanding
anything to the contrary contained in the Partnership Agreement, as amended
hereby, under no circumstances shall a Bankruptcy or the dissolution of one or
both of the Fortune Partners result in the automatic dissolution of the
Partnership without the written consent of Sonesta.

     

    11. If
Sonesta exercises the Partnership Agreement Default Option or the Forced Sale
Option, then, notwithstanding any other prior agreement to the contrary, Sonesta
shall have the right to engage the consulting services of Joseph Herndon ("Herndon") through the
Fortune Partners (or their respective affiliates) for consulting services to the
Property at a rate based upon Herndon’s current actual pay rate plus a
twenty-five percent (25%) overhead fee.  In such event, Herndon shall
be permitted by the Fortune Partners (or their affiliates) to perform services
for the benefit of the Property substantially similar to those he has performed
prior to the date hereof (unless otherwise directed by Sonesta).

     

    12. This
letter agreement shall be governed by Florida law.  Except to the
extent specifically amended or modified by the terms of this letter agreement,
the terms of the Partnership Agreement shall remain in full force and
effect.

     

    13. Each
party hereto hereby represents and warrants that the individual executing this
letter agreement on behalf of such party is duly authorized to execute, deliver
and perform this letter agreement on behalf of such party and to bind such party
to its agreements herein and that this letter agreement is enforceable against
such party in accordance with its terms.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Peter J.
Sonnabend, Executive Chairman

    Sonesta
International Hotels Corp.

    June 18,
2009

    Page - 11
-

     

    

     

    14. In the
event that under the terms of this letter agreement Sonesta acquires the
Partnership Interests of the Fortune Partners, whether as a result of the
exercise of the Forced Sale Option or the Buy-Out Option, then the Fortune
Partners agree that as of the effective date of such acquisition, they shall
facilitate an orderly transition of the day-to-day operation of the Property and
of the books and records of the Partnership to Sonesta.

     

    15. In
addition to the foregoing, by their execution below, the Partners have agreed
that:

     

    (a) from and
after the date of execution of this letter agreement, each of the Partners shall
be authorized and permitted to speak with Holliday Fenoglio & Fowler, L.P.
and one or more third parties concerning a possible sale of the Property or the
Partnership Interests (and shall advise the other Partners of such meetings in
advance thereof, to the extent practicable); and

     

    (b) from and
after the date of execution of this letter agreement, Sonesta shall be
authorized and permitted to meet and/or have discussions with HSBC provided that
Sonesta shall endeavor to notify Fortune GP at least two (2) days in advance of
any such meeting/discussion so that the Fortune GP may participate
therein.

     

    16. Notwithstanding
anything to the contrary contained in this letter agreement, when the term
"admission of new partners" or words of similar import are used herein, such
term shall include the closing of any financing or loan transaction which
contains either a conversion feature allowing the holder to acquire equity in
the Partnership or provides for some level of participation by the lender in the
Partnership's revenues, profits or cash flow (excluding agreements, such as an
assignment of leases and rents, that are typically a part of a mortgage
financing transaction).

     

    17. The Partners
agree and understand that confidentiality of the existence and the terms of
this letter agreement are material and essential elements of this letter
agreement.  Accordingly, the Partners agree that each will keep the
terms of this letter agreement confidential at all times, except in the event
disclosure shall be required by a subpoena, an order of a court of competent
jurisdiction or a governmental agency empowered to compel or require such
disclosure, or, if necessary to enforce any provision of this letter agreement,
or such disclosure is required by law. Each  Partner acknowledges
that no remedy of law may be adequate to compensate the injured party for a
violation of this Paragraph 17 and each of them hereby agrees that, in addition
to any legal or other rights that may be available in the event of a breach
hereunder, the injured party may seek equitable relief to enforce this Paragraph
17 in any court of competent jurisdiction.   In any such action
brought by any of the Partners, the prevailing party shall be entitled
to recover reasonable attorneys’ fees, court costs and expenses through and
including all appeals. The Fortune Parties hereby acknowledge that Sonesta is
directly or indirectly controlled by entities that are publicly traded
companies.  Sonesta shall be permitted to rely on the advice of its
outside legal counsel in determining the extent to which disclosure of this
letter agreement or portions thereof may be legally required.  Any
third party providing New Monies on behalf of the Fortune Partners hereunder
shall be required to execute a Confidentiality Agreement in the form attached
hereto as Exhibit "E".

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Peter J.
Sonnabend, Executive Chairman

    Sonesta
International Hotels Corp.

    June 18,
2009

    Page - 12
-

     

    

     

    18. From and
after the date on which any monetary or material, non-monetary default arises
under the HSBC Indebtedness and the holder of the HSBC Indebtedness either
provides a notice of default or commences or threatens to commence enforcement
actions, and in all events from and after the date which is thirty (30) days
prior to the maturity date of the HSBC Indebtedness, as extended, in recognition
of the personal guaranty of the HSBC Indebtedness executed by Defortuna, the
Partners have agreed that, if such personal guaranty then remains in effect,
Defortuna shall be permitted to participate in unilateral conversations
with HSBC in respect of said indebtedness.  In addition, in the event
that, as of twenty (20) days prior to the maturity date of the HSBC
Indebtedness, as extended, (a) such personal guaranty then remains in effect,
(b) the Partnership is not then a party to a binding agreement to sell the
Property for a purchase price equal to or greater than the principal balance due
under the HSBC Indebtedness or an amount less than the HSBC Indebtedness if such
binding sales agreement was the subject of a Fortune Approved Bona Fide Offer,
then the Partners agree that the Partnership shall enter into a transaction
whereby Defortuna (y) obtains exclusive control of the Property (whether by the
Partnership's execution of a deed in his favor or otherwise) at least ten (10)
days prior to the maturity date of the HSBC Indebtedness, as extended, and (z)
agrees that the proceeds of any sale of the Property thereafter shall be
distributed in accordance with Paragraphs 5(a)(i) through (vi)
hereof.

     

    19. In no
event and under no circumstance may any of the Partners initiate or consent to
any Bankruptcy (as defined in Section 10.1(b) of the Partnership Agreement) or
transaction having similar force or effect without the prior written consent of
all Partners; provided that the Fortune Partners may initiate or consent to any
Bankruptcy without the prior consent of Sonesta from and after the date, if any,
on which exclusive control of the Property is transferred to Defortuna as
provided in Paragraph 18 above; provided that as a condition precedent to such
Bankruptcy filing, the Fortune Partners must first take an assignment of the
Sonesta Partnership Interest or otherwise obtain the consent of
Sonesta.  In furtherance of the forgoing, Sonesta agrees that upon
issuance of a written notice from the Fortune GP which written notice can only
be issued under the circumstances and within the time frame set forth in
Paragraph 18 above, Sonesta shall be deemed to have transferred and assigned its
Partnership Interest to the Fortune LP effective as of three (3) Business Days
prior to the actual Bankruptcy filing; it being agreed that Sonesta shall have
the right to cause Fortune LP to reassign Sonesta its Partnership Interest in
the event such Bankruptcy filing does not occur.

     

    20. This
letter agreement, together with the Partnership Agreement, contains the entire
understanding among the parties and supersedes any prior understandings and
agreements among them respecting the subject matter of this letter
agreement.  The Partnership Agreement, as modified hereby, remains in
full force and effect.

     

    21. The
Fortune Partners hereby represent and warrant to Sonesta that the schedule set
forth on Exhibit “D” attached hereto is a true and
compete list of all material agreements and instruments underlying the HSBC
Indebtedness and any other obligations of the Partners or Defortuna with respect
thereto.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Peter J.
Sonnabend, Executive Chairman

    Sonesta
International Hotels Corp.

    June 18,
2009

    Page - 13
-

     

    

     

    22. Notwithstanding
anything to the contrary contained herein, under no circumstances shall (i) any
transfer of the Partnership Interests of the Fortune Partners to Sonesta in
accordance with Paragraphs 7.1 or 7.2 hereof, (ii) any foreclosure action by any
lender or (iii) any transfers or conveyances effectuated between the Partners or
to any lender in accordance with clause (y) of Paragraph 18 hereof be deemed to
be a transfer of Partnership Interests or a sale of the Property for the
purposes of Paragraphs 5 and 8 hereof; provided that nothing contained in this
Paragraph 22 shall in any way invalidate or limit the effectiveness of the
Release and Indemnity Agreement to be executed and delivered in the event of a
transfer of the Partnership Interests of the Fortune Partners to Sonesta in
accordance with Paragraphs 7.1 or 7.2 hereof.

     

    23. each
of sonesta and the fortune parties acknowledge that the funding of new monies
contributions by the other in the amount of Nine Hundred Thousand Dollars
($900,000.00) on or before June 25, 2009 is essential to each party’s
willingness to enter into this letter agreement.  Accordingly,
notwithstanding anything to the contrary contained herein, in the event that
either the fortune partners or sonesta breaches its obligation to fund or cause
to be funded New Monies in an amount not less than Nine Hundred Thousand Dollars
($900,000.00) on or before June 25, 2009 in accordance with the provisions of
Paragraph 3 hereof, then the non-defaulting party shall have the right to
terminate this letter agreement upon written notice delivered to the defaulting
party within ten (10) business days following the date of such
default.  If such termination occurs, then the Partnership Agreement
shall be operative as if this letter Agreement had never been
executed.

     

    24.           This
letter agreement may be executed in several counterparts and all so executed
shall constitute one agreement binding on all of the parties, notwithstanding
that all of the parties are not signatory to the original or the same
counterpart.  In addition, any counterpart signature page may be
executed  and delivered by facsimile or portable document format
("PDF") and any such faxed or PDF signature pages may be attached to one or more
counterparts of this letter agreement, and such faxed or PDF signature(s) shall
have the same force and effect as if original signatures had been executed and
delivered in person.

     

    25.           The
parties acknowledge that this is a negotiated agreement, and that in no event
shall the terms of this letter agreement be construed against any party on the
basis that such party, or its counsel, drafted this letter
agreement

     

    

     

    

     

    

     

    [EXECUTIONS
COMMENCE ON FOLLOWING PAGE]

     

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Peter J.
Sonnabend, Executive Chairman

    Sonesta
International Hotels Corp.

    June 18,
2009

    Page - 14
-

     

    

     

    Please
indicate your consent to the terms of this letter agreement by signing and
dating a duplicate copy of this letter and returning it to the
undersigned.

     

    

     

    Fortune KB GP, LLC,

    a Florida limited liability
company

    

    By:           Fortune
International Management, Inc.,

    Manager

    

    By:            /s/ Edgardo
Defortuna                                                      

    Edgardo Defortuna,
President

    

    

    Fortune KB, LLC,

    a Florida
limited liability company

    

    By:           Fortune
International Management, Inc.,

    Manager

    

    By:            /s/ Edgardo
Defortuna                                                      

    Edgardo Defortuna,
President

    

    Agreed
and accepted this      18th      
day of

    June,
2009.

    

    Sonesta
Beach Resort Limited Partnership,

    a
Delaware limited partnership

    

    By:           Florida
Sonesta Corporation,

    a Florida corporation

    

    By:             /s/ Peter J.
Sonnabend                                                      

    Peter J. Sonnabend,

    Vice President

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    

    Exhibit
"A"

    

    

    FINAL
FORM

    

    PROMISSORY
NOTE

    

    
      	
              U.S.
      $____________

            	
              As
      of _________ __, 20__ ("Effective
      Date")

               

               

            

    

    

    

    RECITALS

     

    A.           As
of the Effective Date, __________________, a ___________ ("Lender") advanced to
SBR-Fortune Associates, LLLP, a Florida limited liability limited
partnership            (the
"Partnership" or "Borrower"), the sum of
__________________ Dollars ($__________).

     

    B.           The
Partnership is governed by that certain Agreement of Limited Liability Limited
Partnership dated as of January 17, 2005, as amended by that certain First
Amendment to Agreement of Limited Liability Limited Partnership of SBR-Fortune
Associates, LLLP dated as of February 25, 2005, and by that certain Second
Amendment to Agreement of Limited Liability Limited Partnership of SBR-Fortune
Associates, LLLP dated as of March 2, 2005, and by that certain Third
Amendment to Agreement of Limited Liability Limited Partnership of SBR-Fortune
Associates, LLLP dated as of April 15, 2005, and by that certain letter
agreement (the "Letter
Agreement"), dated as of June 18, 2009 (collectively, the "Partnership
Agreement").  All terms appearing herein in initial capitalized
letters but not otherwise defined herein shall have the meanings ascribed
thereto in the Partnership Agreement.

     

    C.           The
Partners agreed that "New Monies" (as such term is defined in the Letter
Agreement) advanced to the Partnership on or after January 20, 2009 would bear
interest, under certain circumstances, at stated rates and would be entitled to
certain priorities of repayment, as more fully provided in the Letter
Agreement.  This Promissory Note (the "Note") is evidence of an
advance of New Monies, and more specifically of [First Tier/Second Tier New Monies
(as defined in the Letter Agreement)].

     

    D.           This
Note evidences that, as of the Effective Date, Lender advanced
to  Borrower the sum of ____________________Dollars
($_______).

     

    THEREFORE, FOR VALUE RECEIVED,
Borrower hereby promises to pay to  Lender the principal amount of
____________ Dollars ($___________), together with all other amounts added
thereto pursuant to this Note, together with interest accrued from the Effective
Date on the balance of principal from time to time outstanding, in United States
currency, at the rates and at the times hereinafter
described.  Payments shall be made to Lender at ________________,
Suite _____, _____________, _______ _____, Attn:  ____________ (or
such other address as Lender may hereinafter designate in writing to
Borrower).

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    1. Principal and Interest
Payments.

     

    1.1 All of
the principal and accrued but unpaid interest under this Note shall be due and
payable without notice or demand of any kind or nature on the "Maturity Date"; provided
however, that mandatory prepayments shall be required under the circumstances
described in and pursuant to Section 2 below.  By its execution below,
Borrower agrees that, without Lender's written consent, it shall not issue or
incur any indebtedness of any type or nature which is senior in payment or
priority to all sums hereunder other than the HSBC Indebtedness (as defined
below); provided that if this Note evidences an advance of "Second Tier New
Monies" (as such term is defined in the Letter Agreement), the repayment of the
principal and interest due hereunder shall be subordinated to certain payments
as provided in Paragraph 5(a) of the Letter Agreement. Subject to the preceding
sentence, Borrower shall not distribute any cash or property to its constituent
partners prior to the full and complete repayment of all principal and interest
under this Note.  For purposes of this Note, the Maturity Date will be
the day (such day, the "HSBC
Discharge Date") on which all sums due to HSBC Realty Credit Corporation
(USA) ("HSBC") under
that certain Loan Agreement entered into by and between HSBC and the Partnership
as of April 19, 2005, (as the same may be extended, the "HSBC Indebtedness") are paid
in full resulting in the HSBC Indebtedness being extinguished and satisfied in
full; provided however that in the event any of the dates set forth in clauses
(A) through (F) of Section 1.2 below occurs prior to the HSBC Discharge Date,
the Maturity Date shall be accelerated to be the first of the dates set forth in
clauses (A) through (F) of Section 1.2 below (each, an "Accelerated Maturity
Date").

     

    1.2 For
purposes of this Note, the Accelerated Maturity Dates shall be:

     

    (A)           the
date of the closing of a sale of all or substantially all of the property owned
by the Partnership (the "Property") (whether effected
directly or via merger or consolidation of the Partnership), but specifically
excluding (i) any transfer of the Partnership Interests of the Fortune Partners
to Sonesta in accordance with Paragraphs 7.1 or 7.2 of the Letter Agreement and
(ii) any transfers or conveyances made in accordance with clause (y) of
Paragraph 18 of the Letter Agreement;

     

    (B)           five
(5) years from the Effective Date;

     

    (C)           the
date of the closing of a sale of all or any portion of the partnership interests
owned by one or more partners in the Partnership (whether effected directly or
via merger or consolidation of the Partnership or via the sale of all or
substantially all of the equity interests in Sonesta Beach Resort Limited
Partnership, Florida Sonesta Corporation or via  the entering into by
the Partnership of a joint venture or similar arrangement pursuant to which a
third party or parties obtain(s) more than a de minimis direct or indirect
interest in the Property), but specifically excluding (i) any transfer of the
Partnership Interests of the Fortune Partners to Sonesta in accordance with
Paragraphs 7.1 or 7.2 of the Letter Agreement and (ii) any transfers or
conveyances made in accordance with clause (y) of Paragraph 18 of the Letter
Agreement;

     

    (D)           the
date of the closing of a refinancing of the HSBC Indebtedness provided however
that on such Accelerated Maturity Date, the payment required hereunder shall be
limited to the "Excess Available Proceeds" as such term is defined in Section 2
below and the accrued interest and outstanding principal under this Note which
remains unpaid on such Accelerated Maturity Date shall be paid in full on the
next occurring Accelerated Maturity Date or the Maturity Date, as the case may
be;

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    (E)           the
date of admission of one or more partner(s) in the Partnership subsequent to the
Effective Date (such date, the "New Partner Admission Date");
or

     

    (F)           ninety
(90) days after the "Effective Date" of the exercise of the Buy-Out Option as
provided in Paragraph 7.2 of the Letter Agreement, provided that the payments
required to be made in such circumstance may be limited to and as provided in
said Paragraph 7.2 of the Letter Agreement.

     

    Notwithstanding
anything to the contrary contained herein, in the event the Accelerated Maturity
Date is determined pursuant to either (i) clause (C) above in a case in which
Sonesta maintains an interest of no less than fifty percent (50%) of the
Partnership Interests in the Partnership (a "Sonesta Retained Interest
Transaction"), or (ii) clause (E) above as a result of the admission of
one or more persons as partners in the Partnership on or after the Effective
Date, the Partnership may elect to extend the Maturity Date to a date (the
"Extended Maturity
Date") that is twelve (12) months following the closing date under clause
(C) above or the New Partner Admission Date, as applicable (whichever of such
dates is applicable is referred to as the "Trigger Date"); provided that
such election must be made in writing by the Partnership and delivered to Lender
no later than ten (10) Business Days following the Trigger Date and as a
condition precedent to the extension of the Maturity Date to the Extended
Maturity Date, from and after the Trigger Date, interest shall be paid monthly
in arrears on the last day of each month and in the event all amounts due
hereunder are not paid on the Extended Maturity Date, Lender shall have the
unilateral right to cause the Partnership to sell the Property pursuant to the
provisions of Section 6(n) below.  In the event the Maturity Date is
extended to the Extended Maturity Date, all references in other provisions of
this Note to the Maturity Date shall be deemed to be references to the Extended
Maturity Date.

