PART
I
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(a)
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General Development of
Business
. The Company, a New York corporation formed in
1923, is engaged in the operation of hotels that it owns or
leases in Boston (Cambridge), Massachusetts; Key Biscayne, Florida (until
August 2006); and New Orleans, Louisiana. It also operates,
under management agreements, hotels in Coconut Grove, Florida; Sunny Isles
Beach, Florida; and Cairo, Luxor, Port Said, Taba, Hurghada and Sharm el
Sheikh (2), Egypt; and five Nile River cruise vessels. The Company has
also entered into management agreements to operate new hotels being
created in Orlando, Florida; Jaco, Costa Rica; and San Carlos,
Mexico. In addition, the Company has franchise agreements for
hotels in St. Maarten (2), Brazil (2) and Peru (6). During
2007, the Company commenced management of a hotel in Hurghada, Egypt;
terminated its management contract for Chateau Sonesta Hotel, in New
Orleans and entered into a license agreement for that hotel; and announced
the termination of its management contract for Trump Sonesta Resort, in
Sunny Isles, Florida, effective April 1, 2008.
The
Company owned and operated a hotel in Key Biscayne, Florida. In
April 2005, the Company transferred the land and improvements of Sonesta
Beach Resort Key Biscayne to a development partnership, of which it is a
50% owner. The hotel closed for operations in August
2006. Detailed information regarding this major transaction is
incorporated by reference from Note 3 to the Company’s consolidated
financial statements (pages 20 and 21 of the Annual Report to
Shareholders, filed herewith as Exhibit 13).
In
general, business levels improved during 2007. Revenues of
Royal Sonesta Hotel Boston and Royal Sonesta Hotel New Orleans
increased. Sonesta Beach Resort Key Biscayne, which closed in
August 2006 for redevelopment, was not in operation during any part of
2007. In addition, income from management activities increased
in 2007 compared to 2006.
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(b)
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Financial Information About
Segments
. This information is incorporated by reference
from Note 9 to the Company’s consolidated financial statements (page 25 of
the 2007 Annual Report to Shareholders, filed herewith as Exhibit
13).
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(c)
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Narrative Description of
Business and Competition
. The Company's business is to a
great extent dependent upon a high level of economic activity. The hotel
business is highly competitive. In the major markets where we
operate, which are New Orleans, Miami and Boston, we compete with many
other hotels of the same quality. A substantial number of these
hotels compete for the same market segments as our hotels. The
facilities of competitors are often affiliated with national or regional
chains having more room accommodations and greater financial resources
than the Company. The Company follows the practice of
refurbishing and redecorating the hotels which it operates in order to
keep the properties attractive and competitive with new hotel properties,
and this requires the Company to make substantial capital
expenditures. During the two years ended December 31, 2007, the
Company made such capital expenditures totaling approximately $10.5
million.
The
Company endeavors to create individual and distinctive features for each
hotel property while utilizing common corporate identification in order to
obtain the benefits of chain operation. The Company is using
the name "Sonesta" for all of its hotels.
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The Company has
approximately 1,097 employees. The Company considers its relations with
its employees to be satisfactory.
Business at the
Company's hotels is seasonal. At Royal Sonesta Hotel Boston, the first
quarter is traditionally the slowest of the year. The third quarter summer
season is Royal Sonesta Hotel New Orleans' slowest period. Therefore, the
Company generates fewer revenues during the first and third quarters compared to
the second and fourth quarters.
The following
table reflects total revenues, annual occupancy percentages, average room rates
and room revenues per available room ("REVPAR") for the Company's owned and
leased properties for the years 2007, 2006 and 2005. REVPAR is calculated
by dividing annual room revenue by the total number of rooms available during
the year.
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Hotel
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Number
of Rooms
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Year
Built of
Acquired
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Total
Revenues
(in
thousands)
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2007
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2006
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2005
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Sonesta
Beach Resort Key Biscayne
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Leased
(1)
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300
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1998
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$
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--
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$
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19,341
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$
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27,395
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Royal
Sonesta Hotel Boston
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Owned
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400
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1963/1984
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29,377
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26,408
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23,986
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Royal
Sonesta Hotel New Orleans
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Leased
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500
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1969
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31,888
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27,894
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32,757
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(1)
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In
April 2005 the Company transferred the land and improvements of Sonesta
Beach Resort Key Biscayne to a development partnership of which the
Company is a 50% owner. The hotel closed on August 31,
2006.
