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o Preliminary Proxy Statement | ||
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | ||
þ Definitive Proxy Statement | ||
o Definitive Additional Materials | ||
o Soliciting Material Pursuant to Section 240.14a-12 |
þ | No fee required. |
o | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and0-11. |
(1) | Title of each class of securities to which transaction applies: |
(2) | Aggregate number of securities to which transaction applies: |
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
(4) | Proposed maximum aggregate value of transaction: |
(5) | Total fee paid: |
o | Fee paid previously with preliminary materials. |
o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
(1) | Amount Previously Paid: |
(2) | Form, Schedule or Registration Statement No.: |
(3) | Filing Party: |
(4) | Date Filed: |
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(1) | To elect two Directors. | |
(2) | To approve the Amended and Restated 2000 Graham Corporation Incentive Plan to Increase Shareholder Value. | |
(3) | To ratify the selection of Deloitte & Touche LLP as the company’s independent registered public accounting firm for the fiscal year ending March 31, 2007. | |
(4) | To transact such other business as may properly come before the annual meeting or any adjournment of the annual meeting. |
BY ORDER OF THE BOARD OF DIRECTORS |
James R. Lines | |
President and Chief Operating Officer |
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• | FOR each of the nominees for election as Director; | |
• | FOR approval of the Amended and Restated 2000 Graham Corporation Incentive Plan to Increase Shareholder Value; and | |
• | FOR the ratification of the selection of Deloitte & Touche LLP as our independent registered public accounting firm for our fiscal year ending March 31, 2007. |
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Proposal Number | Proposal Description | Vote Required | ||
One | Election of two Directors | Plurality of the votes duly cast | ||
Two | Approval of the Amended and Restated 2000 Graham Corporation Incentive Plan to Increase Shareholder Value | Majority of the votes duly cast* | ||
Three | Approval of the selection of Deloitte & Touche LLP as our independent registered public accounting firm for fiscal year 2007 | Majority of the votes duly cast |
* | without regard to broker non-votes |
• | delivering a written notice of revocation to our Corporate Secretary; | |
• | delivering a duly executed proxy bearing a later date to our Corporate Secretary; or | |
• | attending the annual meeting and filing a written notice of revocation with our Corporate Secretary. |
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• | each person who is known to us, based on reports filed with the Securities and Exchange Commission, to own beneficially more than 5% of our common stock; | |
• | each of our “named executive officers” (See “ Executive Compensation” on page 21); | |
• | each of our Directors and Director nominees who beneficially own shares of our common stock; and | |
• | all of our executive officers and Directors as a group. |
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Common Stock Beneficially Owned | ||||||||
Number of | Percentage of | |||||||
Name of Beneficial Owner | Shares(2) | Class(2) | ||||||
Employee Stock Ownership Plan of Graham Corporation | 155,809 | (5) | 4.1 | % | ||||
Van Den Berg Management | 335,240 | (6) | 8.7 | |||||
Helen H. Berkeley(3) | 192,744 | (7) | 5.0 | |||||
Jerald D. Bidlack(3) | 52,000 | (8) | 1.3 | |||||
William C. Denninger(3) | 10,500 | (9) | * | |||||
J. Ronald Hansen(4) | 23,440 | (10) | * | |||||
William C. Johnson(3) | 32,800 | (11) | * | |||||
H. Russel Lemcke(3) | 67,900 | (12) | 1.8 | |||||
James R. Lines(4) | 8,228 | (13) | * | |||||
James J. Malvaso(3) | 4,000 | (14) | * | |||||
Stephen P. Northrup(4) | 24,710 | (15) | * | |||||
Cornelius S. Van Rees(3) | 43,600 | (16) | 1.1 | |||||
All executive officers and Directors as a group (10 persons) | 459,992 | (17) | 11.5 |
* | Less than 1%. |
(1) | On March 27, 2006, we established stock ownership guidelines for our executive officers and Directors in order to further align their interests with those of our stockholders. Under the stock ownership guidelines: (i) our chief executive officer is required to own common stock in an amount equal to 1.25 times his base salary; (ii) our other executive officers are required to own common stock in an amount equal to 1.00 times their respective base salaries; and (iii) our Directors are required to own not less than 4,000 shares of common stock. Our current executive officers and Directors must be in compliance with the stock ownership guidelines within five years from the date the guidelines were adopted. Individuals who become executive officers or Directors must comply with the ownership guidelines within five years of becoming subject to such guidelines. The stock ownership guidelines require our executive officers to retain 65% of the net shares they realize (after tax) when a restricted stock award vests or a stock option is exercised until such persons are in compliance with the guidelines. |
