COMPENSATION COMMITTEE REPORT 2006

Stock Based and Long Term Incentive Compensation. The Board of Directors and the Compensation Committee are of the view that stock ownership or its equivalent by management aligns the interest of management with the Company’s shareholders. Stock options are granted at fair market value and are intended to align executive compensation opportunities with shareholder returns. Stock options and awards granted during fiscal 2005 were part of the Compensation Committee’s customary annual review and these grants were made at levels which the Compensation Committee determined to be appropriate long term equity-based incentives to such executives. In determining the specific levels of individual stock option and awards for fiscal 2005 for the Company’s executive officers, including the Company’s Chief Executive Officer, the Compensation Committee considered and weighed a number of factors, including the duties and responsibilities of the officer in question, the performance of the Company and of the particular officer in 2005, the performance anticipated from the officer in 2005 and future years and certain competitive factors.

Chief Executive Officer Compensation. Mr. Mangano’s base salary for 2005 was established by the Compensation Committee following and based on a performance review for 2005 conducted by the Compensation Committee. His annual incentive compensation award as set forth in the Summary Compensation Table was based on the Compensation Committee’s review of the net earnings performance of the Company against target goals. Mr. Mangano’s stock award was based on the Compensation Committee’s consideration of the factors discussed above. The Compensation Committee determined that each element and the aggregate of Mr. Mangano’s compensation for 2005 were fair and reasonable and within the range of compensation for chief executive officers of companies comparable to the Company.

The Company entered into an Employment Agreement with Mr. Mangano as of August 22, 1999 (the “Former Agreement”). The Former Agreement had an original term of three (3) years with the provision for annual extensions at each anniversary. The Compensation Committee determined to evaluate the terms and conditions of the Former Agreement in light of current compensation practices, the performance of Mr. Mangano as President and Chief Executive Officer of the Company since 1999 and the growing size and complexity of the Company.

In connection with this review, the Compensation Committee retained the services of an independent compensation consultant to review a number of issues with respect to Mr. Mangano’s compensation arrangements, including cash and non-cash components of his compensation, the term of the employment agreement, termination of employment benefits with and without a change of control of the Company, without “cause” termination by the Company and “good reason” termination by Mr. Mangano, gross-ups by the Company of benefit payments subject to Sections 280G and 4999 of the Code which imposes a federal excise tax on “golden parachute payments,” and contract benefit reductions as a result of the application of Section 162(m) of the Code which makes non-deductible for tax purposes by the Company certain payments by the Company in excess of $1,000,000 to an employee as compensation. On the basis of the advice of the compensation consultant, legal counsel and its own assessments, the Compensation Committee negotiated a new employment agreement with Mr. Mangano which the Company and Mr. Mangano executed on February 22, 2005.

The Compensation Committee believes the revised employment agreement is reasonable in light of current compensation arrangements prevailing among enterprises with which it competes for persons serving as chief executive officer, Mr. Mangano’s past performance as Chief Executive Officer of the Company and the past performance of the Company under his leadership as Chief Executive Officer.

SERP. Since 2002, the Company has had in effect a supplemental executive retirement program (“SERP”). The SERP is intended to provide a retirement benefit for the participants. Currently, the Company’s Chief Executive Officer and the Company’s Senior Vice President and Treasurer are the only participants, although one or more future participants could be added to the SERP by future action of the Compensation Committee.

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