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Hotel
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Average
Occupancy
Percentage
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Average
Daily Rate
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2007
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2006
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2005
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2007
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2006
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2005
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Sonesta
Beach Resort Key Biscayne
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--
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71.4
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%
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66.0
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%
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$
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--
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$
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224
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$
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208
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Royal
Sonesta Hotel Boston
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68.5
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%
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64.6
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%
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65.5
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%
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192
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177
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155
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Royal
Sonesta Hotel New Orleans
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71.5
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%
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67.1
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%
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82.2
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%
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158
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154
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163
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“REVPAR”
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Hotel
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2007
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2006
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2005
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Sonesta
Beach Resort Key Biscayne
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$ --
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$160
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$137
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Royal
Sonesta Hotel Boston
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132
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114
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102
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Royal
Sonesta Hotel New Orleans
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113
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103
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134
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Note: Royal
Sonesta Hotel New Orleans did not generate revenues for a 15 day period
following Hurricane Katrina, which struck New Orleans on August 29,
2005. Sonesta Beach Resort Key Biscayne closed for operations
on August 31, 2006. The number of rooms available is adjusted
accordingly.
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The
Company has established and maintains trademark protection for certain
service marks it uses in conducting its business, including the service
marks "Sonesta", "Sonesta Beach", "Just Us Kids", and the Company's
stylized "S" logo. Trademarks are maintained in numerous
countries, besides the United States. Each mark is generally
protected for several years, subject to periodic renewal.
For
revenues by types of services provided for the three years ended December
31, 2007, reference is made to the Consolidated Statements of Operations
which appear on page 12 of the 2007 Annual Report to Shareholders, filed
herewith as Exhibit 13
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(d)
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Financial Information about
Foreign and Domestic Operations
. This information is incorporated
by reference from Note 9 on pages 24 and 25 of the 2007 Annual Report to
Shareholders, filed herewith as Exhibit
13.
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(e)
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Environmental
Compliance.
Our compliance with laws and regulations
relating to environmental protection and discharge of hazardous materials
has not had a material impact on our capital expenditures or
earnings. We do not anticipate any material impact from such
compliance in the future.
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(f)
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Internet Address and Company
SEC Filings.
Our internet address is
www.Sonesta.com. On the corporate governance portion of our
website, under the Investor Relations section, we provide a link to the
U.S. Securities and Exchange Commission website. Included on
this website are our annual reports on Form 10-K, our quarterly reports on
Form 10-Q, our current reports on Form 8-K and any amendments to these
reports.
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The
Company’s business is subject to various risks that could have a negative effect
on the Company’s results from operations and its financial
condition. These risks could cause results to differ materially from
those expressed in forward-looking statements contained in the Managements’
Discussion and Analysis and the footnotes to the consolidated financial
statements appearing in the Company’s 2007 Annual Report, which is filed
herewith as Exhibit 13. Additional risks that the Company does not
yet know of, or that it currently thinks are immaterial, may also affect our
business operations or financial results.
The lodging industry is highly
competitive
. The Company competes with much larger hotel
chains, and its ability to compete successfully depends on its ability to offer
business and leisure travelers lodging products and services that are perceived
to be of equal of better quality and value than those offered by its
competitors.
The Company is subject to a range of
operating risks common to the hotel industry
. These operating
risks include, but are not limited to:
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1)
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the
availability of and demand for hotel rooms in the markets we
operate;
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2)
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international,
national and regional economic and political
conditions;
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3)
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the
impact of war and terrorist activity (including threats of terrorist
activity and other matter that influence and/or limit travel, such as
travelers’ fears of contagious diseases (i.e. Bird
Flu);
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4)
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the
occurrence of natural disasters, such as
hurricanes;
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5)
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taxes
and government regulations that influence or determine wages, and cost
prices of goods and services the Company uses to operate its
hotels;
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6)
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the
availability and cost of capital to allow us and potential hotel owners
and joint venture partners to fund
investments;
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7)
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relationships
and disputes with owners of our hotels operated under management
agreements.
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There are
certain risks that pose a more significant threat to the Company’s future
results and financial condition, because of the particular businesses the
Company is involved in, and the markets in which we operate.