     

    1.3 In all
events in which an Accelerated Maturity Date is determined by reference to
clauses (A), (C) or (D) of Section 1.2 above, or in which the Extended Maturity
Date applies as a result of a Sonesta Retained Interest Transaction, the payment
of any amount under this Note shall be subordinated as follows:

     

    (a) first, to
the satisfaction and discharge in full of the HSBC Indebtedness;

     

    (b) next, to
the payment of all Partnership liabilities, excluding (x) any amounts payable to
any of the Partners (which exclusion includes amounts payable in respect of
project administration fees or other fees or compensation payable to the Fortune
Partners and Hotel Shutdown Payments payable to Sonesta (which Hotel Shutdown
Payments shall be added to the Unreturned Capital of Sonesta)) and (y) all New
Monies;

     

    (c) next, to
the holders of all First Tier New Monies promissory notes, with all accrued
interest being payable to such holders pari passu in proportion to which the
accrued interest payable to each such holder in respect of the First Tier New
Monies bears to the total outstanding interest payable to all such holders in
respect of the First Tier New Monies, prior to the pari passu repayment of
outstanding principal in respect of the First Tier New Monies; provided,
however, that in the event the Accelerated Maturity Date is determined by
reference to clause (D) of Section 1.2 above, or in which the Extended Maturity
Date applies as a result of a Sonesta Retained Interest Transaction, the accrued
interest and outstanding principal, if any, in respect of First Tier New Monies
which remains unpaid on the Accelerated Maturity Date, shall be paid in full on
the next occurring Accelerated Maturity Date or the Maturity Date, as the case
may be;

     

    [and
in the case of Second Tier New Monies]

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    (d) next, to
the payment of the Sales Incentive Amount (as such term is defined and
calculated in accordance with the Letter Agreement); and

     

    (e) next, to
the holders of all Second Tier New Monies promissory notes, with all accrued
interest being payable to such holders pari passu in proportion to which the
accrued interest payable to each such holder in respect of the Second Tier New
Monies bears to the total outstanding interest payable to all such holders in
respect of the Second Tier New Monies, prior to the pari passu repayment of
outstanding principal in respect of the Second Tier New Monies; provided,
however, that in the event the Accelerated Maturity Date is determined by
reference to clause (D) of Section 1.2 above or in which the Extended Maturity
Date applies as a result of a Sonesta Retained Interest Transaction above, the
accrued interest and outstanding principal, if any, in respect of Second Tier
New Monies which remains unpaid on the Accelerated Maturity Date, shall be paid
in full on the next occurring Accelerated Maturity Date or the Maturity Date, as
the case may be.

     

    2. Mandatory
Prepayments.  A mandatory prepayment shall be required
hereunder on the date of a closing of a refinancing of the HSBC Indebtedness
(which refinancing is for an amount in excess of the balance of the HSBC
Indebtedness existing on the date of the closing of the refinancing) to the
extent that proceeds are available therefrom following the payment of all
related loan refinancing closing costs (such excess, the "Excess Available
Proceeds").  Such mandatory prepayment shall be in the amount
of all Excess Available Proceeds and shall be subject to the terms of Section
1.3 above.

     

    3. Interest
Rate.  From and after the Effective Date through and including
the Maturity Date, interest shall accrue upon the unpaid principal balance of
this Note at the annual rate of _________ percent (__%) per annum [No interest
for Defortuna/Defortuna controlled person/entity; otherwise
13.5%].  All interest which is unpaid at the end of any calendar year
shall be added to the principal amount of this Note on the first day of the
succeeding calendar year. Except as provided in the penultimate sentence of
Section 1.2 above, all interest accruing under this Note shall be payable on the
Maturity Date.

     

    4. Prepayment.  This
Note shall be prepayable, in whole or in part, at any time and from time to time
without premium or penalty at the sole option of Borrower, with the amount of
the prepayment being credited first to accrued but unpaid interest and then to
principal.

     

    5. Default.  The
occurrence of any one or more of the following events, circumstances, or
conditions shall constitute a default hereunder ("Event of Default"): (a)
failure of Borrower (which term shall mean and include Borrower and/or each
borrower, endorser, surety, and guarantor of this Note) to pay to Lender within
five (5) days of the due date (whether at scheduled maturity, upon acceleration
or otherwise) any installment of principal or of interest due under this Note or
any fees owing to Lender; (b) the failure of Borrower to comply with any of the
provisions of Section 1 above;  (c) Borrower makes a general
assignment for the benefit of creditors; (d) a receiver, custodian, liquidator,
trustee or like officer of Borrower is appointed to take custody, possession or
control over any property and such appointment is not discharged within sixty
(60) days thereafter; (e) proceedings are instituted by or against Borrower
under any bankruptcy code or act or insolvency law and such proceedings remain
undismissed for a period of sixty (60) days thereafter; (f) the Partnership
receives a notice of acceleration of the HSBC Indebtedness following a default
by the Partnership thereunder and delivers such notice promptly upon receipt to
Lender; or (g) the Partnership issues, promises to issue or otherwise becomes
liable for repayment of loans or borrowings which provide for priority of
repayment senior to the "new monies" evidenced by this Note; provided that if
this Note evidences an advance of Second Tier New Monies, the repayment of the
principal and interest due hereunder shall be

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    subordinated
to certain payments as provided in Paragraph 5(a) of the Letter Agreement. At
any time after the occurrence of an Event of Default, the indebtedness evidenced
by this Note and/or any note(s) or other obligation(s) which may be taken in
renewal, extension, substitution, or modification of all or any part of the
indebtedness evidenced hereby or thereby and all other obligations of Borrower
to Lender howsoever created shall, at the option of Lender, immediately become
due and payable without demand upon or notice to Borrower, and Lender shall be
entitled to exercise all remedies available at law.  Any failure to
exercise this option of acceleration shall not constitute a waiver of the right
to exercise the same at any future time or for any other
event.  Lender's remedies contained in this Note shall be cumulative
and concurrent, and may be pursued singly, successively, or together at the sole
discretion of Lender, and may be exercised as often as occasion therefor shall
occur.  Upon the occurrence of an Event of Default interest shall
accrue under this Note on the outstanding principal balance at the interest rate
of eighteen percent (18%) per annum (the "Default Rate").

     

    6. Enforcement
Costs.  If this Note is
not paid promptly in accordance with its terms and is placed in the hands of an
attorney for collection or if suit be instituted on the Note, and as often as
this Note is placed in the hands of an attorney for collection and as often as
suit is filed to collect this Note, Borrower agrees to pay, in addition to the
unpaid principal balance and all accrued and unpaid interest, reasonable
attorneys' fees and paralegal fees through all tribunal levels, plus all costs
and expenses of collection together with all other expenses in connection
therewith, and interest on any judgment obtained by Lender at the Default Rate,
including interest at the Default Rate from and after the date of the occurrence
of such Event of Default until actual payment is made to Lender of the full
amount due Lender.

     

    7. General
Provisions.

     

    (a) Extensions and
Renewals.  Without notice and without releasing the liability
of a party, Lender may grant extensions, renewals and indulgences from time to
time and for any term or terms.

     

    (b) Waiver.  Borrower
waives presentment for payment, demand, notice of demand, notice of nonpayment
or dishonor, protest and notice of protest of this Note, and all other notices
in connection with delivery, acceptance, performance, default, or enforcement of
the payment of this Note, and agrees that its liability shall be unconditional,
without regard to the liability of any other party, and shall not be affected in
any manner by any indulgence, extension of time, renewal, waiver or modification
granted or consented to by Lender.  Borrower consents to any and all
extensions of time, renewals, waivers, or modifications that may be granted by
Lender with respect to the payment or other provisions of this Note and agrees
that additional borrowers, endorsers, guarantors or sureties may become parties
hereto without notice to them or affecting its liability.

     

    (c) Delay.  No
delay or omission of Lender to exercise any right, power or remedy accruing
under or pursuant to this Note, at law, in equity, or otherwise, shall exhaust
or impair any such right, power or remedy or shall be construed to waive any
such right, power or remedy.  Every right, power and remedy of Lender
created under this Note may be exercised from time to time and as often as may
be deemed expedient by Lender in its sole discretion.  No right, power
or remedy conferred upon or reserved to Lender is exclusive of any other right,
power or remedy, but each and every such right, power and remedy shall be
cumulative and concurrent and shall be in addition to any other right, power and
remedy given under this Note or under any other instrument executed in
connection with this Note or now or hereafter existing at law, in equity, or
otherwise.  No obligation of Borrower under this Note shall be deemed
waived

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    by any
course or pattern of conduct by any party and Lender acknowledges that it would
be unreasonable of Borrower to rely on any such conduct, or any oral statements,
for any such purpose.

     

    (d) Usury.  If
Lender shall ever receive, as interest or otherwise, an amount which would
exceed the highest lawful rate of interest, such amount which would be excessive
interest shall be applied to the reduction of the principal amount owing or on
account of any other principal indebtedness of Borrower to Lender and not to the
payment of interest or, if such excessive interest exceeds the unpaid balance of
principal and such other indebtedness, such excess shall be refunded to
Borrower.  All sums paid or agreed to be paid to Lender for the use or
detention of the indebtedness of Borrower to Lender shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such indebtedness until payment in full so that the
actual rate of interest on account of such indebtedness is uniform throughout
the term thereof.

     

    (e) Severability.  If
any provision of this Note shall be deemed unenforceable under applicable law,
such provision shall be ineffective, but only to the extent of such
unenforceability, without invalidating the remainder of such provision or the
remaining provisions of this Note.

     

    (f) Writing.  No
amendment, modification, waiver or discharge of this Note, or any provision of
this Note, shall be valid or effective unless in writing and signed by
Lender.

     

    (g) Binding on
Successors.  This Note and all provisions hereof shall be
binding upon Borrower and all persons claiming under or through Borrower, and
shall inure to the benefit of Lender, together with its successors and assigns,
including each owner and holder from time to time of this Note.

     

    (h) Time of
Essence.  Time is of the essence as to all dates set forth
herein.

     

    (i) Governing Law;
Severability.  This Note shall be governed by, and construed
and enforced in accordance with, the internal laws of the State of Florida
(without regard to conflicts of law  principles), and any applicable
laws of the United States of America. Borrower and Lender agree that
jurisdiction and venue of any dispute arising from this Note shall be Miami-Dade
County, Florida.

     

    (j) WAIVER OF TRIAL BY
JURY.  BORROWER KNOWINGLY (AFTER CONSULTATION WITH BORROWER'S
COUNSEL), VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF, UNDER, OR IN CONNECTION
WITH THIS NOTE, OR THE TRANSACTIONS OR OBLIGATIONS UNDER WHICH THIS NOTE WAS
DELIVERED, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER ORAL
OR WRITTEN) OR ACTIONS OF ANY PARTY RELATING TO THIS NOTE.  BORROWER
ACKNOWLEDGES THAT THE PROVISIONS OF THIS PARAGRAPH ARE A MATERIAL INDUCEMENT TO
LENDER'S ACCEPTANCE OF THIS NOTE.

     

    (k) No
Offset.  No amounts due or owing under this Note may be offset
by or against any amounts due Borrower by Lender.

     

    (l) Notice Of Defaults Under
HSBC Indebtedness.  In the event Borrower receives written
notice from HSBC alleging a default under or in connection with the HSBC
Indebtedness, Borrower shall promptly provide a copy of said notice to
Lender.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    (m) Power and
Authority.  Borrower hereby represents and warrants that the
individual executing this Note on behalf of Borrower is duly authorized to
execute  and deliver this Note and to perform the obligations
hereunder on behalf of Borrower and to bind Borrower to its agreements herein
and that this Note is enforceable against Borrower in accordance with its
terms.

     

    (n) Forced Sale of the
Property.

     

    

    (i) In the
event Lender has the right to cause the Partnership to sell the Property
pursuant to the penultimate sentence of Section 1.2 above, then at any time
following the Extended Maturity Date, Lender may notify the Partnership in
writing that it has elected to cause the Partnership to sell the Property. In
such case, Lender shall be permitted to market and sell the
Property.  The Partnership by its execution below irrevocably makes,
constitutes and appoints Lender as its true and lawful agent and
attorney-in-fact, with full power of substitution to its affiliates and full
power and authority in its name, place and stead, to make, execute, sign,
acknowledge, swear to, record and file any and all certificates and instruments
of any kind or nature deemed advisable by Lender to permit or cause the
Partnership to market and sell the Property.

     

    (ii) The
foregoing power of attorney.

     

    (a) is
coupled with an interest, shall be irrevocable and shall survive the incapacity
or bankruptcy of the Partnership or any Partner;

     

    (b) may be
exercised by Lender acting as attorney-in-fact for the Partnership;
and

     

    (c) shall
survive the delivery of an assignment by any Partner of the whole or any
fraction of its Partnership  Interest.

     

    (o) Waiver of Bankruptcy
Proceedings.  To the fullest extent permitted by applicable
law, Lender hereby waives any and all rights it may have at law or in equity to
initiate insolvency or Bankruptcy proceedings against the Partnership in
connection with any action arising under this Note or the loans evidenced
hereby.

     

    (p) Limitation on
Interest.  In agreeing to pay
interest under Section 3 above, the Partnership has relied upon the
representation and warranty that Lender bears the ultimate financial risk
associated with making the loan contemplated hereunder.  Accordingly,
notwithstanding anything to the contrary contained herein, no interest shall be
payable in accordance with Section 3 above if Lender has advanced funds
hereunder in a manner resulting, directly or indirectly, in Edgardo Defortuna or
an entity or person controlled by him (other than the Partnership) bearing the
risk of loss hereunder.

     

     

    

     

    

     

    

     

    [SIGNATURES
TO FOLLOW ON NEXT PAGE]

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Borrower
has delivered this Note as of the day and year first set forth
above.

     

    

    BORROWER:

    

    SBR-FORTUNE
ASSOCIATES, LLLP

    a Florida
limited liability limited partnership

    

    

    By:                                                      

    Name:                                                                

    Title:                                                                

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    

    Exhibit
"A-1"

    

                                      FINAL
FORM

    

    

    PROMISSORY
NOTE

    

    
      	
              U.S.
      $____________

            	
              As
      of _________ __, 20__ ("Effective
      Date")

               

               

            

    

    

    RECITALS

     

    A.           As
of the Effective Date, Sonesta Beach Resort Limited Partnership, a Delaware
limited partnership ("Lender") advanced to
SBR-Fortune Associates, LLLP, a Florida limited liability limited
partnership            ("Partnership" or "Borrower"), the sum of
__________________ Dollars ($__________).

     

    B.           The
Partnership is governed by that certain Agreement of Limited Liability Limited
Partnership dated as of January 17, 2005, as amended by that certain First
Amendment to Agreement of Limited Liability Limited Partnership of SBR-Fortune
Associates, LLLP dated as of February 25, 2005, and by that certain Second
Amendment to Agreement of Limited Liability Limited Partnership of SBR-Fortune
Associates, LLLP dated as of March 2, 2005, and by that certain Third
Amendment to Agreement of Limited Liability Limited Partnership of SBR-Fortune
Associates, LLLP dated as of April 15, 2005, and by that certain letter
agreement (the "Letter
Agreement"), dated as of June 18, 2009 (collectively, the "Partnership
Agreement").  (All terms appearing herein in initial
capitalized letters but not otherwise defined herein shall have the meanings
ascribed thereto in the Partnership Agreement.)

     

    C.           The
Partners agreed that "New Monies" (as such term is defined in the Letter
Agreement) advanced to the Partnership on or after January 20, 2009 would bear
interest, under certain circumstances, at stated rates and would be entitled to
certain priorities of repayment, as more fully provided in the Letter
Agreement.  This Promissory Note (the "Note") is evidence of an
advance of New Monies, and more specifically of [First Tier/Second Tier New
Monies](as defined in the Letter Agreement).

     

    D.           This
Note evidences that, as of the Effective Date, Lender advanced to Borrower the
sum of ____________________Dollars ($_______).

     

    THEREFORE, FOR VALUE RECEIVED,
Borrower hereby promises to pay to  Lender the principal amount of
____________ Dollars ($___________), together with all other amounts added
thereto pursuant to this Note, together with interest accrued from the date set
forth in Section 3 below on the balance of principal from time to time
outstanding, in United States currency, at the rates and at the times
hereinafter described.  Payments shall be made to Lender at
________________, Suite _____, _____________, _______ _____,
Attn:  ____________ (or such other address as Lender may hereinafter
designate in writing to Borrower).

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    1. Principal
and Interest Payments.

     

    1.1 All of
the principal and accrued but unpaid interest under this Note shall be due and
payable without notice or demand of any kind or nature on the "Maturity Date"; provided
however, that mandatory prepayments shall be required under the circumstances
described in and pursuant to Section 2 below.  By its execution below,
Borrower agrees that, without Lender's written consent, it shall not issue or
incur any indebtedness of any type or nature which is senior in payment or
priority to all sums hereunder other than the HSBC Indebtedness; provided that
if this Note evidences an advance of "Second Tier New Monies" (as such term is
defined in the Letter Agreement), the repayment of the principal and interest
due hereunder shall be subordinated to certain payments as provided in Paragraph
5(a) of the Letter Agreement. Subject to the preceding sentence, Borrower shall
not distribute any cash or property to its constituent partners prior to the
full and complete repayment of all principal and interest under this
Note.  For purposes of this Note, the Maturity Date will be the day
(such day, the "HSBC Discharge
Date") on which all sums due to HSBC Realty Credit Corporation (USA)
("HSBC") under that
certain Loan Agreement entered into by and between HSBC and the Partnership as
of April 19, 2005 (as the same may be extended, the "HSBC Indebtedness") are paid
in full resulting in the HSBC Indebtedness being extinguished and satisfied in
full; provided however that in the event any of the dates set forth in clauses
(A) through (C) of Section 1.2 below occurs prior to the HSBC Discharge Date,
the Maturity Date shall be accelerated to be the first of the dates set forth in
clauses (A) through (C) of Section 1.2 below (each, an "Accelerated Maturity
Date").

     

    1.2 For
purposes of this Note, the Accelerated Maturity Dates shall be:

     

    (A)           the
date of the closing of a sale of all or substantially all of the property owned
by the Partnership (the "Property") (whether effected
directly or via merger or consolidation of the Partnership) but specifically
excluding (i) any transfer of the Partnership Interests of the Fortune Partners
to Sonesta in accordance with Paragraphs 7.1 or 7.2 of the Letter Agreement and
(ii) any transfers or conveyances made in accordance with clause (y) of
Paragraph 18 of the Letter Agreement; provided that if Lender or any person or
entity affiliated with Lender retains an interest in the Property (whether via
an ownership interest in the purchaser of the Property or otherwise), the
closing date of such sale shall not constitute an Accelerated Maturity
Date;

     

    (B)           five
(5) years from the Effective Date; or

     

    (C)           the
date of the closing of a refinancing of the HSBC Indebtedness provided however
that on such Accelerated Maturity Date, the payment required hereunder shall be
limited to the "Excess Available Proceeds" as such term is defined in Section 2
below and the accrued interest and outstanding principal under this Note which
remains unpaid on such Accelerated Maturity Date shall be paid in full on the
next occurring Accelerated Maturity Date or the Maturity Date, as the case may
be:

     

    In the
event the Maturity Date is accelerated (in whole or in part) to the Accelerated
Maturity Date, all references in other provisions of this Note to the Maturity
Date shall be deemed to be references to the Accelerated Maturity
Date.