(2) | Based upon 3,832,390, that being the number of shares of common stock outstanding as of June 1, 2006. Under the rules of the Securities and Exchange Commission, “beneficial ownership” is deemed to include shares for which the individual, directly or indirectly, has or shares voting or dispositive power, whether or not such shares are held for the individual’s benefit, and includes shares that may be acquired within 60 days upon exercise of options. |
(3) | Director. |
(4) | Executive officer. |
(5) | The Employee Benefits Committee of our Board of Directors administers the Employee Stock Ownership Plan of Graham Corporation (the “ESOP”). The Board of Directors has appointed an unrelated corporate trustee for the ESOP. The Employee Benefits Committee instructs the ESOP trustee regarding investment of funds contributed to the ESOP. Each member of the Employee Benefits Committee disclaims beneficial ownership of the shares held in the ESOP. The ESOP trustee must vote all allocated shares held in the ESOP in accordance with the instructions of the participating employees. Unallocated shares held in the ESOP’s suspense account are voted by the ESOP trustee in a manner calculated to most accurately reflect the instructions the ESOP trustee has received from participants regarding the allocated stock, provided such instructions do not conflict with the ESOP trustee’s fiduciary obligations under the Employee Retirement Income Security Act of 1974, as amended. As of June 1, 2006, all 155,809 shares were allocated to participants under the ESOP and no shares were unallocated. The address of the ESOP is 20 Florence Avenue, Batavia, New York 14020. |
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(6) | The amount and percentage shown and the information in this footnote is derived from Schedule 13G (Amendment No. 2) of Van Den Berg Management dated January 9, 2006. Van Den Berg Management’s address is 805 Las Cimas Parkway, Suite 430, Austin, Texas 78746. Van Den Berg Management has reported that it shares voting and dispositive power with respect to all of such shares. |
(7) | Includes 32,000 shares that Mrs. Berkeley may acquire within 60 days upon exercise of stock options. |
(8) | Includes 21,000 shares that Mr. Bidlack may acquire within 60 days upon exercise of stock options. |
(9) | These are shares that Mr. Denninger may acquire within 60 days upon exercise of stock options. |
(10) | Includes 6,000 shares that Mr. Hansen may acquire within 60 days upon exercise of stock options and 1,440 shares held by the ESOP trustee and allocated to Mr. Hansen’s account, as to which Mr. Hansen has sole voting power but no dispositive power, except in limited circumstances. |
(11) | These are shares that Mr. Johnson may acquire within 60 days upon exercise of stock options. |
(12) | Includes 25,500 shares that Mr. Lemcke may acquire within 60 days upon exercise of stock options. |
(13) | Includes 6,000 shares that Mr. Lines may acquire within 60 days upon exercise of stock options and 2,228 shares held by the ESOP trustee and allocated to Mr. Lines’s account, as to which Mr. Lines has sole voting power but no dispositive power, except in limited circumstances. |
(14) | These are shares that Mr. Malvaso may acquire within 60 days upon exercise of stock options. |
(15) | Includes 6,000 shares that Mr. Northrup may acquire within 60 days upon exercise of stock options and 2,710 shares held by the ESOP trustee and allocated to Mr. Northrup’s account, as to which Mr. Northrup has sole voting power but no dispositive power, except in limited circumstances. |
(16) | Includes 25,500 shares that Mr. Van Rees may acquire within 60 days upon exercise of stock options. |
(17) | See footnotes 7 through 16 to this table. Includes 169,300 shares that members of the group may acquire within 60 days upon exercise of stock options and 6,378 shares allocated to the executive officers under the ESOP, as to which the executive officers may exercise voting power, but not dispositive power, except in limited circumstances. |
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Name and Background | Director Since | |||
Helen H. Berkeley,age 77, is a private investor. | 1998 | |||
James R. Lines,age 45, became our President and Chief Operating Officer in June 2006. Mr. Lines has been with our company since 1984. Previously, and since December 2004, Mr. Lines was our Vice President and General Manager. Mr. Lines has also held the positions of Vice President of Engineering and Vice President of Sales and Marketing. Prior to his senior management positions, he was an application engineer, sales engineer and product supervisor. Mr. Lines holds a Bachelor of Science degree in Aerospace Engineering from the University of Buffalo. |