The Company’s Key Biscayne
development partnership may experience increased costs and delays while
redeveloping the site
. The Company is a 50% partner in a
development partnership, which was created in 2005 to redevelop the site of
Sonesta Beach Resort Key Biscayne. The Company received approximately
$60 million in non-refundable proceeds in April 2005 after it contributed the
land and improvements of Sonesta Beach Resort Key Biscayne to the development
partnership. In addition, the Company received a priority equity
position, valued by the partnership at $60 million. Future proceeds
are dependent on the successful redevelopment of the site, and the sales of real
estate at sufficient prices to cover all costs of the development and
construction. Initial plans of the partnership provided for the
development of a luxury condominium hotel and residences, including meeting and
function space, a spa and other resort facilities. As part of the
partnership agreement the Company was to manage the resort when
completed. These plans met with considerable community opposition,
and the partnership instead filed for, and received approvals in 2007 for, a 165
unit residential project. The project is currently in the
preconstruction phase, pending resolution of a claim filed by an abutter of the
project. The delays increase the development cost, and will impact
future proceeds from the partnership.
Because the Company’s U.S. hotels
are located in only three markets, a decline in market conditions in any of
these markets could have an adverse impact on the Company’s results from
operations
. A major portion of the Company’s revenues and
income is derived from its owned and leased hotels, and from its managed hotels,
in the United States. Of the four U.S. hotels the Company operated at
the end of 2007, two are located in the Miami, Florida area, one is located in
New Orleans, and one is located in Cambridge, Massachusetts. This
means the Company’s future results are heavily dependent on the market
conditions and the supply of and demand for hotel rooms in these specific
markets.
Hurricanes and other natural
disasters can damage our properties and affect our results from
operations.
Three of the Company’s four U.S. hotels operating
at the end of 2007 are located either in New Orleans or in the Miami, Florida
area. These areas are prone to hurricanes, and the Company’s
financial condition will be impacted if its hotels suffer damage from
hurricanes, as well as from the loss of business due to hurricane activity in
these areas. As a result of the high cost of insurance for these
catastrophic risks, damage to hotels and loss of income may only be partially
covered by insurance, since the Company, and the owners of the Company’s managed
hotels, have significant deductibles, and certain caps on coverages for
windstorm and flood.
The Company’s property in New
Orleans may continue to be adversely impacted by the loss of business and
increased costs due to Hurricane Katrina
. The Company operates
the Royal Sonesta Hotel in New Orleans, Louisiana. The business in
this market has historically been heavily
dependent
on group and convention business. Hurricane Katrina, which struck New
Orleans on August 29, 2005, caused major damage to the city’s convention center
and infrastructure, resulting in the cancellation of substantially all group and
convention business following the storm. During the period September
2005 through March 2006, the Royal Sonesta Hotel New Orleans successfully
replaced the convention business with government business and other business
related to the recovery and rebuilding efforts in New
Orleans. However, from April 2006 forward the hotel’s results
declined sharply due to the fact that group and convention business is returning
very slowly to New Orleans. This slow recovery is expected to
continue throughout 2008. Payroll costs in New Orleans have increased
due to a severe labor shortage, since many of the City’s residents relocated to
other parts of the country following Katrina. The City still suffers
from lack of affordable housing.
The Company’s fee income from its
operations in Egypt may be adversely impacted by
terrorism
. During 2007, the Company’s management revenues from
its hotels in Egypt totaled approximately $2.3 million ($1.7 million in
2006). In previous years, Egypt experienced terrorist activity, which
affected tourism. Potential future terrorist incidents will affect
tourism to Egypt, and the Company’s management income from this
region.
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Item
1B.
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Unresolved Staff
Comments
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None
The
Company's hotels are primarily metropolitan and resort hotels in popular
vacation areas which emphasize luxury accommodations and personal
service.
The
Company has fee ownership in Royal Sonesta Hotel, Boston (Cambridge),
Massachusetts. Sonesta Beach Resort Key Biscayne was owned by the
Company until April 2005, when it transferred the land and assets into a
development partnership, of which the Company is a 50% owner. From
April 2005 through August 2006, the Key Biscayne property was operated under a
$1 per year lease with the development partnership. Detailed
information regarding this major transaction is incorporated by reference from
Note 3 to the Company’s consolidated financial statements (pages 20 through 21
of the Annual Report to Shareholders, filed herewith as Exhibit
13). Reference is made to Note 5 of the Notes to the Consolidated
Financial Statements of the Company which appears on page 22 of the Company's
2007 Annual Report to Shareholders, filed herewith as Exhibit 13, for details of
the mortgage lien on the Boston (Cambridge), Massachusetts
property.