     

    1.3 In all
events in which an Accelerated Maturity Date is determined by reference to
clauses (A), or (C) of Section 1.2 above, the payment of any amount under this
Note shall be subordinated as follows:

     

    (a) first, to
the satisfaction and discharge in full of the HSBC Indebtedness;

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    (b) next, to
the payment of all Partnership liabilities, excluding (x) any amounts payable to
any of the Partners (which exclusion includes amounts payable in respect of
project administration fees or other fees or compensation payable to the Fortune
Partners and Hotel Shutdown Payments payable to Sonesta (which Hotel Shutdown
Payments shall be added to the Unreturned Capital of Sonesta)) and (y) all New
Monies;

     

    (c) next, to
the holders of all First Tier New Monies promissory notes, with all accrued
interest being payable to such holders pari passu in proportion to which the
accrued interest payable to each such holder in respect of the First Tier New
Monies bears to the total outstanding interest payable to all such holders in
respect of the First Tier New Monies, prior to the pari passu repayment of
outstanding principal in respect of the First Tier New Monies; provided,
however, that in the event the Accelerated Maturity Date is determined by
reference to clause (C) of Section 1.2 above, the accrued interest and
outstanding principal, if any, in respect of First Tier New Monies which remains
unpaid on the Accelerated Maturity Date, shall be paid in full on the next
occurring Accelerated Maturity Date or the Maturity Date, as the case may
be;

     

    [and
in the case of Second Tier New Monies]

     

    (d) next, to
the payment of the Sales Incentive Amount (as such term is defined and
calculated in accordance with the Letter Agreement); and

     

    (e) next, to
the holders of all Second Tier New Monies promissory notes, with all accrued
interest being payable to such holders pari passu in proportion to which the
accrued interest payable to each such holder in respect of the Second Tier New
Monies bears to the total outstanding interest payable to all such holders in
respect of the Second Tier New Monies, prior to the pari passu repayment of
outstanding principal in respect of the Second Tier New Monies; provided,
however, that in the event the Accelerated Maturity Date is determined by
reference to clause (C) of Section 1.2 above the accrued interest and
outstanding principal, if any, in respect of Second Tier New Monies which
remains unpaid on the Accelerated Maturity Date, shall be paid in full on the
next occurring Accelerated Maturity Date or the Maturity Date, as the case may
be.

     

    2. Mandatory
Prepayments.  A mandatory prepayment shall be required
hereunder on the date of a closing of a refinancing of the HSBC Indebtedness
(which refinancing is for an amount in excess of the balance of the HSBC
Indebtedness existing on the date of the closing of the refinancing) to the
extent that proceeds are available therefrom following the payment of all
related loan refinancing closing costs (such excess, the "Excess Available
Proceeds").  Such mandatory prepayment shall be in the amount
of all Excess Available Proceeds and shall be subject to the terms of Section
1.3 above.

     

    3. Interest
Rate.  From and after the Effective Date through and including
the Maturity Date, interest shall accrue upon the unpaid principal balance of
this Note at the annual rate of fifteen percent (15%) per annum.  All
interest which is unpaid at the end of any calendar year shall be added to the
principal amount of this Note on the first day of the succeeding calendar
year.

     

    4. Prepayment.  This
Note shall be prepayable, in whole or in part, at any time and from time to time
without premium or penalty at the sole option of Borrower, with the amount of
the prepayment being credited first to accrued but unpaid interest and then to
principal.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    5. Default.  The
occurrence of any one or more of the following events, circumstances, or
conditions shall constitute a default hereunder ("Event of Default"): (a)
failure of Borrower (which term shall mean and include Borrower and/or each
borrower, endorser, surety, and guarantor of this Note) to pay to Lender within
five (5) days of the due date (whether at scheduled maturity, upon acceleration
or otherwise) any installment of principal or of interest due under this Note or
any fees owing to Lender; (b) the failure of Borrower to comply with any of the
provisions of Section 1 above;  (c) Borrower makes a general
assignment for the benefit of creditors; (d) a receiver, custodian, liquidator,
trustee or like officer of Borrower is appointed to take custody, possession or
control over any property and such appointment is not discharged within sixty
(60) days thereafter; (e) proceedings are instituted by or against Borrower
under any bankruptcy code or act or insolvency law and such proceedings remain
undismissed for a period of sixty (60) days thereafter; (f) the Partnership
receives a notice of acceleration of the HSBC Indebtedness following a default
by the Partnership thereunder and delivers such notice promptly upon receipt to
Lender; or (g) the Partnership issues, promises to issue or otherwise becomes
liable for repayment of loans or borrowings which provide for priority of
repayment senior to the "new monies" evidenced by this Note; provided that if
this Note evidences an advance of Second Tier New Monies, the repayment of the
principal and interest due hereunder shall be subordinated to certain payments
as provided in Paragraph 5(a) of the Letter Agreement. At any time after the
occurrence of an Event of Default, the indebtedness evidenced by this Note
and/or any note(s) or other obligation(s) which may be taken in renewal,
extension, substitution, or modification of all or any part of the indebtedness
evidenced hereby or thereby and all other obligations of Borrower to Lender
howsoever created shall, at the option of Lender, immediately become due and
payable without demand upon or notice to Borrower, and Lender shall be entitled
to exercise all remedies available at law.  Any failure to exercise
this option of acceleration shall not constitute a waiver of the right to
exercise the same at any future time or for any other event.  Lender's
remedies contained in this Note shall be cumulative and concurrent, and may be
pursued singly, successively, or together at the sole discretion of Lender, and
may be exercised as often as occasion therefor shall occur.  Upon the
occurrence of an Event of Default interest shall accrue under this Note on the
outstanding principal balance at the interest rate of eighteen percent (18%) per
annum (the "Default
Rate").

     

    6. Enforcement
Costs.  If this Note is
not paid promptly in accordance with its terms and is placed in the hands of an
attorney for collection or if suit be instituted on the Note, and as often as
this Note is placed in the hands of an attorney for collection and as often as
suit is filed to collect this Note, Borrower agrees to pay, in addition to the
unpaid principal balance and all accrued and unpaid interest, reasonable
attorneys' fees and paralegal fees through all tribunal levels, plus all costs
and expenses of collection together with all other expenses in connection
therewith, and interest on any judgment obtained by Lender at the Default Rate,
including interest at the Default Rate from and after the date of the occurrence
of such Event of Default until actual payment is made to Lender of the full
amount due Lender.

     

    7. General
Provisions.

     

    (a) Extensions and
Renewals.  Without notice and without releasing the liability
of a party, Lender may grant extensions, renewals and indulgences from time to
time and for any term or terms.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    (b) Waiver.  Borrower
waives presentment for payment, demand, notice of demand, notice of nonpayment
or dishonor, protest and notice of protest of this Note, and all other notices
in connection with delivery, acceptance, performance, default, or enforcement of
the payment of this Note, and agrees that its liability shall be unconditional,
without regard to the liability of any other party, and shall not be affected in
any manner by any indulgence, extension of time, renewal, waiver or modification
granted or consented to by Lender.  Borrower consents to any and all
extensions of time, renewals, waivers, or modifications that may be granted by
Lender with respect to the payment or other provisions of this Note and agrees
that additional borrowers, endorsers, guarantors or sureties may become parties
hereto without notice to them or affecting its liability.

     

    (c) Delay.  No
delay or omission of Lender to exercise any right, power or remedy accruing
under or pursuant to this Note, at law, in equity, or otherwise, shall exhaust
or impair any such right, power or remedy or shall be construed to waive any
such right, power or remedy.  Every right, power and remedy of Lender
created under this Note may be exercised from time to time and as often as may
be deemed expedient by Lender in its sole discretion.  No right, power
or remedy conferred upon or reserved to Lender is exclusive of any other right,
power or remedy, but each and every such right, power and remedy shall be
cumulative and concurrent and shall be in addition to any other right, power and
remedy given under this Note or under any other instrument executed in
connection with this Note or now or hereafter existing at law, in equity, or
otherwise.  No obligation of Borrower under this Note shall be deemed
waived by any course or pattern of conduct by any party and Lender acknowledges
that it would be unreasonable of Borrower to rely on any such conduct, or any
oral statements, for any such purpose.

     

    (d) Usury.  If
Lender shall ever receive, as interest or otherwise, an amount which would
exceed the highest lawful rate of interest, such amount which would be excessive
interest shall be applied to the reduction of the principal amount owing or on
account of any other principal indebtedness of Borrower to Lender and not to the
payment of interest or, if such excessive interest exceeds the unpaid balance of
principal and such other indebtedness, such excess shall be refunded to
Borrower.  All sums paid or agreed to be paid to Lender for the use or
detention of the indebtedness of Borrower to Lender shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such indebtedness until payment in full so that the
actual rate of interest on account of such indebtedness is uniform throughout
the term thereof.

     

    (e) Severability.  If
any provision of this Note shall be deemed unenforceable under applicable law,
such provision shall be ineffective, but only to the extent of such
unenforceability, without invalidating the remainder of such provision or the
remaining provisions of this Note.

     

    (f) Writing.  No
amendment, modification, waiver or discharge of this Note, or any provision of
this Note, shall be valid or effective unless in writing and signed by
Lender.

     

    (g) Binding on
Successors.  This Note and all provisions hereof shall be
binding upon Borrower and all persons claiming under or through Borrower, and
shall inure to the benefit of Lender, together with its successors and assigns,
including each owner and holder from time to time of this Note.

     

    (h) Time of
Essence.  Time is of the essence as to all dates set forth
herein.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    (i) Governing Law;
Severability.  This Note shall be governed by, and construed
and enforced in accordance with, the internal laws of the State of Florida
(without regard to conflicts of law  principles), and any applicable
laws of the United States of America. Borrower and Lender agree that
jurisdiction and venue of any dispute arising from this Note shall be Miami-Dade
County, Florida.

     

    (j) WAIVER OF TRIAL BY
JURY.  BORROWER KNOWINGLY (AFTER CONSULTATION WITH BORROWER'S
COUNSEL), VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF, UNDER, OR IN CONNECTION
WITH THIS NOTE, OR THE TRANSACTIONS OR OBLIGATIONS UNDER WHICH THIS NOTE WAS
DELIVERED, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER ORAL
OR WRITTEN) OR ACTIONS OF ANY PARTY RELATING TO THIS NOTE.  BORROWER
ACKNOWLEDGES THAT THE PROVISIONS OF THIS PARAGRAPH ARE A MATERIAL INDUCEMENT TO
LENDER'S ACCEPTANCE OF THIS NOTE.

     

    (k) No
Offset.  No amounts due or owing under this Note may be offset
by or against any amounts due Borrower by Lender.

     

    (l) Notice Of Defaults Under
HSBC Indebtedness.  In the event Borrower receives written
notice from HSBC alleging a default under or in connection with the HSBC
Indebtedness, Borrower shall promptly provide a copy of said notice to
Lender.

     

    (m) Power and
Authority.  Borrower hereby represents and warrants that the
individual executing this Note on behalf of Borrower is duly authorized to
execute  and deliver this Note and to perform the obligations
hereunder on behalf of Borrower and to bind Borrower to its agreements herein
and that this Note is enforceable against Borrower in accordance with its
terms.

     

    (n) Waiver of Bankruptcy
Proceedings.  To the fullest extent permitted by applicable
law, Lender hereby waives any and all rights it may have at law or in equity to
initiate insolvency or Bankruptcy proceedings against the Partnership in
connection with any action arising under this Note or the loans evidenced
hereby.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Borrower
has delivered this Note as of the day and year first set forth
above.

     

    

    BORROWER:

    

    SBR-FORTUNE
ASSOCIATES, LLLP

    a Florida
limited liability limited partnership

    

    

    By:                                                      

    Name:                                                                

    Title:                                                                

    

    

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    Exhibit
"B"

    

              FINAL
FORM

    

    PROMISSORY
NOTE

    

    U.S.
$_________________                                                                                   ________________
____, 20__ (the "Effective
Date")

    

    FOR VALUE
RECEIVED, the undersigned, SBR-Fortune Associates, LLLP,
a Florida limited liability limited partnership (the "Partnership" or
"Maker")
promises to pay to the order of Fortune International Management,
Inc., a Florida corporation ("Holder") a fixed sum,
the amount of which shall be determined pursuant to Section 2 below (the "Indebtedness").  Payments
shall be made to Holder at 1300 Brickell Avenue, Miami,
Florida  33131. The Partnership is governed by that certain Agreement
of Limited Liability Limited Partnership dated as of January 17, 2005, as
amended by that certain First Amendment to Agreement of Limited Liability
Limited Partnership of SBR-Fortune Associates, LLLP dated as of February 25,
2005, and by that certain Second Amendment to Agreement of Limited Liability
Limited Partnership of SBR-Fortune Associates, LLLP dated as of March 2,
2005, and by that certain Third Amendment to Agreement of Limited Liability
Limited Partnership of SBR-Fortune Associates, LLLP dated as of April 15, 2005,
and by that certain letter agreement (the "Letter Agreement"), dated as
of June 18, 2009 (collectively, the "Partnership
Agreement").  All terms appearing herein in initial capitalized
letters but not otherwise defined herein shall have the meanings ascribed
thereto in the Partnership Agreement

     

    1. Maturity
Date.  This Note shall mature on the earliest of (A) the date
of the closing of a sale of all or substantially all of the property owned by
the Partnership (the "Property") (whether
effected directly or via merger or consolidation of the Partnership) but
specifically excluding (i) any transfer of the Partnership Interests of the
Fortune Partners to Sonesta in accordance with Paragraphs 7.1 or 7.2 of the
Letter Agreement and (ii) any transfers or conveyances made in accordance with
clause (y) of Paragraph 18 of the Letter Agreement, (B) five (5) years from the
Effective Date, (C) the date of the closing of a sale of all or any portion of
the partnership interests owned by one or more partners in the Partnership
(whether effected directly or via merger or consolidation of the Partnership or
via the sale of all or substantially all of the equity interests in Sonesta
Beach Resort Limited Partnership, Florida Sonesta Corporation or
via  the entering into by the Partnership of a joint venture or
similar arrangement pursuant to which a third party or parties obtain(s) more
than a de minimis direct or indirect interest in the Property) but specifically
excluding (i) any transfer of the Partnership Interests of the Fortune Partners
to Sonesta in accordance with Paragraphs 7.1 or 7.2 of the Letter Agreement and
(ii) any transfers or conveyances made in accordance with clause (y) of
Paragraph 18 of the Letter Agreement, (D) the date of the closing of a refinance
of the Partnership's indebtedness (the "HSBC Indebtedness")
owed to HSBC Realty Credit Corporation (USA) ("HSBC") pursuant to
that certain Loan Agreement dated as of April 19, 2005, as amended, and entered
into by and between HSBC and the Partnership, or (E) the date of admission of
one or more partner(s) in the Partnership subsequent to the Effective Date (the
earliest of such dates referred to as the "Maturity Date").
Notwithstanding anything to the contrary contained herein, in the event Sonesta
exercises the Buy-Out Option pursuant to Section 7.2 of the Letter
Agreement, the time period provided in (B) above shall be reduced to twelve (12)
months after the Effective Date.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    2. Principal Amount. The
principal amount of this Note shall be One Million Five Hundred Thousand Dollars
($1,500,000.00); provided however that in the event the Maturity Date is the
date described in clause (A) of Section 1 or clause (C) of Section 1, the
principal amount of this Note shall be increased by an "Additional Amount" which
shall be determined by reference to the gross sales price ("GSP") of the Property
or the partnership interests, as applicable, as follows:

     

    
      	
              GSP

            	
              Additional Amount

            
	
              less
      than $87.5 million

            	
              $0

            
	
              $87.5
      million up to but less than $95 million

            	
              $250,000

            
	
              $95
      million or more

            	
              $500,000

            

    

    

    For
purposes of the Note, the GSP of the Property shall equal the sum of the cash
and fair market value of any property received in the sale transaction, any
portion of the purchase price to be paid subsequent to the closing of the sale
transaction, including the face amount of any promissory notes received in the
sale transaction and the face amount of any and all liabilities of the
Partnership assumed by the purchaser upon the closing of the sale transaction.
In calculating the GSP, closing costs shall be allocated in conformity with the
standard of practice for similar commercial transactions in Miami-Dade County
Florida. Notwithstanding anything to the contrary contained herein, if Sonesta
Beach Resort Limited Partnership, Florida Sonesta Corporation, or Sonesta
International Hotels Corporation, or any of their affiliates owns any direct or
indirect interest in the purchaser of the Property or the partnership interests
subsequent to the closing of the sale transaction, the principal amount of this
Note shall be One Million Five Hundred Thousand Dollars ($1,500,000.00) plus an
"Additional Amount" which shall be determined by reference to the gross fair
market value ("GFMV") of the
Property or the partnership interests, as applicable, as follows:

     

    
      	
              GFMV

            	
              Additional Amount

            
	
              less
      than $87.5 million

            	
              $0

            
	
              $87.5
      million up to but less than $95 million

            	
              $250,000

            
	
              $95
      million or more

            	
              $500,000

            

    

    

    The GFMV
shall be equal to the "Appraised Value" of
the Property determined as follows: each of (i) Sonesta on the one hand, and
(ii) Holder on the other hand, shall choose an M.A.I. appraiser with no prior
relationship with the parties or their respective affiliates, to furnish a
written appraisal setting forth the GFMV of the Property as of the Maturity
Date, both of whom shall be paid for by the Partnership.  The
appraisers selected by the parties shall have at least fifteen (15) years
experience with appraisal of properties similar to the Property in the Southeast
United States.  The determination of the GFMV of the Property by the
appraisers so selected shall be in writing and in the event the two appraisals
of the GFMV of the Property vary by less than ten percent (10%), the GFMV of the
Property shall be the average of the two appraisals.  If the GFMV of
the Property as set forth in the two appraisals vary by more than ten percent
(10%), a third appraisal shall be performed by an M.A.I. appraiser selected by
the two appraisers described above possessing the qualifications described above
("Third
Appraisal"), and the GFMV of the Property shall be the average of the
Third Appraisal and whichever of the other two appraisals of GFMV is closest in
value to the Third Appraisal.  The cost of the Third Appraisal shall
be paid for by the Partnership.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    3. Interest and Default
Rate.  Unless and until the occurrence of an Event of Default
(as such term is defined below), the principal amount of this Note shall not
bear interest.  Upon the occurrence of an Event of Default interest
shall accrue under this Note on the outstanding principal balance at the
interest rate of eighteen percent (18%) per annum compounded monthly (the "Default Rate"). The
occurrence of any one or more of the following events, circumstances, or
conditions shall constitute a default hereunder ("Event of
Default"):  (a) failure of Borrower (which term shall mean and
include Borrower and/or each borrower, endorser, surety, and guarantor of this
Note) to pay to Holder  within five (5) days of the due date (whether
at scheduled maturity, upon acceleration or otherwise) any installment of
principal or of interest due under this Note or any fees owing to Holder; (b)
Borrower makes a general assignment for the benefit of creditors; (c) a
receiver, custodian, liquidator, trustee or like officer of Borrower is
appointed to take custody, possession or control over any property and such
appointment is not discharged within sixty (60) days thereafter; (d) proceedings
are instituted by or against Borrower under any bankruptcy code or act or
insolvency law and such proceedings remain undismissed for a period of sixty
(60) days thereafter; or (e) the Partnership receives a notice of acceleration
of the HSBC Indebtedness following a default by the Partnership thereunder and
delivers such notice promptly upon receipt to Holder. At any time after the
occurrence of an Event of Default, the indebtedness evidenced by this Note
and/or any note(s) or other obligation(s) which may be taken in renewal,
extension, substitution, or modification of all or any part of the indebtedness
evidenced hereby or thereby and all other obligations of Borrower to Holder
howsoever created shall, at the option of Holder, immediately become due and
payable without demand upon or notice to Borrower, and Holder shall be entitled
to exercise all remedies available at law.  Any failure to exercise
this option of acceleration shall not constitute a waiver of the right to
exercise the same at any future time or for any other event.  Holder's
remedies contained in this Note shall be cumulative and concurrent, and may be
pursued singly, successively, or together at the sole discretion of Holder, and
may be exercised as often as occasion therefor shall occur.