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Name and Background | Director Since | Term Expires | ||||||
Jerald D. Bidlack,age 70, has served since 1992 as President of Griffin Automation, Inc., a manufacturer of special automation machinery and systems, located in West Seneca, New York. He also serves as a trustee of Keuka College, located in Penn Yan, New York. | 1985 | 2007 | ||||||
William C. Denninger,age 55, has since 2000 served as Senior Vice President-Finance and Chief Financial Officer of Barnes Group Inc., located in Bristol, Connecticut. Before joining Barnes, and from 1993 to 2000, he served as Vice President-Finance and Chief Financial Officer of BTR, Inc., located in Stamford, Connecticut. | 2003 | 2008 | ||||||
H. Russel Lemcke,age 66, has since 1990 served as President of H. Russel Lemcke Group, Inc., which specializes in strategic business development, including mergers, acquisitions and joint ventures. Mr. Lemcke serves as a Director of Sensus Metering Systems, Inc., located in Raleigh, North Carolina. Sensus is a global manufacturer of utility metering products and systems. | 1996 | 2008 | ||||||
James J. Malvaso,age 56, has since 1997 served as President and Chief Executive Officer of The Raymond Corporation, located in Greene, New York. Previously, and from 1993 to 1996, he served as Chief Operating Officer and Vice President-Operations of Raymond. He also serves as a trustee of Lemoyne College, located in Syracuse, New York. | 2003 | 2007 | ||||||
Cornelius S. Van Rees,age 77, was a partner in the New York City law firm of Thacher Proffitt & Wood until his retirement in 1994. Mr. Van Rees received his law degree in 1954 from Columbia University. He also serves as our Corporate Secretary. | 1969 | 2008 |
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Current Plan | Amended Plan | |||
Shares Available for Issuance | 37,300 | 287,300 (i.e., the Amended Plan will make 250,000 additional shares available for issuance) | ||
Originally Available Shares | 300,000 | 550,000 | ||
Types of Available Awards | Stock options | Stock options, stock awards, restricted stock awards, and performance awards | ||
Exercise Price | Determined by the Compensation Committee | Determined by the Compensation Committee, but cannot be less than 100% of the fair market value of the underlying stock on the date of grant | ||
Minimum Option Vesting Period | None | One year | ||
Performance Awards | Not permitted | Cash awards or restricted stock contingent on the achievement of approved performance criteria | ||
Plan Expiration Date | November 1, 2010 | July 26, 2016 | ||
Reuse/Reloading | Permitted | Not Permitted |
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• | the maximum number of shares of stock for which awards may be granted to any participant during a calendar year is 24,000; and | |
• | the maximum aggregate number of shares of stock for which awards may be granted to all participants during any continuous36-month period is 3% of the total number of our aggregate authorized shares of common stock as of the beginning of such period. |
• | Exercise Price. The exercise price per share of stock subject to an option may not be less than 100% of the fair market value of a share of our common stock on the date such option is granted. However, the exercise price may not be less than 110% of such fair market value for any ISO granted to any person who, as of the |
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date of grant, owns stock possessing more than 10% of the total combined voting power or value of all classes of our stock or that of any of our subsidiaries, referred to as a “Control Person.” | ||
• | Term. The Compensation Committee will determine the term of each option, but no option shall be exercisable before one year or more than ten years from its date of grant, and no ISO granted to a Control Person shall be exercisable more than five years from its date of grant. | |
• | Aggregate Fair Market Value of ISOs. The aggregate fair market value (determined at the time the ISO is granted) of the common stock with respect to which ISOs are exercisable for the first time during any calendar year under shall not exceed $100,000. |
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Number of securities | ||||||||||||
Number of securities | remaining available for | |||||||||||
to be issued upon | Weighted-average | future issuance under | ||||||||||
exercise of | exercise price of | equity compensation plans | ||||||||||
outstanding options, | outstanding options, | (excluding securities | ||||||||||
Plan category | warrants and rights | warrants and rights | reflected in column (a)) | |||||||||
(a) | (b) | (c) | ||||||||||
Equity compensation plans approved by security holders | 199,100 | $ | 8.65 | 93,300 | ||||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