The
Company operates the Royal Sonesta Hotel, in New Orleans, Louisiana under a
long-term lease which expires on September 30, 2024, provided the Company
exercises its remaining ten-year extension option. As of March 10,
2008, the Company has exercised options through September 30, 2014.
The
Company also operates under management agreements hotels in Coconut Grove
(Miami), Florida; Sunny Isles Beach, Florida; and Cairo, Luxor, Port Said, Taba,
Hurghada and Sharm el Sheikh (2), Egypt; and five Nile River cruise
vessels. At December 31, 2007 the Company has granted licenses for
the use of its name to a hotel in New Orleans, Louisiana and to six hotels in
Peru, two hotels in St. Maarten, and two hotels in Brazil.
In
addition to the properties listed above, the Company leases space for its
executive offices at 116 Huntington Avenue, Boston, Massachusetts
02116. That lease commenced May 1, 2002, and has a 10-year
term.
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Item
3.
|
Legal
Proceedings
|
Trump
International Sonesta Beach Resort Sunny Isles
The
Company operates Trump International Sonesta Beach Resort Sunny Isles, in
Florida, under a management agreement. The hotel opened in April
2003. In October 2007, the Company exercised a one-time right
to cancel the management agreement, upon 6 months notice, and receive repayment
of advances it was obligated to make for operating losses and certain minimum
returns due to the hotel’s owner. Based on the terms of the
agreement, the termination will be effective April 1, 2008. The
amount due upon termination is $7,031,000. The hotel’s owner has
disputed the amount of the termination payment, but has paid the entire amount
into escrow, as required by the agreement. The dispute will most
likely be resolved through arbitration, according to the agreements, unless the
parties can otherwise agree to settle this matter.
Other
The
Company is also from time to time subject to routine litigation incidental to
its business, and generally covered by insurance. The Company
believes that the results of such litigation will not have a materially adverse
effect on the Company’s financial condition.
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Item
4.
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Submission of Matters to a Vote of Security
Holders
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No
matters were submitted to security holders during the fourth quarter of the
fiscal year ended December 31, 2007.
PART II
|
Item
5.
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Market for the Registrant's Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity
Securities
|
Common
stock market prices and dividends and the number of shareholders of record are
incorporated by reference from page 2 of the 2007 Annual Report to Shareholders,
filed herewith as Exhibit 13.
A
dividend of $ 0.10 per share was paid in July 2006, and a dividend of $0.10 per
share was declared in December 2006, but paid in January 2007. A
dividend of $0.10 was paid in July 2007, and a dividend of $0.10 was declared in
December 2007, but paid in January 2008. Additionally, a special
dividend of $1.00 per share was paid in February 2008. Other
information required by this item is incorporated by reference from the
Consolidated Statements of Stockholders' Equity which appears on page 15 of the
2007 Annual Report to Shareholders, filed herewith as Exhibit 13.
|
Item
6.
|
Selected Financial
Data
|
Selected
Financial Data, which appears on page 2 of the 2007 Annual Report to
Shareholders, filed herewith as Exhibit 13, is incorporated herein by
reference.
|
Item
7.
|
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
|
This
information is incorporated by reference from pages 4 through 11 of the 2007
Annual Report to Shareholders, filed herewith as Exhibit 13.
|
Item
7A.
|
Quantitative and Qualitative Disclosures
About Market Risk
|
This
information is incorporated by reference from page 10 of the 2007 Annual Report
to Shareholders, filed herewith as Exhibit 13.
|
Item
8.
|
Consolidated Financial Statements and
Supplementary Data
|
The
financial statements listed in the Index to Consolidated Financial Statements
filed as part of this Annual Report on Form 10-K, together with the report of
Vitale, Caturano & Company, Ltd. dated March 10, 2008 are incorporated
herein by reference from the 2007 Annual Report to Shareholders, filed herewith
as Exhibit 13.
Selected
Quarterly Financial Data are incorporated by reference on page 10 of the 2007
Annual Report to Shareholders, filed herewith as Exhibit 13.
|
Item
9.
|
Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure
|
There
were no disagreements with the Company’s independent auditors on accounting
principles or practices or financial statement disclosures during
2007.
|
Item
9A.
|
Controls and
Procedures
|
Management’s Report on Internal
Control over Financial Reporting.