     

    4. Prepayment.  Maker
hereby reserves the right to prepay the Indebtedness in whole, or in part, at
any time without penalty or premium.

     

    5. Enforcement
Costs. If
this Note is not paid promptly in accordance with its terms and is placed in the
hands of an attorney for collection or if suit be instituted on this Note, and
as often as this Note is placed in the hands of an attorney for collection and
as often as suit is filed to collect this Note, Maker agrees to pay, in addition
to the unpaid principal balance and all accrued and unpaid interest, if any,
reasonable attorneys' fees and paralegal fees through all tribunal levels, plus
all costs and expenses of collection together with all other expenses in
connection therewith, and interest on any judgment obtained by Holder at the
Default Rate, including interest at the Default Rate from and after the date of
the occurrence of such Event of Default until actual payment is made to Holder
of the full amount due Holder.

     

    6. General
Provisions.

     

    (a) Extensions and
Renewals.  Without notice and without releasing the liability
of a party, Holder may: (i) grant extensions, renewals and indulgences from time
to time and for any term or terms; and (ii) add or release one or more parties
without releasing any other party to this Note.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (b) Waiver.  Maker
waives presentment for payment, demand, notice of demand, notice of nonpayment
or dishonor, protest and notice of protest of this Note, and all other notices
in connection with delivery, acceptance, performance, default, or enforcement of
the payment of this Note, and agrees that its liability shall be unconditional,
without regard to the liability of any other party, and shall not be affected in
any manner by any indulgence, extension of time, renewal, waiver or modification
granted or consented to by Holder.  Maker consents to any and all
extensions of time, renewals, waivers, or modifications that may be granted by
Holder with respect to the payment or other provisions of this Note, and agree
that additional borrowers, endorsers, guarantors or sureties may become parties
hereto without notice to them or affecting its liability.

     

    (c) Delay.  No
delay or omission of Holder to exercise any right, power or remedy accruing
under or pursuant to this Note, at law, in equity, or otherwise, shall exhaust
or impair any such right, power or remedy or shall be construed to waive any
such right, power or remedy.  Every right, power and remedy of Holder
created under this Note may be exercised from time to time and as often as may
be deemed expedient by Holder in its sole discretion.  No right, power
or remedy conferred upon or reserved to Holder is exclusive of any other right,
power or remedy, but each and every such right, power and remedy shall be
cumulative and concurrent and shall be in addition to any other right, power and
remedy given under this Note or under any other instrument executed in
connection with this Note or now or hereafter existing at law, in equity, or
otherwise.  No obligation of Maker under this Note shall be deemed
waived by any course or pattern of conduct by any party and Holder acknowledges
that it would be unreasonable of Maker to rely on any such conduct, or any oral
statements, for any such purpose.

     

    (d) Usury.  If
Holder shall ever receive, as interest or otherwise, an amount which would
exceed the highest lawful rate of interest, such amount which would be excessive
interest shall be applied to the reduction of the principal amount owing or on
account of any other principal indebtedness of Maker to Holder and not to the
payment of interest or, if such excessive interest exceeds the unpaid balance of
principal and such other indebtedness, such excess shall be refunded to
Maker.

     

    (e) Severability.  If
any provision of this Note shall be deemed unenforceable under applicable law,
such provision shall be ineffective, but only to the extent of such
unenforceability, without invalidating the remainder of such provision or the
remaining provisions of this Note.

     

    (f) Writing.  No
amendment, modification, waiver or discharge of this Note, or any provision of
this Note, shall be valid or effective unless in writing and signed by
Holder.

     

    (g) Binding on
Successors.  This Note and all provisions hereof shall be
binding upon Maker and all persons claiming under or through Maker, and shall
inure to the benefit of Holder, together with its successors and assigns,
including each owner and holder from time to time of this Note.

     

    (h) Time of
Essence.  Time is of the essence as to all dates set forth
herein.

     

    (i) Governing Law;
Severability.  This Note shall be governed by, and construed
and enforced in accordance with, the internal laws of the State of Florida
(without regard to conflicts of law  principles), and any applicable
laws of the United States of America. Maker agrees that jurisdiction and venue
of any dispute arising from this Note shall be Miami-Dade County,
Florida.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (j) WAIVER OF TRIAL BY
JURY.  MAKER KNOWINGLY (AFTER CONSULTATION WITH MAKER'S
COUNSEL), VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF, UNDER, OR IN
CONNECTION WITH THIS NOTE, OR THE TRANSACTIONS OR OBLIGATIONS UNDER WHICH THIS
NOTE WAS DELIVERED, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT
(WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY RELATING TO THIS
NOTE.  MAKER ACKNOWLEDGES THAT THE PROVISIONS OF THIS PARAGRAPH ARE A
MATERIAL INDUCEMENT TO HOLDER'S ACCEPTANCE OF THIS NOTE.

     

       (k)             No
Offset.  No amounts due or owing under this Note may be offset
by or against any amounts due Maker by Holder.

     

      (l)            Notice Of Defaults Under
HSBC Indebtedness.  In the event Borrower receives written
notice from HSBC alleging a default under or in connection with the HSBC
Indebtedness, Borrower shall promptly provide a copy of said notice to
Holder.

     

       (m)             Power and
Authority.  Maker hereby represents and warrants that the
individual executing this Note on behalf of Maker is duly authorized to
execute  and deliver this Note and to perform the obligations
hereunder on behalf of Maker and to bind Maker to its agreements herein and that
this Note is enforceable against Maker in accordance with its
terms.

     

    

     

    

     

    

     

    [SIGNATURES
TO FOLLOW ON NEXT PAGE]

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Maker has
delivered this Note as of the Effective Date.

     

    MAKER:

    

    SBR-FORTUNE
ASSOCIATES, LLLP

    a Florida
limited liability limited partnership

    

    
      	
               
      

            	
              By:

            	
              FLORIDA
      SONESTA CORPORATION, a Florida corporation, as successor General
      Partner

            

    

    

    

    By:                               

    Peter J. Sonnabend

    Vice President

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    Exhibit
"C"

    

               EXECUTION
COPY

    

    

    RELEASE AND INDEMNIFICATION
AGREEMENT

    

    This
Release and Indemnification Agreement ("Agreement") is made
and entered into as of ________, __ 20__ (the "Effective Date") by
and among Fortune KB GP,
LLC, a Florida limited liability company ("Fortune GP"), Fortune KB, LLC, a Florida
limited liability company, ("Fortune LP" and together with Fortune GP, the
"Fortune
Partners") Edgardo
Defortuna, an individual ("Defortuna"), SBR-Fortune Associates, LLLP,
a Florida limited liability limited partnership ("Partnership") and
Sonesta Beach Resort Limited
Partnership, a Delaware limited partnership ("Sonesta Beach" and
together with the Partnership, the "Releasing
Parties").

    

    WHEREAS, Sonesta Beach and the Fortune
Partners are all of the partners in the Partnership, pursuant to the Agreement
of Limited Liability Limited Partnership of SBR-Fortune Associates, LLLP dated
as of January 17, 2005, as amended by that certain First Amendment to Agreement
of Limited Liability Limited Partnership of SBR-Fortune Associates, LLLP dated
as of February 25, 2005, and by that certain Second Amendment to Agreement of
Limited Liability Limited Partnership of SBR-Fortune Associates, LLLP dated as
of March 2, 2005, and by that certain Third Amendment to Agreement of
Limited Liability Limited Partnership of SBR-Fortune Associates, LLLP dated as
of April 15, 2005, and by that certain letter agreement (the “Letter Agreement ”),
among Fortune GP, Fortune LP and Sonesta Beach, dated as of June __, 2009
(collectively, the "Partnership
Agreement"); (all terms appearing herein in initial capitalized letters
but not otherwise defined herein shall have the meanings ascribed thereto in the
Partnership Agreement);

    

    WHEREAS,
Sonesta Beach has exercised either its "Forced Sale Option" or its "Buy Out
Option" under and pursuant to the terms of the Letter Agreement (the exercise of
either such option referred to as a "Sonesta Initiated
Event");

    

    WHEREAS,
subject to the terms of this Agreement, the Releasing Parties have agreed to
release the Fortune Partners from all of their obligations under the Partnership
Agreement as more particularly described herein, and, to release Defortuna from
all of his individually guaranteed obligations under the Partnership Agreement,
including but not limited to those obligations set forth in Sections 4.4(a)(4),
4.4(c)(3), 7.2 and 8.6(e) of the Partnership Agreement; and

    

    WHEREAS,
subject to the terms of this Agreement, the Releasing Parties have agreed that
upon the occurrence of a Sonesta Initiated Event, they shall make certain
efforts as more particularly described below to cause HSBC Realty Credit
Corporation (USA) ("HSBC") to release
Defortuna from any and all liabilities and obligations (the "HSBC Release")
arising under or related to that certain Loan Agreement entered into by and
between HSBC and the Partnership as of April 19, 2005, as amended to the date
hereof (such indebtedness, the "HSBC Indebtedness"),
and if such efforts fall short of obtaining the HSBC Release, to indemnify
Defortuna from any and all liabilities and obligations arising under or related
to the HSBC Indebtedness;

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    NOW
THERFORE, in consideration of the mutual promises and other consideration, the
value of which is hereby acknowledged, it is agreed by and between the parties
as follows:

    

    1. Recitals.  The
foregoing preliminary statements are true and correct and incorporated herein by
reference

     

    2. Partnership Agreement
Release.  Effective as of the Effective Date, the Releasing
Parties, on their own behalf and on behalf of their Affiliates, hereby
unconditionally and irrevocably release, remise, acquit, waive and discharge the
Fortune Partners and Defortuna of and from any and all actual or potential
rights, damages, demands, liabilities, obligations, actions, causes of action,
suits, losses, costs and expenses, whether direct or indirect, contingent or
consequential, liquidated or unliquidated, known or unknown, suspected or
unsuspected that any of the Releasing Parties might have against the Fortune
Partners and/or Defortuna, of whatever kind or nature, whether in law, equity,
or otherwise, from the beginning of the world to the Effective Date arising out
of, under or attributable to the Partnership Agreement, including but not
limited to those certain obligations set forth in Sections 4.4(a)(4), 4.4(c)(3),
7.2 and 8.6(e) of the Partnership Agreement, but specifically excluding matters
arising out of the gross negligence,  willful misconduct or fraud of
the Fortune Partners and/or Defortuna.  Effective as of the Effective
Date, the Fortune Partners and Defortuna, on their own behalf and on behalf of
their Affiliates, hereby unconditionally and irrevocably release, remise,
acquit, waive and discharge the Releasing Parties of and from any and all actual
or potential rights, damages, demands, liabilities, obligations, actions, causes
of action, suits, losses, costs and expenses, whether direct or indirect,
contingent or consequential, liquidated or unliquidated, known or unknown,
suspected or unsuspected that any of the Fortune Partners and Defortuna might
have against the Releasing Parties, of whatever kind or nature, whether in law,
equity, or otherwise, from the beginning of the world to the Effective Date
arising out of, under or attributable to the Partnership Agreement, but
specifically excluding matters arising out of the gross
negligence,  willful misconduct or fraud of any one or more of the
Releasing Parties.

     

    3. Partnership Agreement
Indemnification.  The Releasing Parties jointly and severally
agree to, shall and hereby indemnify and hold harmless the Fortune Partners and
Defortuna, of, from and against any and all liabilities, costs, losses,
expenses, claims or damages of any kind or nature, including, without
limitation, any suits, proceedings, claims or demands  (including, but
not limited to, attorneys' fees and costs paid or incurred in connection
therewith at both trial and appellate levels) incurred or arising by reason of
or in connection with any third party claims brought against any of the
Releasing Parties, the Fortune Partners or Defortuna, relating to the
Partnership or the Partnership Agreement.  Attached as Exhibit A is a
list of all of the claims for which Fortune GP has received written notice or
has actual knowledge of as of the Effective Date ("Noticed
Claims").  The Fortune Partners and Defortuna each hereby
represent and warrant to the Releasing Parties, that, to the best knowledge of
the Fortune Partners and Defortuna, the schedule of Noticed Claims attached as
Exhibit A hereto is true, accurate and complete.

     

    4. HSBC Indebtedness
Guarantee.  As of the effective date of a Sonesta Initiated
Event, the Partnership shall take commercially reasonable efforts to cause HSBC
to issue the HSBC Release to Defortuna; it being agreed that the Releasing
Parties shall be under no obligation to undertake litigation in order to obtain
the HSBC Release. The Partnership shall take all steps necessary to cause the
HSBC Release to be delivered to the Fortune Partners and Defortuna on the
earlier to occur of (i) twelve (12) months after the Effective Date, or (ii) the
maturity date of the HSBC Indebtedness (as extended, if applicable) (the earlier
of such dates the "Mandatory Release
Date")

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    5. HSBC Indebtedness
Indemnification. In the event of a Sonesta Initiated Event, from and
after the Effective Date and continuing through and until the effective date of
the HSBC Release, Sonesta Beach and the Partnership jointly and severally agree
to, shall and hereby indemnify and hold harmless the Fortune Partners and
Defortuna, of, from and against any and all obligations, liabilities, costs,
losses, expenses, claims or damages of any kind or nature, whether direct or
indirect, contingent or consequential, liquidated or unliquidated, known or
unknown, suspected or unsuspected that HSBC might have against the Fortune
Partners and/or Defortuna, of whatever kind or nature, whether in law, equity,
or otherwise, from the beginning of the world to the effective date of the HSBC
Release arising out of, under or attributable to the HSBC
Indebtedness.  In addition, from and after the Effective Date and
continuing through and until the effective date of the HSBC Release, the
Releasing Parties shall act in good faith, shall keep the HSBC Indebtedness
current and shall use commercially reasonable efforts to avoid taking any
actions which could give rise to liability of the Fortune Partners and/or
Defortuna under or in respect of the HSBC Indebtedness.

     

    6. Affiliate.  For
purposes of this Agreement, the term "Affiliate" means with
respect to any Person, a Person directly or indirectly controlling or controlled
by or under common control with such Person.  "Person" means an
individual, corporation, partnership, business trust, limited liability company,
unincorporated association, joint stock company, trust, joint venture, or other
entity or organization.

     

    7. Representations and
Warranties.  Each party hereto hereby represents and warrants
that the individual executing this Agreement on behalf of such party is duly
authorized to execute, deliver and perform this Agreement on behalf of such
party and to bind such party to its agreements herein and that this Agreement is
enforceable against such party in accordance with its terms.

     

    8. Entire Agreement;
Amendments.  This Agreement constitutes the entire agreement
between the parties and supersedes all prior agreements, promises and
understandings, whether oral or written regarding the release and
indemnification of the Fortune Partners and Defortuna.  This Agreement
shall not be modified, amended, supplemented or revised, except by a written
document signed by all parties.

     

    9. Governing
Law/Venue.  This Agreement shall be governed by and construed
in accordance with the local laws of the State of Florida without reference to
that state's rules regarding choice of law.  The exclusive venue for
all actions or disputes relating to this Agreement shall be the state or federal
courts located in Miami-Dade County in the State of Florida, and the Parties
hereby agree not to assert, by way of motion, as a defense, or otherwise in any
such suit, action or proceeding that the suit, action or proceeding is brought
in an inconvenient forum, that the venue of the suit, action or proceeding is
improper or that this Agreement or the subject matter hereof may not be enforced
by such courts.

     

    10. Severability.  Any
provision of this Agreement, which is unenforceable in any jurisdiction, shall
be ineffective in such jurisdiction to the extent of such unenforceability
without invalidating the remaining provisions of this Agreement, and any
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

     

    11. No Waiver.  The waiver of any
breach or default of any of the terms, provisions or covenants of this Agreement
shall not be deemed to be, nor shall the same constitute, a waiver of any
subsequent breach or default of such term, provision or covenant or of any other
term, provision or covenant contained herein.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    12. Counterparts.  This
Agreement may be executed in several counterparts and all so executed shall
constitute one agreement binding on all of the parties, notwithstanding that all
of the parties are not signatory to the original or the same
counterpart.  In addition, any counterpart signature page may be
executed and delivered by facsimile or portable document format ("PDF") and any
such faxed or PDF signature pages may be attached to one or more counterparts of
this Agreement, and such faxed or PDF signature(s) shall have the same force and
effect as if original signatures had been executed and delivered in
person.

     

    13.           No Construction Against
Draftsmen.                                                                           The
parties acknowledge that this is a negotiated agreement, and that in no event
shall the terms of this Agreement be construed against any party on the basis
that such party, or its counsel, drafted this Agreement.

     

    

    

    [EXECUTIONS
COMMENCE ON FOLLOWING PAGE]

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    

    FORTUNE
GP

    

    FORTUNE KB GP,
LLC,

    a Florida
limited liability company

    

    By:           Fortune
International Management, Inc.,

    a Florida corporation, its
Manager

    

    By: /s/ Edgardo
Defortuna

    Edgardo
Defortuna, President

    

    

    FORTUNE
LP

    

    FORTUNE KB, LLC,

    a Florida
limited liability company

    

    By:           Fortune
International Management, Inc.,

    a Florida corporation, its
Manager

    

    By: /s/ Edgardo
Defortuna

    Edgardo
Defortuna, President

    

    

    EDGARDO
DEFORTUNA

    

     /s/ Edgardo
Defortuna                                                                

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    (First
signature page to Release and Indemnification Agreement)

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    

    SBR-FORTUNE
ASSOCIATES, LLLP

    a Florida
limited liability limited partnership

    

    
      	
               
      

            	
              By:

            	
              FLORIDA
      SONESTA CORPORATION, a Florida corporation, as successor General
      Partner

            

    

    

    

    By:            /s/ Peter J.
Sonnabend

    Peter J. Sonnabend

    Vice President

    

    

    

    SONESTA BEACH RESORT LIMITED
PARTNERSHIP, a Delaware limited partnership

    

    
      	
               
      

            	
              By:

            	
              FLORIDA
      SONESTA CORPORATION, a Florida
corporation

            

    

    

    

    By:            /s/ Peter J.
Sonnabend

    Peter J. Sonnabend

    Vice President

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    (Final
signature page to Release and Indemnification Agreement)

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    Exhibit
A

    

             Noticed
Claims

    

    IN THE
CIRCUIT COURT OF THE 11TH
JUDICIAL CIRCUIT, IN AND FOR MIAMI-DADE COUNTY, FLORIDA GENERAL JURISDICTION
DIVISION CASE NO. 07-15905 CA 31. JULIO A. PADILLA and CAROLINA V. TOZZI
PADILLA, Plaintiffs, v. VILLAGE OF KEY BISCAYNE, Defendant, and SBR-FORTUNE
ASSOCIATES, LLLP, Intervenor.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    Exhibit
“D”

     

    List
of HSBC Indebtedness Material Agreements and Instruments

     

     

    
      	
              1.  