Our management is
responsible for establishing and maintaining adequate internal control over
financial reporting for the Company. Internal Control over financial
reporting is a process to provide reasonable assurance regarding the reliability
of our financial reporting for external purposes in accordance with accounting
principles generally accepted in the United States of
America. Internal control over financial reporting includes
maintaining records that in reasonable detail accurately and fairly reflect our
transactions; providing reasonable assurance that transactions are recorded as
necessary for preparation of our financial statements; providing reasonable
assurance that receipts and expenditures of company assets are made in
accordance with management authorization; and providing reasonable assurance
that unauthorized acquisition, use or disposition of company assets that could
have a material effect on our financial statements would be prevented or
detected on a timely basis. Because of its inherent limitations,
internal control over financial reporting is not intended to provide absolute
assurance that misstatements of our financial statements would be prevented or
detected.
Management
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in
Internal Control – Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The evaluation included a full scale, documented
risk assessment, based on the principles described in the framework, and
included identification of key controls. Management did not fully
complete documentation of its testing to verify the effectiveness of the key
controls. However, based on the evaluation, and other factors taken
into consideration, management concluded that the Company’s internal control
over financial reporting was effective as of December 31, 2007. There
were no changes in our internal control over financial reporting during the
quarter ended December 31, 2007 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
This
Annual Report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this Annual Report.
Evaluation of Disclosure Controls
and Procedures.
As of December 31, 2007, the Company’s
management carried out an evaluation, under the supervision and with the
participation of the Company’s Chief Executive Officer and President, Chief
Executive Officer and Vice Chairman, and Vice President and Treasurer, of the
effectiveness of the design and operation of the Company’s disclosure controls
and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934. Based on that evaluation, the Company’s Chief
Executive Officer and President, Chief Executive Officer and Vice Chairman, and
Vice President and Treasurer concluded that the Company’s disclosure controls
and procedures are effective, as of December 31, 2007. Disclosure
controls and procedures are designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act (i)
is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms and (ii) is accumulated and communicated
to management, including the Chief Executive Officers and Vice President and
Treasurer, as appropriate, to allow timely decisions regarding required
disclosures.
|
Item
9B.
|
Other
Information
|
None
PART III
|
Item
10.
|
Directors, Executive Officers and Corporate
Governance
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The
Company’s Executive Officers are:
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Name
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Present
Position
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Age
|
Employment History
2002 to
Present
|
|
Roger
P. Sonnabend
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Executive
Chairman of the Board
|
82
|
Chairman
and Chief Executive Officer until December 2003
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Peter
J. Sonnabend
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Chief
Executive Officer and Vice Chairman
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54
|
Vice
Chairman and Vice President until December 2003, Secretary until May
2003
|
|
Stephanie
Sonnabend
|
Chief
Executive Officer and President
|
55
|
President
until December 2003
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Stephen
Sonnabend
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Senior
Vice President
|
76
|
Senior
Vice President
|
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Boy
van Riel
|
Vice
President and Treasurer
|
49
|
Vice
President and Treasurer
|
|
Carol
Beggs
|
Vice
President, Technology
|
47
|
Vice
President, Technology
|
|
Felix
Madera
|
Vice
President, International
|
59
|
Vice
President, International
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|
Kathy
Rowe
|
Senior
Vice President
|
49
|
Vice
President, Food and Beverage until December 2003
|
|
Jacqueline
Sonnabend
|
Executive
Vice President
|
53
|
Executive
Vice President
|
|
Alan
M. Sonnabend
|
Vice
President, Development
|
50
|
Vice
President and General Manager, Trump International Sonesta Beach Resort,
until October 2004
|
Directors of the Company and
Compliance with Section 16 (a).
The information required by
this item is incorporated herein by reference from the Company’s proxy statement
for the 2008 Annual Meeting of Stockholders, which will be held in May
2008.
Code of Ethics for Senior Financial
Executives and Directors
. The Company, for many years, has had
in place a written Code of Ethics covering, among other subjects, ethical
behavior, compliance with laws, and conflicts of interest. This Code
of Ethics was adopted by the Company's Board of Directors and is applicable to
all Company employees, including Senior Financial Officers and
Directors. Each year, Company Directors, officers, management,
supervisory and administrative employees are required to acknowledge, in
writing, that they have read and understood the Company's Code of
Ethics.
A copy of
the Company’s Code of Ethics is posted on its web site at
www.sonesta.com.
Audit Committee Charter
.
The Company’s
Audit Committee Charter, which is posted on the Company’s website at
www.Sonesta.com, outlines the Committee’s purpose, responsibilities, and
authorities, and is reviewed and reassessed by the Audit Committee on an annual
basis.