            	
              Replacement
      Promissory Note ($41,000,000.00).

            

    

     

    
      	
              2.  

            	
              Replacement
      Promissory Note ($20,000,000.00).

            

    

     

    
      	
              3.  

            	
              Assignment
      and Acceptance dated September 1, 2005 to Allied Irish Banks,
      p.l.c.

            

    

     

    LOAN DOCUMENTS
(Closing Date April 19, 2005)

     

    
      	
              1.  

            	
              Amended
      and Restated Renewal Promissory Note (allonge and original notes being
      renewed are attached to this
instrument)

            

    

     

    
      	
              2.  

            	
              Assignment,
      Assumption and Release of Note and
Mortgage

            

    

     

    
      	
              3.  

            	
              Amended
      and Restated Mortgage, Assignment of Rents, Security Agreement and Notice
      of Future Advance

            

    

     

    
      	
              4.  

            	
              Loan
      Agreement and Upfront Fee Letter

            

    

     

    
      	
              5.  

            	
              Assignment
      of Leases and Rents

            

    

     

    
      	
              6.  

            	
              UCC-1
      Financing Statement
(County/Fixture)

            

    

     

    
      	
              7.  

            	
              UCC-1
      Financing Statement (State)

            

    

     

    
      	
              8.  

            	
              Guaranty
      of Payment (Edgardo Defortuna)

            

    

     

    
      	
              9.  

            	
              Affidavit
      of Title

            

    

     

    
      	
              10.  

            	
              Assignment
      of Contracts, Licenses and Permits

            

    

     

    
      	
              11.  

            	
              ADA
      and Environmental Indemnification
Agreement

            

    

     

    
      	
              12.  

            	
              Loan
      Funding Statement

            

    

     

    
      	
              13.  

            	
              Closing
      Statement and Loan Disbursement
Approval

            

    

     

    
      	
              14.  

            	
              Flood
      Insurance Acknowledgement

            

    

     

    
      	
              15.  

            	
              Anti-Coercion
      Insurance Acknowledgment

            

    

     

    
      	
              16.  

            	
              Side
      Letters Regarding Waiver of Terrorism Insurance and
  Mold

            

    

     

    
      	
              17.  

            	
              Agreement
      Regarding Instructions Given by Telephone or
  Facsimile

            

    

     

    
      	
              18.  

            	
              Requisition
      Authorization Statement

            

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    TITLE AND SURVEY
INFORMATION

     

    
      	
              19.  

            	
              Title
      Insurance Commitment

            

    

     

    
      	
              20.  

            	
              Insured
      Closing Letter

            

    

     

    
      	
              21.  

            	
              Property
      Taxes/Proof of Payment

            

    

     

    
      	
              22.  

            	
              UCC-1
      Searches

            

    

     

    
      	
              23.  

            	
              Title
      Insurance Policy (Owner and Loan)

            

    

     

    
      	
              24.  

            	
              Survey

            

    

     

    
      	
              25.  

            	
              Closing
      Instruction Letter to Title Company

            

    

     

    ZONING
INFORMATION

     

    
      	
              26.  

            	
              Zoning
      Letter issued by the City of Key
Biscayne

            

    

     

    
      	
              27.  

            	
              Opinion
      Letter of Counsel regarding Zoning and Land
Use

            

    

     

    MISCELLANEOUS

     

    
      	
              28.  

            	
              Purchase
      Agreement/Agreement of Merger regarding Acquisition of
      Property

            

    

     

    
      	
              29.  

            	
              Lease
      Agreement with Sonesta Beach Resort Limited
  Partnership

            

    

     

    
      	
              30.  

            	
              Existing
      Mortgages and Related Documents Assigned to
  Lender

            

    

     

    

     

    
      LOAN DOCUMENTS (Closing Date
April 19, 2007)

       

      

    

    
      	
              1.  

            	
              Promissory
      Note Extension and Mortgage Modification
  Agreement

            

    

    
      	
              2.  

            	
              Borrower’s
      Representations, Warranties and
Affidavit

            

    

    
      	
              3.  

            	
              Confirmation
      of Guaranty

            

    

    
      	
              4.  

            	
              Loan
      Extension Settlement Statement

            

    

    
      	
              5.  

            	
              Borrower’s
      Counsel Legal Opinion

            

    

    
      	
              6.  

            	
              Marked-Up
      Commitment to Endorse

            

    

    
      	
              7.  

            	
              Endorsement
      No. 1 to the Title Insurance Policy issued by Title Company (P/C) and
      Borrower’s Title Affidavit

            

    

    

     

    
      LOAN DOCUMENTS (Closing Date
October 19, 2007)

    

    

    
      	
              1.  

            	
              Second
      Promissory Note Extension and Mortgage Modification
    Agreement

            

    

    
      	
              2.  

            	
              Amendment
      to Loan Agreement

            

    

    
      	
              3.  

            	
              Borrower’s
      Representation, Warranties and
Affidavit

            

    

    
      	
              4.  

            	
              Second
      Confirmation and Modification of
Guaranty

            

    

    
      	
              5.  

            	
              Loan
      Extension Settlement Statement

            

    

    
      	
              6.  

            	
              Borrower’s
      Counsel Legal Opinion

            

    

    
      	
              7.  

            	
              Marked-Up
      Commitment to Endorse

            

    

    
      	
              8.  

            	
              Title
      Affidavit

            

    

    
      	
              9.  

            	
              Endorsement
      No. 2 to the Title Insurance Policy issued by Title Company
      (P/C)

            

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    LOAN DOCUMENTS (Closing Date:
January 16, 2009)

    ________________________________________________________                                                    

     

    
      	
              1.  

            	
              Third
      Promissory Note Extension and Mortgage Modification Agreement recorded
      January 27, 2009, in Official Records Book 26730, Page 3050, Miami-Dade
      County Public Records.

            

    

     

    
      	
              2.  

            	
              Loan
      Extension Settlement Statement

            

    

     

    
      	
              3.  

            	
              Second
      Amendment to Loan Agreement

            

    

     

    
      	
              4.  

            	
              Borrower’s
      Representations, Warranties and
Affidavit

            

    

     

    
      	
              5.  

            	
              Third
      Confirmation and Modification of
Guaranty

            

    

     

    
      	
              6.  

            	
              Borrower’s
      Title Affidavit

            

    

     

    
      	
              7.  

            	
              Endorsement
      No. 3 to Loan Policy No.
FA-M-960776

            

    

     

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    Exhibit
"E"

    

    FINAL
FORM

    

    CONFIDENTIALITY
AGREEMENT

    

    

    

    June __,
2009

    

    [Proposed
3rd
Party Lender]

    

    Ladies
and Gentlemen:

    

    In
connection with the proposed making of a loan (the “Loan”) from you to
SBR-Fortune Associates, LLLP, a Florida limited liability limited partnership
(the “Partnership”), the
Partnership proposes to furnish you with certain documents and information
related to the Partnership and its affiliates (herein collectively referred to
as the “Confidential
Information”).  Confidential Information includes not only
written information but also information transferred orally, visually,
electronically or by any other means.  The fact that such information
has been delivered to you, that the making of a Loan to the Partnership is under
consideration, that discussions or negotiations have occurred or are occurring
regarding the Loan, and the status of any such discussions or negotiations, are
considered Confidential Information for purposes of this confidentiality
agreement (this "Agreement").  In
consideration of our furnishing you with the Confidential Information, and as a
condition to such disclosure, you agree as follows:

     

    
      	
              1.  

            	
              The
      Confidential Information will be used by you solely for the purpose of
      your evaluation of the desirability of making the Loan and for no other
      purpose.

            

    

     

    
      	
              2.  

            	
              You
      shall keep all Confidential Information confidential and shall not,
      without the prior written consent of the Partnership, disclose it to
      anyone except to a limited group of your own employees, agents and
      advisors (collectively, “Representatives”)
      who are actually involved in evaluating, and need to know, such
      Confidential Information to perform the evaluation referred to above, each
      of whom must be advised of the confidential nature of the Confidential
      Information and of the terms of this Agreement and must agree to abide by
      such terms.  You shall be responsible for any breach of this
      Agreement by any of your
Representatives.

            

    

     

    
      	
              3.  

            	
              Upon
      any termination of your evaluation of the Loan or upon written notice from
      the Partnership to you (i) you will return to the Partnership or destroy
      the Confidential Information which is in tangible form, including any
      copies which you may have made, and you will destroy all abstracts,
      summaries thereof or references thereto in your documents, and you will
      delete all electronic or computerized information, and notify us that you
      have done so, and (ii) you and your Representatives will continue to
      maintain the confidentiality of all Confidential Information, and neither
      you nor your Representatives will use any of the Confidential Information
      with respect to, or in furtherance of, your business, any of their
      respective businesses, or in the business of anyone else, whether or not
      in competition with the Partnership, or for any other purpose
      whatsoever.

            

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    
      	
              4.  

            	
              Confidential
      Information includes all analyses, compilations, forecasts, reports,
      investigations, studies or other documents prepared by us, our
      representatives, you or your Representatives in connection with your
      evaluation of the Loan.  Confidential Information does not
      include any information which was publicly available prior to your receipt
      of such information or thereafter became publicly available (other than as
      a result of disclosure by you or any of your
      Representatives).  Information shall be deemed “publicly
      available” if it becomes a matter of public knowledge or is contained in
      materials available to the public or is obtained from any source other
      than the Partnership (or their respective partners, officers, directors,
      equity holders, employees, representatives, agents or outside advisors),
      provided that such source is not prohibited from disclosing such
      information by a legal, contractual or fiduciary obligation to the
      Partnership and did not obtain the information from an entity or person
      prohibited from disclosing such information by a legal, contractual or
      fiduciary obligation to the
Company.

            

    

     

    
      	
              5.  

            	
              You
      understand that we have endeavored to include in the Confidential
      Information those materials which we believe to be reliable and relevant
      for the purpose of your evaluation, but you acknowledge that neither the
      Partnership nor any of their respective partners, officers, directors,
      equity holders, employees, representatives, agents or outside advisors
      make any representation or warranty as to the accuracy or completeness of
      the Confidential Information and you agree that such persons shall have no
      liability to you or any of your Representatives resulting from any use of
      the Confidential Information.

            

    

     

    
      	
              6.  

            	
              In
      the event that you or any of your Representatives is requested in any
      proceeding to disclose any of the Confidential Information, you will
      provide the Partnership with prompt prior notice so that the Partnership
      may seek a protective order or other appropriate remedy and/or waive
      compliance with the provisions of this Agreement.  In the event
      that the Partnership is unable to obtain such protective order or other
      appropriate remedy, you will furnish only that portion of the Confidential
      Information which you are advised by a written opinion of counsel is
      legally required, you will give the Partnership written notice of the
      information to be disclosed as far in advance as practicable and you will
      cooperate with the Partnership to obtain a protective order or other
      reliable assurance that confidential treatment will be accorded the
      Confidential Information so
disclosed.

            

    

     

    
      	
              7.  

            	
              Without
      impairing any other provision hereof, you will promptly advise the
      Partnership of any prohibited disclosure or other breach of this Agreement
      of which you become aware.

            

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    
      	
              8.  

            	
              You
      understand and agree that money damages may not be a sufficient remedy for
      any breach of this Agreement by you or your Representatives, and that the
      Partnership, and their respective partners, officers, directors, equity
      holders, employees, representatives, agents and advisors, shall be
      entitled to specific performance and/or injunctive relief as a remedy for
      any such breach.  Such remedy may not be deemed to be the
      exclusive remedy for any such breach of this Agreement, but shall be in
      addition to all other remedies available at law or in
      equity.  You further agree that no failure or delay by the
      Partnership, or their respective partners, officers, directors, equity
      holders, employees, representatives, agents or advisors, in exercising any
      right, power or privilege under this Agreement shall operate as a waiver
      thereof, nor shall any single or partial exercise thereof preclude any
      other or further exercise thereof or the exercise of any right, power or
      privilege under this Agreement.

            

    

     

    
      	
              9.  

            	
              Nothing
      in this Agreement shall impose any obligation upon you or us to provide
      Confidential Information,  consummate the Loan or to enter into
      any discussions or negotiations with respect
  thereto.

            

    

     

    
      	
              10.  

            	
              This
      Agreement shall be governed by the laws of the State of Florida (without
      giving effect to any conflicts of law
  principles).

            

    

     

    
      	
              11.  

            	
              If
      any provision of this Agreement is determined to be invalid or
      unenforceable for any reason, in whole or in part, the remaining
      provisions of this Agreement shall be unaffected thereby and shall remain
      in full force and effect to the fullest extent permitted by applicable
      law.

            

    

     

    
      	
              12.  

            	
              This
      Agreement may be executed in several counterparts and all so executed
      shall constitute one agreement binding on all of the parties,
      notwithstanding that all of the parties are not signatory to the original
      or the same counterpart.  In addition, any counterpart signature
      page may be executed and
      delivered by facsimile or portable document format ("PDF") and any
      such faxed or PDF signature pages may be attached to one or more
      counterparts of this Agreement, and such faxed or PDF signature(s) shall
      have the same force and effect as if original signatures had been executed
      and delivered in person.

            

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    If you
are in agreement with the foregoing, please sign and return the enclosed copy of
this letter which will constitute our agreement with respect to the subject
matter of this letter as of the date first above written.

     

    Very
truly yours,

    

    SBR-FORTUNE
ASSOCIATES, LLLP

    a Florida
limited liability limited partnership

    

    

    By:                                                      

    Name:                                                                

    Title:                                                                

    

    

    

    AGREED TO
AND ACCEPTED:

     

    [________________________]

    

    

    By:
_____________________

           Name:

           Title:

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    

    EXHIBIT
"8"

    

    FINAL
FORM

    

    

    RELEASE AND INDEMNIFICATION
AGREEMENT

    

    

    This
Release and Indemnification Agreement ("Agreement") is made
and entered into as of ________, __ 20__ (the "Effective Date") by
and among Fortune KB GP,
LLC, a Florida limited liability company ("Fortune GP"), Fortune KB, LLC, a Florida
limited liability company, ("Fortune LP" and together with Fortune GP, the
"Fortune
Partners") Edgardo
Defortuna, an individual ("Defortuna"), SBR-Fortune Associates, LLLP,
a Florida limited liability limited partnership ("Partnership") and
Sonesta Beach Resort Limited
Partnership, a Delaware limited partnership ("Sonesta Beach" and
together with the Partnership, the "Releasing
Parties").

    

    WHEREAS, Sonesta Beach and the Fortune
Partners are all of the partners in the Partnership, pursuant to the Agreement
of Limited Liability Limited Partnership of SBR-Fortune Associates, LLLP dated
as of January 17, 2005, as amended by that certain First Amendment to Agreement
of Limited Liability Limited Partnership of SBR-Fortune Associates, LLLP dated
as of February 25, 2005, and by that certain Second Amendment to Agreement of
Limited Liability Limited Partnership of SBR-Fortune Associates, LLLP dated as
of March 2, 2005, and by that certain Third Amendment to Agreement of
Limited Liability Limited Partnership of SBR-Fortune Associates, LLLP dated as
of April 15, 2005, and by that certain letter agreement (the “Letter Agreement ”),
among Fortune GP, Fortune LP and Sonesta Beach, dated as of June 18, 2009
(collectively, the "Partnership
Agreement"); (all terms appearing herein in initial capitalized letters
but not otherwise defined herein shall have the meanings ascribed thereto in the
Partnership Agreement);

    

    WHEREAS,
as of the Effective Date, there has been a closing pursuant to which there has
been a (i) sale of the Property (whether effected directly or via a merger or
consolidation of the Partnership), (ii) sale of all or substantially all of the
Partnership Interests (whether effected directly or via merger or consolidation
of the Partnership or via the sale of all or substantially all of the equity
interests in Sonesta Beach, Florida Sonesta Corporation or via  the
entering into by the Partnership of a joint venture or similar arrangement
pursuant to which a third party or parties obtain(s) more than a de minimis
direct or indirect interest in the Property), (iii) admission of one (1) or more
persons or entities as partners in the Partnership (or the Partnership closing
on a loan which contains either a conversion feature allowing the holder to
acquire equity in the Partnership or provides for some level of participation by
the lender in the Partnership's revenues, profits or cash flow), or (iv) the
entering into by the Partnership of a joint venture or similar arrangement (any
of the transactions described in (i) through (iv) are referred to as a "Triggering
Transaction");

    

    WHEREAS,
subject to the terms of this Agreement, the Releasing Parties have agreed to
release the Fortune Partners from all of their obligations under the Partnership
Agreement as more particularly described herein, and, to release Defortuna from
all of his individually guaranteed obligations under the Partnership Agreement,
including but not limited to those obligations set forth in Sections 4.4(a)(4),
4.4(c)(3), 7.2 and 8.6(e) of the Partnership Agreement;

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    WHEREAS,
subject to the terms of this Agreement, the Releasing Parties have agreed that
upon the occurrence of a Triggering Transaction, they shall cause HSBC Realty
Credit Corporation (USA) ("HSBC") to release
Defortuna from any and all liabilities and obligations (the "HSBC Release")
arising under or related to that certain Loan Agreement entered into by and
between HSBC and the Partnership as of April 19, 2005, as amended to the date
hereof (such indebtedness, the "HSBC Indebtedness");
and

    

    NOW
THERFORE, in consideration of the mutual promises and other consideration, the
value of which is hereby acknowledged, it is agreed by and between the parties
as follows:

    

    1. Recitals.  The
foregoing preliminary statements are true and correct and incorporated herein by
reference

     

    2. Partnership Agreement
Release.  Effective as of the Effective Date, the Releasing
Parties, on their own behalf and on behalf of their Affiliates, hereby
unconditionally and irrevocably release, remise, acquit, waive and discharge the
Fortune Partners and Defortuna of and from any and all actual or potential
rights, damages, demands, liabilities, obligations, actions, causes of action,
suits, losses, costs and expenses, whether direct or indirect, contingent or
consequential, liquidated or unliquidated, known or unknown, suspected or
unsuspected that any of the Releasing Parties might have against the Fortune
Partners and/or Defortuna, of whatever kind or nature, whether in law, equity,
or otherwise, from the beginning of the world to the Effective Date arising out
of, under or attributable to the Partnership Agreement, including but not
limited to those certain obligations set forth in Sections 4.4(a)(4), 4.4(c)(3),
7.2 and 8.6(e) of the Partnership Agreement, but specifically excluding matters
arising out of the gross negligence,  willful misconduct or fraud of
the Fortune Partners and/or Defortuna.  Effective as of the Effective
Date, the Fortune Partners and Defortuna, on their own behalf and on behalf of
their Affiliates, hereby unconditionally and irrevocably release, remise,
acquit, waive and discharge the Releasing Parties of and from any and all actual
or potential rights, damages, demands, liabilities, obligations, actions, causes
of action, suits, losses, costs and expenses, whether direct or indirect,
contingent or consequential, liquidated or unliquidated, known or unknown,
suspected or unsuspected that any of the Fortune Partners and Defortuna might
have against the Releasing Parties, of whatever kind or nature, whether in law,
equity, or otherwise, from the beginning of the world to the Effective Date
arising out of, under or attributable to the Partnership Agreement, but
specifically excluding matters arising out of the gross
negligence,  willful misconduct or fraud of any one or more of the
Releasing Parties.

     

    3. Partnership Agreement
Indemnification.  The Releasing Parties jointly and severally
agree to, shall and hereby indemnify and hold harmless the Fortune Partners and
Defortuna, of, from and against any and all liabilities, costs, losses,
expenses, claims or damages of any kind or nature, including, without
limitation, any suits, proceedings, claims or demands  (including, but
not limited to, attorneys' fees and costs paid or incurred in connection
therewith at both trial and appellate levels) incurred or arising by reason of
or in connection with any third party claims brought against any of the
Releasing Parties, the Fortune Partners or Defortuna, relating to the
Partnership or the Partnership Agreement.  Attached as Exhibit A is a
list of all of the claims for which Fortune GP has received written notice or
has actual knowledge of as of the Effective Date ("Noticed
Claims").  The Fortune Partners and Defortuna each hereby
represent and warrant to the Releasing Parties, that, to the best knowledge of
the Fortune Partners and Defortuna, the schedule of Noticed Claims attached as
Exhibit A hereto is true, accurate and complete.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    4. HSBC Indebtedness
Guarantee. As a condition precedent to a closing under any Triggering
Transaction, there shall be an absolute obligation on the part of the
Partnership to obtain the HSBC Release and deliver same to the Fortune Partners
and Defortuna prior to a closing under any such Triggering
Transaction.

     

    5. Intentionally
Omitted.

     

    6. Affiliate.  For
purposes of this Agreement, the term "Affiliate" means with
respect to any Person, a Person directly or indirectly controlling or controlled
by or under common control with such Person.  "Person" means an
individual, corporation, partnership, business trust, limited liability company,
unincorporated association, joint stock company, trust, joint venture, or other
entity or organization.

     

    7. Representations and
Warranties.  Each party hereto hereby represents and warrants
that the individual executing this Agreement on behalf of such party is duly
authorized to execute, deliver and perform this Agreement on behalf of such
party and to bind such party to its agreements herein and that this Agreement is
enforceable against such party in accordance with its terms.

     

    8. Entire Agreement;
Amendments.  This Agreement constitutes the entire agreement
between the parties and supersedes all prior agreements, promises and
understandings, whether oral or written regarding the release and
indemnification of the Fortune Partners and Defortuna.  This Agreement
shall not be modified, amended, supplemented or revised, except by a written
document signed by all parties.

     

    9. Governing
Law/Venue.  This Agreement shall be governed by and construed
in accordance with the local laws of the State of Florida without reference to
that state's rules regarding choice of law.  The exclusive venue for
all actions or disputes relating to this Agreement shall be the state or federal
courts located in Miami-Dade County in the State of Florida, and the Parties
hereby agree not to assert, by way of motion, as a defense, or otherwise in any
such suit, action or proceeding that the suit, action or proceeding is brought
in an inconvenient forum, that the venue of the suit, action or proceeding is
improper or that this Agreement or the subject matter hereof may not be enforced
by such courts.

     

    10. Severability.  Any
provision of this Agreement, which is unenforceable in any jurisdiction, shall
be ineffective in such jurisdiction to the extent of such unenforceability
without invalidating the remaining provisions of this Agreement, and any
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

     

    11. No Waiver.  The waiver of any
breach or default of any of the terms, provisions or covenants of this Agreement
shall not be deemed to be, nor shall the same constitute, a waiver of any
subsequent breach or default of such term, provision or covenant or of any other
term, provision or covenant contained herein.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    12. Counterparts.  This
Agreement may be executed in several counterparts and all so executed shall
constitute one agreement binding on all of the parties, notwithstanding that all
of the parties are not signatory to the original or the same
counterpart.  In addition, any counterpart signature page may be
executed and delivered by facsimile or portable document format ("PDF") and any such
faxed or PDF signature pages may be attached to one or more counterparts of this
Agreement, and such faxed or PDF signature(s) shall have the same force and
effect as if original signatures had been executed and delivered in
person.

     

    13.           No Construction Against
Draftsmen.                                                                           The
parties acknowledge that this is a negotiated agreement, and that in no event
shall the terms of this Agreement be construed against any party on the basis
that such party, or its counsel, drafted this Agreement.

     

    

    

    [EXECUTIONS
COMMENCE ON FOLLOWING PAGE]

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    

    FORTUNE
GP

    

    FORTUNE KB GP,
LLC,

    a Florida
limited liability company

    

    By:           Fortune
International Management, Inc.,

    a Florida corporation, its
Manager

    

    By:                                                                

    Edgardo
Defortuna, President

    

    

    FORTUNE
LP

    

    FORTUNE KB, LLC,

    a Florida
limited liability company

    

    By:           Fortune
International Management, Inc.,

    a Florida corporation, its
Manager

    

    By:                                                                

    Edgardo
Defortuna, President

    

    

    EDGARDO
DEFORTUNA

    

    __________________________

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    (First
signature page to Release and Indemnification Agreement)

    

    

    

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    

    SBR-FORTUNE
ASSOCIATES, LLLP

    a Florida
limited liability limited partnership

    

    

    By:                                                      

    Name:                                                                

    Title:                                                                

    

    

    

    SONESTA BEACH RESORT LIMITED
PARTNERSHIP, a Delaware limited partnership

    

    
      	
               
      

            	
              By:

            	
              FLORIDA
      SONESTA CORPORATION, a Florida
corporation

            

    

    

    

    By:                           

    Peter J. Sonnabend

    Vice President

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    (Final
signature page to Release and Indemnification Agreement)

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    Exhibit
A

    

             Noticed
Claims

    

    IN THE
CIRCUIT COURT OF THE 11TH
JUDICIAL CIRCUIT, IN AND FOR MIAMI-DADE COUNTY, FLORIDA GENERAL JURISDICTION
DIVISION CASE NO. 07-15905 CA 31. JULIO A. PADILLA and CAROLINA V. TOZZI
PADILLA, Plaintiffs, v. VILLAGE OF KEY BISCAYNE, Defendant, and SBR-FORTUNE
ASSOCIATES, LLLP, Intervenor.ex41.htm

EXHIBIT 4.1

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of October 1, 2009, between OXIS International, Inc., a Delaware corporation (the “Company”), and each purchaser identified
on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively, the “Purchasers”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser,
and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:

 

 

ARTICLE I.

DEFINITIONS

 

1.1           Definitions.  In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Debentures (as
defined herein), and (b) the following terms have the meanings set forth in this Section 1.1:

 

“Acquiring Person” shall have the meaning ascribed to such term in Section 4.7.

 

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

 

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

 

“Board of Directors” means the board of directors of the Company.

 

“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

 

“Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1.

 

“Closing Date” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all

 

  

 

  

conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver the Securities, in each case, have been satisfied or waived.

 

 “Closing Statement” means the Closing Statement in the form on Annex A attached hereto.

 

“Commission” means the United States Securities and Exchange Commission.

 

“Common Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.

 

“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument
that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

“Company Counsel” means Law Offices of Stephen M. Fleming PLLC, with offices located at 110 Wall Street, 11th Floor, New York, New York 10005.

 

“Conversion Price” shall have the meaning ascribed to such term in the Debentures.

 

“Debentures” means the 0% Convertible Debentures due, subject to the terms therein, 24 months from their date of issuance, issued by the Company to the Purchasers hereunder, in the form of Exhibit A attached
hereto.

 

“Disclosure Schedules” shall have the meaning ascribed to such term in Section 3.1.

 

 “Effective Date” means the earlier of (a) the effective date of a Registration Statement registering the resale of all of the Underlying Shares and (b) the date that all of Underlying Shares are eligible for sale under Rule 144, without (i) the requirement
for the Company to be in compliance with the current public information required under Rule 144 as to such Underlying Shares and (ii) volume or manner-of-sale restrictions (assuming for purposes of this clause (b) that all Warrant Shares will be issued pursuant to the cashless exercise provision of Section 2(c) of the Warrants).

 

 “Evaluation Date” shall have the meaning ascribed to such term in Section 3.1(r).

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers, consultants, advisors or directors of the Company pursuant to any

 

 

  

2

  

stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose (provided, however, any shares issuable to consultants and advisors shall be issued at the market price at the time of
issuance and, any subsequent adjustment to the price of such issuance shall trigger an adjustment to the Section 5(b) of the Debenture and Section 3(b) of the Warrants), (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase
the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities, (c) securities issued upon conversion or exercise of securities outstanding as of the Closing Date, and (d) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating
company or an asset in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.

 

“FDA” shall have the meaning ascribed to such term in Section 3.1(kk).

 

“FDCA” shall have the meaning ascribed to such term in Section 3.1(kk).

 

“Forbearance Agreement” shall mean the Standstill and Forbearance Agreement by and among the Company and each of the lenders signatory thereto, attached hereto as Exhibit D.

 

 “GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Increase Amendment” shall have the meaning ascribed to such term in Section 4.21.

 

“Indebtedness” shall have the meaning ascribed to such term in Section 3.1(aa).

 

“Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(o).

 

“Legend Removal Date” shall have the meaning ascribed to such term in Section 4.1(c).

 

“Liens” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

 

 

  

3

  

“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).

 

“Material Permits” shall have the meaning ascribed to such term in Section 3.1(m).

 

“Maximum Rate” shall have the meaning ascribed to such term in Section 5.17.

 

“Participation Maximum” shall have the meaning ascribed to such term in Section 4.12(a).

 

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

 “Pharmaceutical Product” shall have the meaning ascribed to such term in Section 3.1(kk).

 

“Pre-Notice” shall have the meaning ascribed to such term in Section 4.12(b).

 

 “Pro Rata Portion” shall have the meaning ascribed to such term in Section 4.12(e).

 

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

 

“Public Information Failure” shall have the meaning ascribed to such term in Section 4.3(b).

 

“Public Information Failure Payments” shall have the meaning ascribed to such term in Section 4.3(b).

 

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.10.

 

 “Registration Statement” means a registration statement filed pursuant to Section 4.19, registering the resale, by the Purchasers, of all of the Underlying Shares.

 

“Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

 

 “Required Filing” shall have the meaning set forth in Section 4.21.

 

 “Required Minimum” means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon exercise in full of all
Warrants or conversion in full of all Debentures, ignoring any conversion or

 

 

  

4

  

exercise limits set forth therein, and assuming that the Conversion Price is at all times on and after the date of determination 75% of the then Conversion Price on the Trading Day immediately prior to the date of determination.

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

 

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and
effect as such Rule.

“SEC Guidance” means (i) any publicly-available written or oral guidance of the Commission Staff, or comments, requirements or requests of the Commission staff and (ii) the Securities Act.

“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Securities” means the Debentures, the Warrants, the Warrant Shares and the Underlying Shares.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Series A Warrants” means the Series A Common Stock purchase warrants delivered to the Purchasers at the Closing in accordance with Section 2.2(a) hereof, which Warrants shall be exercisable immediately, have a term of exercise equal to five years and an exercise
price equal to $0.0625, subject to adjustment therein, in the form of Exhibit B attached hereto.

 

“Series B Warrants” means the Series B Common Stock purchase warrants delivered to the Purchasers at the Closing in accordance with Section 2.2(a) hereof, which Warrants shall be exercisable immediately, have a term of exercise equal to five years and an exercise
price equal to $0.075, subject to adjustment therein, in the form of Exhibit B attached hereto.

 

 “Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock). 

 

“Stockholder Approval” shall have the meaning set forth in Section 4.21.

 

 “Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for Debentures and Warrants purchased hereunder as specified below such

 

 

  

5

  

Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds.

 

“Subsequent Financing” shall have the meaning ascribed to such term in Section 4.12(a).

 

“Subsequent Financing Notice” shall have the meaning ascribed to such term in Section 4.12(b).

 

“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a) and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after
the date hereof.

 

 “Trading Day” means a day on which the principal Trading Market is open for trading.

 

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE AMEX, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York
Stock Exchange, the OTC Bulletin Board or the Pink OTC Markets, Inc. (or any successors to any of the foregoing).

 

 “Transaction Documents” means this Agreement, the Debentures, the Warrants, the Escrow Agreement, the Forbearance Agreement, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions
contemplated hereunder.

 

“Transfer Agent” means Computershare Investor Services, the current transfer agent of the Company, with a mailing address of 25 Royall Street, Canton, MA  02021 and a facsimile number of _______________, and any successor transfer agent of the Company.

 

“Underlying Shares” means the shares of Common Stock issued and issuable upon conversion or redemption of the Debentures and upon exercise of the Warrants.

 

“Variable Rate Transaction” shall have the meaning ascribed to such term in Section 4.13(a).

 

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if

 

 

  

6

  

prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of
Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

“Warrants” means, collectively, the Series A Warrants and the Series B Warrants.

 

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrants.

 

“WS” means Weinstein Smith LLP with offices located at 420 Lexington Avenue, Suite 2620, New York, New York 10170-0002.

 

 

ARTICLE II.

PURCHASE AND SALE

 

2.1           Closing.  On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the
Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, up to an aggregate of $2,000,000 in principal amount of the Debentures.  Each Purchaser shall deliver to the Company Counsel via wire transfer or a certified check of immediately available funds equal to such Purchaser’s Subscription Amount as set forth on the signature page hereto executed by such Purchaser, and the Company shall deliver to each Purchaser its respective Debenture and a Warrant, as determined
pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing.  Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of WS or such other location as the parties shall mutually agree.

 

2.2           Deliveries.

 

(a)           On or prior to the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:

 

	
  
	
(i)
	
this Agreement duly executed by the Company;

 

(ii)           a legal opinion of Company Counsel, substantially in the form of Exhibit C attached hereto;

 

(iii)           a Debenture with a principal amount equal to such Purchaser’s Subscription Amount, registered in the name of such Purchaser;

 

(iv)           a Series A Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 50% of such

 

 

  

7

  

Purchaser’s Subscription Amount divided by $0.05;

 

(v)           a Series B Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 50% of such Purchaser’s Subscription Amount divided by $0.05;
and

 

(vi)           an Escrow Agreement between the Company, Company Counsel and the Purchasers duly executed attached hereto as Exhibit E (the “Escrow Agreement”)

 

(b)           On or prior to the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company the following:

 

	
  
	
(i)
	
this Agreement duly executed by such Purchaser;

 

(ii)           the Escrow Agreement duly executed by such Purchaser; and

 

(iii)           such Purchaser’s Subscription Amount by wire transfer to the account as specified in writing by the Company.

 

2.3           Closing Conditions.

 

(a)             The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:

 

(i)           the accuracy in all material respects on the Closing Date of the representations and warranties of the Purchasers contained herein (unless as of a specific date therein);

 

(ii)           all obligations, covenants and agreements of each Purchaser required to be performed at or prior to the Closing Date shall have been performed; and

 

(iii)           the delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement.

 

(b)             The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met:

 

(i)           the accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Company contained herein (unless as of a specific date therein);

 

(ii)           all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;

 

 

  

8

  

(iii)           the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement;

 

(iv)           there shall have been no Material Adverse Effect with respect to the Company since the date hereof;

 

(v)           the delivery by the Company of the Forbearance Agreement; and

 

(vi)           from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission  or the Company’s principal Trading Market (except for any suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the Closing), and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities
or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of each Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing.

 

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1           Representations and Warranties of the Company.  Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or
otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to each Purchaser:

 

(a)           Subsidiaries.  All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a).  The Company
owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.  If the Company has no subsidiaries, all other references to the Subsidiaries or any of them in the Transaction Documents shall be disregarded.

 

(b)           Organization and Qualification.  Except as set forth on Schedule 3.1(a), the Company and each of the Subsidiaries is an entity
duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted.  Neither the

 

 

  

9

  

Company nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents.  Except as set forth on Schedule 3.1(a), each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect
on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

 

(c)           Authorization; Enforcement.  The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder.  Subject to filing the Increase Amendment with the State of Delaware, the execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection therewith other
than in connection with the Required Approvals.  Each Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

(d)           No Conflicts.  Subject to filing the Increase Amendment with the State of Delaware, the execution, delivery and performance by the Company of the Transaction Documents, the issuance and sale of
the Securities and the consummation by it of the transactions contemplated hereby and thereby to which it is a party do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties
or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a

 

 

  

10

  

Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(e)           Filings, Consents and Approvals.  The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.6 of this Agreement, (ii) the notice and/or application(s) to each applicable Trading Market for the issuance and sale of the Securities and the listing of the Underlying Shares for trading thereon in the time and manner required thereby and (iii) the filing of Form D with the
Commission and such filings as are required to be made under applicable state securities laws (collectively, the “Required Approvals”).

 

(f)           Issuance of the Securities.  The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid
and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents.  Subject to filing the Increase Amendment with the State of Delaware, the Underlying Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents.  Subject
to filing the Increase Amendment with the State of Delaware, the Company has reserved from its duly authorized capital stock a number of shares of Common Stock for issuance of the Underlying Shares at least equal to the Required Minimum on the date hereof.

 

(g)           Capitalization.  The capitalization of the Company is as set forth on Schedule 3.1(g), which Schedule
3.1(g) shall also include the number of shares of Common Stock owned beneficially, and of record, by Affiliates of the Company as of the date hereof. Except as set forth on Schedule 3.1(g), the Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of employee stock options under the Company’s stock option plans, the issuance of shares of Common
Stock to employees pursuant to the Company’s employee stock purchase plans and pursuant to the conversion and/or exercise of Common Stock Equivalents outstanding as of the date of the most recently filed periodic report under the Exchange Act.  Except as set forth on Schedule 3.1(g), no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated
by the Transaction

 

 

  

11

  

Documents.  Except as set forth on Schedule 3.1(g) and except as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. Except as set forth on Schedule 3.1(g), the issuance and sale of the Securities will not obligate
the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any
preemptive rights or similar rights to subscribe for or purchase securities.  Except in connection with the Stockholder Approval (as defined below) required to file the Increase Amendment with the State of Delaware, no further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities.  There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock
to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.

 

(h)           SEC Reports; Financial Statements.  Except as set forth on Schedule 3.1(h), the Company has filed all reports, schedules, forms,
statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC
Reports”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension.   Except as set forth on Schedule 3.1(h), as of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, contained
any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.  The Company has never been an issuer subject to Rule 144(i) under the Securities Act. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission
with respect thereto as in effect at the time of filing.  Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP,
and fairly present

 

 

  

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in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

 

(i)           Material Changes; Undisclosed Events, Liabilities or Developments.  Except as set forth on Schedule 3.1(i), since the date of the
latest audited financial statements included within the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof: (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B)
liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or
Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for confidential treatment of information.  Except for the issuance of the Securities contemplated by this Agreement or as set forth on Schedule 3.1(i), no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the
Company or its Subsidiaries or their respective business, properties, operations, assets or financial condition, that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least 1 Trading Day prior to the date that this representation is made.