Audit Committee Members and Financial
Expert.
The Company's Board of Directors has an Audit
Committee consisting of Ms. Jean C. Tempel, Messrs. Vernon R. Alden, Joseph L.
Bower and Charles J. Clark. All the members of the Audit Committee are
financially literate and independent. Mr. Clark, who the Company
considers a financial expert, as defined by NASDAQ rules, and an audit committee
financial expert, as defined by SEC rules, serves as Chairman of the Audit
Committee. Mr. Clark has 35 years of experience as a commercial
banker, 25 years of which were spent managing a commercial lending department,
and 2 years as head of a commercial credit department. Mr. Clark has
vast experience in reviewing and evaluating financial statements.
|
Item
11.
|
Executive
Compensation
|
The
information required by this Item 11 is incorporated herein by reference from
the Company’s proxy statement for the 2008 Annual Meeting of Stockholders, which
will be held in May 2008.
|
Item
12.
|
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholders
Matters
|
This
information is incorporated by reference from the Company’s proxy statement for
the 2008 Annual Meeting of Stockholders, which will be held in May
2008.
The
Company has no equity compensation plans for which disclosure under Item 201(d)
of Regulation S-K is required.
|
Item
13.
|
Certain Relationships and Related Transactions,
and Director Independence
|
This
information is incorporated by reference from the Company’s Proxy Statement for
the 2008 Annual Meeting of Stockholders, which will be held in May
2008.
Information
regarding related party transactions is also incorporated by reference from Note
11 to the Company consolidated financial statements, filed herewith as Exhibit
13.
|
Item
14.
|
Principal Accountant Fees and
Services
|
Auditors
. Vitale,
Caturano & Company, Ltd. has served as the Company’s independent registered
public accounting firm since 2004. A representative of Vitale,
Caturano & Company Ltd. is expected to be present at our Annual Meeting of
Stockholders, with the opportunity to make a statement if he or she desires to
do so. This representative will be available to respond to appropriate questions
from shareholders who are present at our annual meeting.
The fees
for services provided by Vitale, Caturano & Company, Ltd. to the Company in
the last two fiscal years were as follows:
|
|
|
FY
2006
|
|
|
FY
2007
|
|
|
|
|
|
|
|
|
|
|
Audit Fees
|
|
$
|
130,000
|
|
|
$
|
130,000
|
|
|
Audit
of Pension and 401(k)
|
|
|
|
|
|
|
|
|
|
Benefit Plans
|
|
|
14,000
|
|
|
|
15,000
|
|
|
Other Fees
(1)
|
|
|
700
|
|
|
|
2,450
|
|
|
Total
Fees
|
|
$
|
144,700
|
|
|
$
|
147,450
|
|
(1)
Other
fees include tax advisory fees.
The
Company’s Audit Committee has established policies and procedures which are
intended to control the services provided by the Company’s auditors and to
monitor their continued independence. Under these policies, no
services may be undertaken by the Company’s auditors unless the engagement is
specifically approved by the Company’s Audit Committee or the services are
included within a category which has been pre-approved by the Audit
Committee. The maximum charge for services is established by the
Audit Committee when the specific engagement or the category of services is
approved or pre-approved. In certain circumstances, management is
required to notify the Audit Committee when pre-approved services are undertaken
and the Committee or its Chairman may approve amendments or modifications of the
engagement or the maximum fees.
The
Company’s Audit Committee will not approve engagements of the Company’s auditors
to perform non-audit services for the Company if doing so will cause the
auditors to cease to be independent within the meaning of applicable SEC or
NASDAQ rules. In other circumstances, the Audit Committee considers
among other things, whether the auditors are able to provide the required
services in a more or less effective and efficient manner than other available
service providers.
All
services for which the Company engages the auditors are approved by the Audit
Committee. The total fees the Company paid to Vitale Caturano &
Company Ltd. for services in 2006 and 2007 are set forth above.
The
Company’s Audit Committee approved the engagement of Vitale, Caturano &
Company Ltd. to provide audit related services in 2006 and 2007, respectively
(which include the annual audits of the Company’s Pension Plan and 401(k) Plan)
because it determined that for Vitale, Caturano & Company Ltd. to provide
these services would not compromise its independence, and that its familiarity
with the Company’s record keeping and accounting systems would permit them to
provide these services with equal or higher quality, more quickly and at a cost
similar to what the Company could obtain these services from other
providers.