 

(j)           Litigation.  Except as set forth on Schedule 3.1(j), there is no action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the
Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect.  Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty.  There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation
by the Commission involving the Company or any current or former director or officer of the Company.  The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.

 

 

  

13

  

(k)           Labor Relations.  Except as set forth on Schedule 3.1(k), no material labor dispute exists or, to the knowledge of the Company,
is imminent with respect to any of the employees of the Company, which could reasonably be expected to result in a Material Adverse Effect.  None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees
are good.  Except as set forth on Schedule 3.1(k), no executive officer, to the knowledge of the Company, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer
does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(l)           Compliance.  Except as set forth on Schedule 3.1(l), neither the Company nor any Subsidiary: (i) is in default under or in violation
of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation
of any judgment, decree or order of any court, arbitrator or governmental body or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business and all such laws that affect the environment, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(m)           Regulatory Permits.  Except as set forth on Schedule 3.1(m), the Company and the Subsidiaries possess all certificates, authorizations
and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification
of any Material Permit.

 

(n)           Title to Assets.  Except as set forth on Schedule 3.1(n), the Company and the Subsidiaries have good and marketable title in fee
simple to all real property owned by them and good and marketable title in all personal property owned by them that is

 

 

  

14

  

material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and Liens for the payment of federal,
state or other taxes, the payment of which is neither delinquent nor subject to penalties.  Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance.

 

(o)           Patents and Trademarks.  Except as set forth on Schedule 3.1(o), the Company and the Subsidiaries have, or have rights to use,
all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights as described in the SEC Reports as necessary or material for use in connection with their respective businesses and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”).  Neither
the Company nor any Subsidiary has received a notice (written or otherwise) that any of the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights.  The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(p)           Insurance.  Except as set forth on Schedule 3.1 (p), the Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage at least equal to the aggregate Subscription Amount.  Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business without a significant increase in cost.

 

(q)           Transactions With Affiliates and Employees.  Except as set forth in the SEC Reports, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees
of the Company is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner, in each case in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf

 

 

  

15

  

of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company.

 

(r)           Sarbanes-Oxley; Internal Accounting Controls.  The Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date.  The
Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Commission’s rules and forms.  The Company’s certifying officers have evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by the Company’s most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”).  The Company presented in its most recently filed periodic
report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date.  Since the Evaluation Date, there have been no changes in the Company’s internal control over financial reporting (as such term is defined in the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

(s)           Certain Fees.  Except as set forth on Schedule 3.1(s), no brokerage or finder’s fees or commissions are or will be payable
by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents.  The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.

 

(t)           Private Placement.  Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and
sale of the Securities by the Company to the Purchasers as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.

 

(u)           Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of,

 

 

  

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an “investment company” within the meaning of the Investment Company Act of 1940, as amended.  The Company shall conduct its business in a manner so that it will not become an “investment company” subject to registration under the Investment Company Act of 1940, as amended.

 

(v)           Registration Rights.  Except as set forth on Schedule 3.1(v), no Person has any right to cause the Company to effect the registration
under the Securities Act of any securities of the Company.

 

(w)           Listing and Maintenance Requirements.  The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge
is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration.  Except as set forth on Schedule 3.1(w), the Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that
the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements.

 

(x)           Application of Takeover Protections.  The Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the Company’s issuance of the Securities
and the Purchasers’ ownership of the Securities.

 

(y)           Disclosure.  Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company confirms that neither it nor any other Person acting
on its behalf has provided any of the Purchasers or their agents or counsel with any information that it believes constitutes or might constitute material, non-public information.  The Company understands and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Company.  All of the disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company, its business and the transactions contemplated hereby,
including the Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.   The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make the

 

 

  

17

  

statements therein, in light of the circumstances under which they were made and when made, not misleading.  The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.

 

(z)           No Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its
or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or
designated.

 

(aa)           Solvency.  Based on the consolidated financial condition of the Company as of the Closing Date, after giving effect to the receipt by the Company of the proceeds from the sale of the Securities
hereunder: (i) the fair saleable value of the Company’s assets does not exceed the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted
by the Company, and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would not be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid.  The Company does not intend to incur debts beyond its ability to pay such debts as they mature
(taking into account the timing and amounts of cash to be payable on or in respect of its debt).  The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date.  Schedule 3.1(aa) sets forth as of the date hereof all outstanding secured and unsecured Indebtedness
of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments.  For the purposes of this Agreement, “Indebtedness” means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not
the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP.  Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

 

 

  

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(bb)           Tax Status.                       Except for matters that would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse Effect and except as set forth on Schedule 3.1(bb), the Company and each Subsidiary has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been asserted or threatened against the Company or any Subsidiary.

 

(cc)           No General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising.  The
Company has offered the Securities for sale only to the Purchasers and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.

 

(dd)           Foreign Corrupt Practices.  Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has: (i) directly or indirectly, used any funds
for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is  in violation of law or (iv) violated in any material
respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

 

(ee)           Accountants.  The Company’s accounting firm is set forth on Schedule 3.1(ee) of the Disclosure Schedules.  To
the knowledge and belief of the Company, such accounting firm is a registered public accounting firm as required by the Exchange Act and (ii) expressed its opinion with respect to the financial statements included in the Company’s Annual Report for the year ended December 31, 2008.

 

(ff)           Seniority.  Except as set forth on Schedule 3.1(ff), as of the Closing Date, no Indebtedness or other claim against the Company
is senior to the Debentures in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise, other than indebtedness secured by purchase money security interests (which is senior only as to underlying assets covered thereby) and capital lease obligations (which is senior only as to the property covered thereby).

 

(gg)           No Disagreements with Accountants and Lawyers.  There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants
and lawyers formerly or presently employed by the Company and the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company’s ability to perform any of its obligations under any of the Transaction Documents.

 

(hh)           Acknowledgment Regarding Purchasers’ Purchase of Securities.  The Company acknowledges and agrees that each of the Purchasers is acting solely in the

 

 

  

19

  

capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby.  The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions
contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities.  The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated
hereby by the Company and its representatives.

 

(ii)           Acknowledgment Regarding Purchaser’s Trading Activity.  Anything in this Agreement or elsewhere herein to the contrary notwithstanding (except for Sections 3.2(f) and 4.16 hereof), it is
understood and acknowledged by the Company that: (i) none of the Purchasers have been asked by the Company to agree, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term, (ii) past or future open market or other transactions by any Purchaser, specifically including, without limitation, Short Sales or “derivative”
transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities, (iii) any Purchaser, and counter-parties in “derivative” transactions to which any such Purchaser is a party, directly or indirectly, may presently have a “short” position in the Common Stock and (iv) each Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party
in any “derivative” transaction.  The Company further understands and acknowledges that (y) one or more Purchasers may engage in hedging activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Underlying Shares deliverable with respect to Securities are being determined, and (z) such hedging activities (if any) could reduce the value of the existing stockholders' equity interests in the Company
at and after the time that the hedging activities are being conducted.  The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents.

 

(jj)           Regulation M Compliance.  The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization
or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Company’s placement agent in connection with the placement of the Securities.

 

(kk)           FDA.  As to each product subject to the jurisdiction of the U.S. Food and

 

 

  

20

  

Drug Administration (“FDA”) under the Federal Food, Drug and Cosmetic Act, as amended, and the regulations thereunder (“FDCA”) that is manufactured, packaged, labeled, tested, distributed,
sold, and/or marketed by the Company or any of its Subsidiaries (each such product, a “Pharmaceutical Product”), such Pharmaceutical Product is being manufactured, packaged, labeled, tested, distributed, sold and/or marketed by the Company in compliance with all applicable requirements under FDCA and similar laws, rules and regulations relating to registration, investigational use, premarket clearance, licensure, or application approval,
good manufacturing practices, good laboratory practices, good clinical practices, product listing, quotas, labeling, advertising, record keeping and filing of reports, except where the failure to be in compliance would not have a Material Adverse Effect.  There is no pending, completed or, to the Company's knowledge, threatened, action (including any lawsuit, arbitration, or legal or administrative or regulatory proceeding, charge, complaint, or investigation) against the Company or any of its Subsidiaries,
and none of the Company or any of its Subsidiaries has received any notice, warning letter or other communication from the FDA or any other governmental entity, which (i) contests the premarket clearance, licensure, registration, or approval of, the uses of, the distribution of, the manufacturing or packaging of, the testing of, the sale of, or the labeling and promotion of any Pharmaceutical Product, (ii) withdraws its approval of, requests the recall, suspension, or seizure of, or withdraws or orders the withdrawal
of advertising or sales promotional materials relating to, any Pharmaceutical Product, (iii) imposes a clinical hold on any clinical investigation by the Company or any of its Subsidiaries, (iv) enjoins production at any facility of the Company or any of its Subsidiaries, (v) enters or proposes to enter into a consent decree of permanent injunction with the Company or any of its Subsidiaries, or (vi) otherwise alleges any violation of any laws, rules or regulations by the Company or any of its Subsidiaries, and
which, either individually or in the aggregate, would have a Material Adverse Effect.  The properties, business and operations of the Company have been and are being conducted in all material respects in accordance with all applicable laws, rules and regulations of the FDA.  The Company has not been informed by the FDA that the FDA will prohibit the marketing, sale, license or use in the United States of any product proposed to be developed, produced or marketed by the Company nor has the FDA expressed
any concern as to approving or clearing for marketing any product being developed or proposed to be developed by the Company.

 

 

(ll)      Stock Option Plans. Each stock option granted by the Company under the Company’s stock option plan was granted (i) in accordance with the terms of the Company’s stock option plan and (ii) with an exercise price at least
equal to the fair market value of the Common Stock on the date such stock option would be considered granted under GAAP and applicable law. No stock option granted under the Company’s stock option plan has been backdated.  The Company has not knowingly granted, and there is no and has been no Company policy or practice to knowingly grant, stock options prior to, or otherwise knowingly coordinate the grant of stock options with, the release or other public announcement of material information regarding
the Company or its Subsidiaries or their financial results or prospects.

 

 

  

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3.2                 Representations and Warranties of the Purchasers.    Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein):

 

(a)           Organization; Authority.  Such Purchaser is either an individual or an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with
full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of such
Purchaser.  Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’
rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

(b)           Own Account.  Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law
and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities
in violation of the Securities Act or any applicable state securities law (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws).  Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.

 

(c)           Purchaser Status.  At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is, and on each date on which it exercises any Warrants or converts any Debentures
it will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act.  Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.

 

(d)           Experience of Such Purchaser.  Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the

 

 

  

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prospective investment in the Securities, and has so evaluated the merits and risks of such investment.  Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

 

(e)           General Solicitation.  Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

 

(f)           Certain Transactions and Confidentiality.  Other than consummating the transactions contemplated hereunder, such Purchaser has not directly or indirectly, nor has any Person acting on behalf of
or pursuant to any understanding with such Purchaser, executed any purchases or sales, including Short Sales, of the securities of the Company during the period commencing as of the time that such Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company setting forth the material terms of the transactions contemplated hereunder and ending immediately prior to the execution hereof.  Notwithstanding the foregoing, in the case of a Purchaser
that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.  Other
than to other Persons party to this Agreement, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction). Notwithstanding the foregoing, for avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to the identification of the availability of, or securing of, available shares to borrow in order to effect Short Sales or similar
transactions in the future.

 

The Company acknowledges and agrees that the representations contained in Section 3.2 shall not modify, amend or affect such Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document
or instrument executed and/or delivered in connection with this Agreement or the consummation of the transaction contemplated hereby.

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1           Transfer Restrictions.

 

(a)           The Securities may only be disposed of in compliance with state and federal securities laws.  In connection with any transfer of Securities other than pursuant

 

 

  

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to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form
and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act.  As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights and obligations of a Purchaser under this Agreement.

 

(b)           The Purchasers agree to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following form:

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS  CONVERTIBLE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF
THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities
Act and who agrees to be bound by the provisions of this Agreement and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties.  Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith.  Further, no notice shall be required of such pledge.  At the appropriate
Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including, if the Securities are subject to registration pursuant to a Registration Statement, the

 

 

  

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preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of selling stockholders thereunder.

 

(c)           Certificates evidencing the Underlying Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) while a registration statement covering the resale of such security is effective under the Securities Act, (ii) following any sale
of such Underlying Shares pursuant to Rule 144, (iii) if such Underlying Shares are eligible for sale under Rule 144, without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Underlying Shares and without volume or manner-of-sale restrictions or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company
shall cause its counsel to issue a legal opinion to the Transfer Agent if required by the Transfer Agent to effect the removal of the legend hereunder.  If all or any portion of a Debenture is converted or Warrant is exercised at a time when there is an effective registration statement to cover the resale of the Underlying Shares, or if such Underlying Shares may be sold under Rule 144 and the Company is then in compliance with the current public information required under Rule 144, or if such Underlying
Shares may be sold under Rule 144 without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Underlying Shares and without volume or manner-of-sale restrictions or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Underlying Shares shall be issued free of all legends.  The Company agrees
that following such time as such legend is no longer required under this Section 4.1(c), it will, no later than three Trading Days following the delivery by a Purchaser to the Company or the Transfer Agent of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend (such third Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such
shares that is free from all restrictive and other legends.  The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 4.  Certificates for Underlying Shares subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser.

(d)           In addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of Underlying Shares (based on the VWAP of the Common Stock on the date such Securities
are submitted to the Transfer Agent) delivered for removal of the restrictive legend and subject to Section 4.1(c), $100 per Trading Day (increasing to $200 per Trading Day five (5) Trading Days after such damages have begun to accrue) for each Trading Day after the Legend Removal Date until such certificate is delivered without a legend.  Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Company’s failure to deliver certificates representing any Securities
as

 

 

  

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required by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

 

(e)           Each Purchaser, severally and not jointly with the other Purchasers, agrees with the Company that such Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements,
or an exemption therefrom, and that if Securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance upon this understanding.

 

4.2           Acknowledgment of Dilution.  The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under
certain market conditions.  The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Underlying Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have
on the ownership of the other stockholders of the Company.

 

4.3           Furnishing of Information; Public Information.

 

(a)           If the Common Stock is not registered under Section 12(b) or 12(g) of the Exchange Act on the date hereof, the Company agrees to cause the Common Stock to be registered under Section 12(g) of the Exchange Act on or before the 60th calendar
day following the date hereof. Until the time that no Purchaser owns Securities, the Company covenants to maintain the registration of the Common Stock under Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act even if the Company is not then subject to the reporting requirements of the Exchange Act.    As
long as any Purchaser owns Securities, if the Company is not required to file reports pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c) such information as is required for the Purchasers to sell the Securities, including without limitation, under Rule 144.  The Company further covenants that it will take such further action as any holder of Securities may reasonably request, to the extent required from time to time
to enable such Person to sell such Securities without registration under the Securities Act, including without limitation, within the requirements of the exemption provided by Rule 144.

 

(b)           At any time during the period commencing from the six (6) month anniversary of the date hereof and ending at such time that all of the Securities may be sold without the requirement for the Company to be in compliance with Rule 144(c)(1)

 

 

  

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and otherwise without restriction or limitation pursuant to Rule 144, if the Company shall fail for any reason to satisfy the current public information requirement under Rule 144(c) (a “Public Information Failure”) then, in addition to such Purchaser’s
other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, by reason of any such delay in or reduction of its ability to sell the Securities, an amount in cash equal to two percent (2.0%) of the aggregate Subscription Amount of such Purchaser’s Securities on the day of a Public Information Failure and on every thirtieth (30th) day (pro rated for periods totaling
less than thirty days) thereafter until the earlier of (a) the date such Public Information Failure is cured and (b) such time that such public information is no longer required  for the Purchasers to transfer the Underlying Shares pursuant to Rule 144.  The payments to which a Purchaser shall be entitled pursuant to this Section 4.3(b) are referred to herein as “Public Information Failure Payments.”  Public Information
Failure Payments shall be paid on the earlier of (i) the last day of the calendar month during which such Public Information Failure Payments are incurred and (ii) the third (3rd) Business Day after the event or failure giving rise to the Public Information Failure Payments
is cured.  In the event the Company fails to make Public Information Failure Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of 1.5% per month (prorated for partial months) until paid in full. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Public Information Failure, and such Purchaser shall
have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

 

4.4           Integration.  The Company shall not sell, offer for sale or solicit offers
to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval prior to the closing of such other transaction unless shareholder
approval is obtained before the closing of such subsequent transaction.

 

4.5           Conversion and Exercise Procedures.  Each of the form of Notice of Exercise included in the Warrants and the form of Notice of Conversion included in the Debentures set
forth the totality of the procedures required of the Purchasers in order to exercise the Warrants or convert the Debentures.  No additional legal opinion, other information or instructions shall be required of the Purchasers to exercise their Warrants or convert their Debentures.  The Company shall honor exercises of the Warrants and conversions of the Debentures and shall deliver Underlying Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.

 

4.6           Securities Laws Disclosure; Publicity.  The Company shall, by 8:30 a.m. (New York City time) on the Trading Day immediately following the date hereof, issue a Current Report on Form 8-K and press
release disclosing the material terms of the transactions contemplated hereby, and including the Transaction Documents as exhibits thereto.  From and after the issuance of such press release, the Company shall have publicly disclosed all material, non-public information delivered to any of the Purchasers by the Company or any of its

 

 

  

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subsidiaries, or any of their respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents. The Company and each Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby, and neither the Company nor
any Purchaser shall issue any such press release nor otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication.  Notwithstanding
the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except: (a) as required by federal securities law in connection with (i) any registration statement contemplated by Section 4.19 of this and (ii) the filing of final Transaction Documents (including signature pages thereto) with the Commission and (b) to the extent
such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under this clause (b).

 

4.7           Shareholder Rights Plan.  No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any Purchaser is an “Acquiring Person” under any
control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchasers.

 

4.8           Non-Public Information.  Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company covenants and agrees that neither it,
nor any other Person acting on its behalf, will provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Purchaser shall have executed a written agreement with the Company regarding the confidentiality and use of such information.  The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.

 

4.9           Use of Proceeds.  Except as set forth on Schedule 4.9 attached hereto, the Company shall use the net proceeds from the sale of the
Securities hereunder for working capital purposes and shall not use such proceeds for: (a) the satisfaction of any portion of the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business and prior practices), (b) the redemption of any Common Stock or Common Stock Equivalents or (c) the settlement of any outstanding litigation.

 

4.10           Indemnification of Purchasers.   Subject to the provisions of this Section 4.10, the Company will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners,
employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each

 

 

  

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Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title
or any other title) of such controlling persons (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against a Purchaser in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser’s representations, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser may have with any such stockholder or any violations by such  Purchaser of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross negligence, willful misconduct or malfeasance).  If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company
shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party.  Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable
period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel.  The Company will not be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected
without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents.

 

4.11           Reservation and Listing of Securities.

 

(a)           Subject to filing the Increase Amendment, the Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may then be required to fulfill its obligations in full under the Transaction
Documents.

 

(b)           If, on any date, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than the Required Minimum on such date, then the Board of Directors shall use commercially reasonable efforts to amend the Company’s certificate or
articles of incorporation to increase the number of authorized

 

 

  

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but unissued shares of Common Stock to at least the Required Minimum at such time, as soon as possible and in any event not later than the 75th day after such date.

 

(c)           The Company shall, if applicable: (i) in the time and manner required by the principal Trading Market, prepare and file with such Trading Market an additional shares listing application covering a number of shares of Common Stock at least equal to the Required Minimum
on the date of such application, (ii) take all steps necessary to cause such shares of Common Stock to be approved for listing or quotation on such Trading Market as soon as possible thereafter, (iii) provide to the Purchasers evidence of such listing or quotation and (iv) maintain the listing or quotation of such Common Stock on any date at least equal to the Required Minimum on such date on such Trading Market or another Trading Market.

 

4.12           Participation in Future Financing.

 

(a)           Subject to the rights held by Bristol Investment Fund Ltd (“Bristol”), from the date hereof until such time that less than 25%, in the aggregate, of principal amount of the Debentures are then
outstanding, upon any issuance by the Company or any of its Subsidiaries of Common Stock, Common Stock Equivalents for cash consideration, Indebtedness (or a combination of units hereof) (a “Subsequent Financing”), each Purchaser shall have the right to participate in up to an amount of the Subsequent Financing equal to 100% of the Subsequent Financing (the “Participation
Maximum”) on the same terms, conditions and price provided for in the Subsequent Financing.

 

(b)           At least five (5) Trading Days prior to the closing of the Subsequent Financing, the Company shall deliver to each Purchaser a written notice of its intention to effect a Subsequent Financing (“Pre-Notice”),
which Pre-Notice shall ask such Purchaser if it wants to review the details of such financing (such additional notice, a “Subsequent Financing Notice”).  Upon the request of a Purchaser, and only upon a request by such Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no later than one (1) Trading Day after such request, deliver a Subsequent Financing Notice to such Purchaser.  The Subsequent
Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder and the Person or Persons through or with whom such Subsequent Financing is proposed to be effected and shall include a term sheet or similar document relating thereto as an attachment.

 

(c)           Any Purchaser desiring to participate in such Subsequent Financing must provide written notice to the Company by not later than 5:30 p.m. (New York City time) on the fifth (5th) Trading Day
after all of the Purchasers have received the Pre-Notice that the Purchaser is willing to participate in the Subsequent Financing, the amount of the Purchaser’s participation, and representing and warranting that the Purchaser has such funds ready, willing, and available for investment on the terms set forth in the Subsequent Financing Notice.  If the Company receives no such notice from a Purchaser as of such fifth (5th)
Trading Day, such Purchaser shall be deemed to have notified the Company that it does not elect to participate.

 

 

  

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(d)           If by 5:30 p.m. (New York City time) on the fifth (5th ) Trading Day after all of the Purchasers have received the Pre-Notice, notifications by the Purchasers of their willingness to participate
in the Subsequent Financing (or to cause their designees to participate) is, in the aggregate, less than the total amount of the Subsequent Financing, then the Company may effect the remaining portion of such Subsequent Financing on the terms and with the Persons set forth in the Subsequent Financing Notice.

 

(e)      If by 5:30 p.m. (New York City time) on the fifth (5th) Trading Day after all of the Purchasers have received the Pre-Notice, the Company receives responses to a Subsequent Financing Notice from Purchasers seeking to purchase
more than the aggregate amount of the Participation Maximum, each such Purchaser shall have the right to purchase its Pro Rata Portion (as defined below) of the Participation Maximum.  “Pro Rata Portion” means the ratio of (x) the Subscription Amount of Securities purchased on the Closing Date by a Purchaser participating under this Section 4.12 and (y) the sum of the aggregate Subscription Amounts of Securities purchased on the
Closing Date by all Purchasers participating under this Section 4.12.

 

(f)           The Company must provide the Purchasers with a second Subsequent Financing Notice, and the Purchasers will again have the right of participation set forth above in this Section 4.12 subject to the rights of Bristol, if the Subsequent Financing subject to the initial
Subsequent Financing Notice is not consummated for any reason on the terms set forth in such Subsequent Financing Notice within thirty (30) Trading Days after the date of the initial Subsequent Financing Notice.

 

(g)           Notwithstanding the foregoing, this Section 4.12 shall not apply in respect of (i) an Exempt Issuance, or (ii) an underwritten public offering of Common Stock.

 

4.13           Subsequent Equity Sales.

 

(a)           From the date hereof until such time that principal amount of the Debentures are no longer outstanding, the Company shall be prohibited from effecting or entering into an agreement to effect any issuance by the Company or any of its Subsidiaries of Common Stock or Common
Stock Equivalents for cash consideration (or a combination of units thereof) involving a Variable Rate Transaction. “Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other
price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters
into any agreement, including, but not limited to, an equity line of credit, whereby the Company may sell securities at a future determined price.   Any Purchaser shall be entitled to obtain injunctive relief against the Company to

 

 

  

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preclude any such issuance, which remedy shall be in addition to any right to collect damages.

 

(b)           Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of an Exempt Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance.

 

4.14           Equal Treatment of Purchasers.  No consideration (including any modification of any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or modification
of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. Further, the Company shall not make any payment of principal or interest on the Debentures in amounts which are disproportionate to the respective principal amounts outstanding on the Debentures at any applicable time.  For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately
by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.

 

4.15           Certain Transactions and Confidentiality. Each Purchaser, severally and not jointly with the other Purchasers, covenants that neither it, nor any Affiliate acting on its behalf or pursuant to any understanding
with it will execute any purchases or sales, including Short Sales, of any of the Company’s securities during the period commencing with the execution of this Agreement and ending at such time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.6.  Each Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as the transactions contemplated by this Agreement are publicly
disclosed by the Company pursuant to the initial press release as described in Section 4.6, such Purchaser will maintain the confidentiality of the existence and terms of this transaction and the information included in the Transaction Documents and the Disclosure Schedules.  Notwithstanding the foregoing, and notwithstanding anything contained in this Agreement to the contrary, the Company expressly acknowledges and agrees that (i) no Purchaser makes any representation, warranty or covenant hereby
that it will not engage in effecting transactions in any securities of the Company after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.6, (ii) no Purchaser shall be restricted or prohibited from effecting any transactions in any securities of the Company in accordance with applicable securities laws from and after the time that the transactions contemplated by this Agreement are first publicly announced
pursuant to the initial press release as described in Section 4.6 and (iii) no Purchaser shall have any duty of confidentiality to the Company or its Subsidiaries after the issuance of the initial press release as described in Section 4.6.  Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions
made by the portfolio managers managing other portions of such Purchaser’s assets, the covenant set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.

 

 

  

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4.16           Form D; Blue Sky Filings.  The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof, promptly upon request of any
Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers at the Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Purchaser.

 

4.17           Capital Changes.  Until the one year anniversary of the date hereof, the Company shall not undertake a reverse or forward stock split or reclassification of the Common Stock without the prior
written consent of the Purchasers holding a majority in principal amount outstanding of the Debentures.

 

4.18           Most Favored Nation Provision.  From the date hereof until such time the Debentures are no longer outstanding, if the Company effects a Subsequent Financing, each Purchaser may elect, in its sole
discretion, to (a) exchange all or some of the Debentures (but not the Warrants) then held by such Purchaser for any securities or units issued in a Subsequent Financing on a $1.00 for $1.00 basis (that is, for each $1.00 principal amount of Debentures surrendered by the Purchaser, the Purchaser shall receive $1.00 of units in such Subsequent Financing) based on the outstanding principal amount of such Debentures, along with any liquidated damages and other amounts owing thereon, and the effective price at which
such securities are to be sold in such Subsequent Financing, or (b) to have any particular provisions of the Subsequent Financing legal documents apply to the Transaction Documents ex post facto. By way of example, if the Company undertakes a Subsequent Financing of $100,000 of preferred stock and warrants, the Purchaser shall have the right, but not the obligation, in its sole discretion, to purchase $100,000 of preferred stock and warrants of such Subsequent Financing by surrendering $100,000 in principal amount
of such Purchaser’s Debenture. This Section 4.18 shall not apply with respect to (i) an Exempt Issuance or (ii) an underwritten public offering of Common Stock. The Company shall provide each Purchaser with notice of any such Subsequent Financing in the manner set forth in Section 4.12.

 

4.19           Piggy-Back Registration Rights. If at any time after the date hereof, the Company shall determine to prepare and file with the Commission a Registration Statement relating to an offering for its own account
or the account of others of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act), or their then equivalents, relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, then the Company shall send a written notice of such determination to each Purchaser and, if within ten (10) calendar days after the date of
delivery of such notice, any such Purchaser shall so request in writing, the Company shall include in such Registration Statement all or any part of the Underlying Shares relating to the Debentures and Warrants as the Purchaser requests to be registered so long as such Underlying Shares are proposed to be disposed in the same manner as those securities set forth in the Registration Statement; provided, however,
if the offering is an underwritten offering and was initiated by the Company or at the request of a shareholder and if the managing underwriter(s) advise the Company that the inclusion of Underlying Shares requested to be included in the Registration Statement would cause an adverse effect on the

 

 

  

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success of any such offering, based on market conditions or otherwise (an “Adverse Effect”), then the Company shall be required to include in such Registration Statement, to the extent of the amount of securities that the managing underwriters or the lead investor,
as the case may be, advise may be sold without causing such Adverse Effect, (a) first, the securities of the Company and (b) second, the shares, including the Underlying Shares, of all shareholders, on a pro rata basis, requesting registration and whose shares the Company is obligated by contract to include in the Registration Statement; provided, further, however,
to the extent that all of the Underlying Shares are not included in the initial Registration Statement, the Purchaser shall have the right to request the inclusion of its Underlying Shares in subsequent Registration Statements until all such Underlying Shares have been registered in accordance with the terms hereof. If the offering in which the Underlying Shares is being included in a Registration Statement is a firm commitment underwritten offering, unless otherwise agreed by the Company, the Purchaser shall
sell its Underlying Shares in such offering using the same underwriters and, subject to the provisions hereof, on the same terms and conditions as the other shares of Common Stock that are included in such underwritten offering.  The Company shall use its best efforts to cause any Registration Statement to be declared effective by the Commission as promptly as is possible following it being filed with the Commission and to remain effective until all Underlying Shares subject thereto have been sold.  The
Company shall have no obligations under this Section 4.19 with respect to any Underlying Shares that are eligible for resale without volume or manner-of-sale restrictions and without the requirement for the Company to be in compliance with the current public information requirement under Rule 144. Notwithstanding any other provision of this Agreement, if any SEC Guidance sets forth a limitation on the number of securities permitted to be registered on a particular Registration Statement, unless otherwise directed
in writing by a Holder, the number of securities held in the name of the Holder to be registered on such Registration Statement will first be reduced by securities represented by Warrant Shares (applied, in the case that some Warrant Shares may be registered, to the Holders on a pro rata basis based on the total number of unregistered Warrant Shares held by such Holders), and second by securities represented by Conversion Shares (applied, in the case that some Conversion Shares may be registered, to the Holders
on a pro rata basis based on the total number of unregistered Conversion Shares held by such Holders. In the event of a cutback hereunder, the Company shall give the Holder at least 3 Trading Days prior written notice along with the calculations as to such Holder’s allotment. All fees and expenses incident to the performance of or compliance with this Section 4.19 by the Company shall be borne by the Company
whether or not any Underlying Shares are sold pursuant to the Registration Statement.  The Company shall indemnify and hold harmless the Purchaser, the officers, directors, members, partners, agents, brokers, investment advisors and employees of each of them, each person who controls the Purchaser (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act), and the officers, directors, members, shareholders, partners, agents and employees of each such controlling person,
to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, the “Losses”), as incurred, arising out of or relating to (i) any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any prospectus included therein or any form of prospectus
or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or

 

 

  

34

  

necessary to make the statements therein (in the case of any prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (ii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation
thereunder, in connection with the performance of its obligations under this Section 4.19, except to the extent, but only to the extent, that such untrue statements or omissions referred to in (i) above are based solely upon information regarding the Purchaser furnished in writing to the Company by the Purchaser expressly for use therein, or to the extent that such information relates to the Purchaser or the Purchaser’s proposed method of distribution of Underlying Shares and was reviewed and expressly
approved in writing by the Purchaser expressly for use in the Registration Statement, such prospectus or such form of prospectus or in any amendment or supplement thereto. The rights of the Purchaser under this Section 4.19 shall survive until all Underlying Shares have been either registered under a Registration Statement or been sold pursuant to an exemption to the registration requirements of the Securities Act.

 

4.20           SEC Filings. Contemporaneously with the Closing, the Company shall file with the Commission its Annual Report on Form 10-K for the period ended December 31, 2008. No later than 30 days from the date hereof,
the Company shall file with the Commission its periodic report on the Form 10-Q for the period ended March 31, 2009.

 

4.21           Increase Amendment. The Company shall file a proxy or information statement with the Commission (the “Required Filing”) no later
than 30 days from the Closing Date and use its best efforts to obtain, on or before October 31, 2009, such approvals of the Company's stockholders as may be required to issue all of the shares of Common Stock issuable upon conversion or exercise of, or otherwise with respect to, the Debentures and the Warrants in accordance with Delaware law and any applicable rules or regulations of the Trading Market,  through an increase in authorized capital (the "Stockholder
Approval").  Upon obtaining the Stockholder Approval and complying with the Required Filing, the Company shall file a certificate of amendment to its certificate of incorporation with the State of Delaware (the “Increase Amendment”).

 

 

ARTICLE V.

MISCELLANEOUS

 

5.1           Termination.  This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and
the other Purchasers, by written notice to the other parties, if the Closing has not been consummated on or before October 31, 2009; provided, however, that such termination will not affect the right of any party to sue for any breach by the other party (or parties).

 

5.2           Fees and Expenses.  At the Closing, the Company has agreed to reimburse Bristol the non-accountable sum of $15,000 for its legal fees and expenses, $7,500 of which has been paid prior to the Closing.  Accordingly,
in lieu of the foregoing payments, the aggregate amount that Bristol is to pay for the Securities at the Closing shall be reduced by $7,500 in lieu thereof. In addition, the Company has agreed to reimburse Theorem Group, LLC (“Theorem”) for its

 

 

  

35

  

legal expenses not to exceed [$7,500]. The Company shall deliver to each Purchaser, prior to the Closing, a completed and executed copy of the Closing Statement, attached hereto as Annex A.  Except as expressly set forth in the Transaction Documents to the contrary,
each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement.  The Company shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.

 

5.3           Entire Agreement.  The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede
all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

 

5.4           Notices.  Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of:
(a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the
second (2nd) Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given.  The address for such notices and communications shall be as set forth on the signature pages attached hereto.

 

5.5           Amendments; Waivers.  No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the
Purchasers holding at least 67% in interest of the Securities then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought.  No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such right.

 

5.6           Headings.  The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

 

5.7           Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns.  The Company may not assign this Agreement
or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger).  Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided

 

 

  

36

  

that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.”

 

5.8           No Third-Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.10.

 

5.9           Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with
the internal laws of the State of New York, without regard to the principles of conflicts of law thereof.  Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City
of New York.  Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.   If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under Section 4.10, the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable
attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

 

5.10           Survival.  The representations and warranties contained herein shall survive the Closing and the delivery of the Securities.

 

5.11           Execution.  This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts
have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original
thereof.

 

 

  

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5.12           Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants
and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

5.13           Rescission and Withdrawal Right.  Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser
exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights; provided, however,
that in the case of a rescission of a conversion of a Debenture or exercise of a Warrant, the applicable Purchaser shall be required to return any shares of Common Stock subject to any such rescinded conversion or exercise notice concurrently with the return to such Purchaser of the aggregate exercise price paid to the Company for such shares and the restoration of such Purchaser’s right to acquire such shares pursuant to such Purchaser’s Warrant (including, issuance of a replacement warrant certificate
evidencing such restored right).

 

5.14           Replacement of Securities.  If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution
for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction.  The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.

 

5.15           Remedies.  In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific
performance under the Transaction Documents.  The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

 

5.16           Payment Set Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment
or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded,

 

 

  

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repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

 

5.17           Usury.  To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take
the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any claim, action or proceeding that may be brought by any Purchaser in order to enforce any right or remedy under any Transaction Document.  Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate.  It is agreed that if the maximum contract rate of interest allowed by law
and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective date thereof forward, unless such application is precluded by applicable law.  If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to any Purchaser with respect to indebtedness
evidenced by the Transaction Documents, such excess shall be applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at such Purchaser’s election.

 

5.18           Independent Nature of Purchasers’ Obligations and Rights.  The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser,
and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document.  Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect
to such obligations or the transactions contemplated by the Transaction Documents.  Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose.  Each Purchaser has been represented by its own separate legal counsel in their review
and negotiation of the Transaction Documents.  For reasons of administrative convenience only, each Purchaser and its respective counsel have chosen to communicate with the Company through WS.  WS does not represent any of the Purchasers and only represents Bristol. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by any of the Purchasers.

 

 

  

39

  

5.19           Liquidated Damages.  The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and
shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.

 

5.20           Saturdays, Sundays, Holidays, etc.                                                                If
the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

5.21           Construction. The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction
to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.

 

5.22           WAIVER OF JURY TRIAL.  IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY,
THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.

 

 

(Signature Pages Follow)

 

 

  

40

  

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

	
OXIS INTERNATIONAL, INC.

 

 
	
Address for Notice:

	
By:__________________________________________

     Name:

     Title:

With a copy to (which shall not constitute notice):
	
Fax:

	
 

Law Offices of Stephen M. Fleming PLLC

110 Wall Street, 11th Floor

New York, New York 10005

F: 516-977-1209

 
	  

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

 

  

41

  

[PURCHASER SIGNATURE PAGES TO OXIS SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

Name of Purchaser: ________________________________________________________

Signature of Authorized Signatory of Purchaser: __________________________________

Name of Authorized Signatory: ____________________________________________________

Title of Authorized Signatory: _____________________________________________________

Email Address of Authorized Signatory: _____________________________________________

Facsimile Number of Authorized Signatory: __________________________________________

Address for Notice of Purchaser:

Address for Delivery of Securities for Purchaser (if not same as address for notice):

Subscription Amount: _____________

Series A Warrant Shares: _________________

Series B Warrant Shares: _________________

EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]

[SIGNATURE PAGES CONTINUE]

 

  

42

  

Annex A

CLOSING STATEMENT

Pursuant to the attached Securities Purchase Agreement, dated as of the date hereto, the purchasers shall purchase up to $2,000,000 of Debentures and Warrants from OXIS International, Inc., a Delaware corporation (the “Company”).  All funds will be wired
into an account maintained by the Company.  All funds will be disbursed in accordance with this Closing Statement.

	
Disbursement Date:
	
October ___, 2009

	
I.   PURCHASE PRICE

 
	  
	
Gross Proceeds to be Received
	
$

	  	  
	
II.      DISBURSEMENTS

 
	  
	
 Law Offices of Stephen M Fleming PLLC
	
$25,000

	
Weinstein Smith
	
$  7,500

	  	
$

	  	
$

	  	
$

	  	  
	
Total Amount Disbursed:
	
$

	  	  
	  	  
	  	  
	
WIRE INSTRUCTIONS:

 

 
	  
	
To: _____________________________________

 

 

 

 

 
	  
	
To: _____________________________________

 

 

 

 

 
	  

 

 

43

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