Totals | 199,100 | $ | 8.65 | 93,300 | ||||||||
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Fiscal Year | Fiscal Year | |||||||
2006 | 2005 | |||||||
Audit fees | $ | 141,050 | $ | 145,845 | ||||
Audit-related fees | 47,348 | 65,540 | ||||||
Tax fees | 35,182 | 51,325 | ||||||
All other fees | 0 | 0 | ||||||
$ | 223,580 | $ | 262,710 | |||||
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• | reviewed and discussed the company’s audited financial statements for fiscal year 2006 with management and the independent registered public accounting firm; | |
• | discussed with the company’s independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees); and | |
• | received and discussed the written disclosures and the letter from the company’s independent registered public accounting firm required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and has discussed with the company’s independent registered public accounting firm its independence. |
Audit Committee: | |
William C. Denninger, Chairman | |
Helen H. Berkeley | |
Jerald D. Bidlack | |
H. Russel Lemcke |
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Long-Term | ||||||||||||||||||||||||
Annual Compensation | Compensation | |||||||||||||||||||||||
Other Annual | Securities | |||||||||||||||||||||||
Fiscal | Salary | Bonus | Compensation | Underlying | All Other | |||||||||||||||||||
Name and Position | Year | ($)(1) | ($)(2) | ($)(3) | Options/SARs(#)(4) | Compensation($) | ||||||||||||||||||
James R. Lines(5) | 2006 | 163,010 | 86,754 | -0- | 6,000 | 9,924 | (6)(7) | |||||||||||||||||
President and Chief | 2005 | 137,966 | -0- | -0- | 6,000 | 4,813 | (6)(8) | |||||||||||||||||
Operating Officer | 2004 | 137,966 | -0- | -0- | 6,000 | 43,132 | (8)(9) | |||||||||||||||||
J. Ronald Hansen | 2006 | 165,006 | 87,816 | -0- | 6,000 | 5,549 | (7) | |||||||||||||||||
Vice President-Finance | 2005 | 146,931 | -0- | -0- | 6,000 | -0- | ||||||||||||||||||
and Administration and | 2004 | 146,931 | -0- | -0- | 6,000 | 86,475 | (9) | |||||||||||||||||
Chief Financial Officer | ||||||||||||||||||||||||
Stephen P. Northrup | 2006 | 157,274 | 83,169 | -0- | 6,000 | 10,036 | (7) | |||||||||||||||||
Vice President of Asia | 2005 | 137,966 | -0- | -0- | 6,000 | -0- | ||||||||||||||||||
Operations | 2004 | 137,966 | -0- | -0- | 6,000 | 86,960 | (9)(10) | |||||||||||||||||
William C. Johnson(11) | 2006 | 241,247 | 192,587 | 11,241 | (12) | 12,000 | 41,400 | (7)(13) | ||||||||||||||||
Former President and | 2005 | 80,140 | -0- | -0- | 36,000 | 126,072 | (13) | |||||||||||||||||
Chief Executive Officer | 2004 | — | — | — | — | — |
(1) | The figures shown include amounts (if any) deferred by the named executive officers pursuant to section 401(k) of the Internal Revenue Code as deferred contingent salary. Any amounts deferred under section 401(k) of the Internal Revenue Code are deposited in the named executive officer’s 401(k) account for investment and payment according to the terms of our Incentive Savings Plan. |
(2) | Bonus amounts are deferred to the following fiscal year and are contingent upon attainment of predetermined performance goals. No bonus was paid to any named executive officer with respect to the fiscal year ended March 31, 2004 (“fiscal year 2004”) and fiscal year 2005. |
(3) | In prior years, we included information regarding the gain recognized from the sale of stock acquired upon the exercise of stock options by the named executives in the “Other Annual Compensation” column. Such information for fiscal year 2006 can be found under the table entitled “Aggregated Option/ SAR Exercises in Fiscal Year 2006 and Fiscal Year-End Option/ SAR Values” on page 22 of this proxy statement. |
(4) | Prior year amounts have been adjusted to reflect the two-for-one stock split in the nature of a dividend that was effective as of October 3, 2005. |
(5) | Mr. Lines was appointed President and Chief Operating Officer by our Board of Directors on June 14, 2006. |
(6) | Includes $2,160 for each of fiscal years 2006 and 2005 in premiums paid on insurance policies on Mr. Lines. |
(7) | Includes the following amounts contributed by us to the 401(k) accounts of the named executive officers pursuant to our Incentive Savings Plan for fiscal year 2006: $9,688 for Mr. Johnson; $5,549 for Mr. Hansen; $7,764 for Mr. Lines; and $10,036 for Mr. Northrup. No contributions were made by us to the 401(k) accounts of any of the named executive officers for fiscal years 2005 and 2004. |
(8) | Includes for Mr. Lines payment in lieu of vacation of $2,653 for fiscal year 2005 and payment for published professional articles of $1,375 for fiscal year 2004. |
(9) | Includes cash proceeds received in fiscal year 2004 upon termination of split-dollar life insurance policies maintained by us as follows: Mr. Hansen — $86,475; Mr. Lines — $41,757; and Mr. Northrup — $81,654. Our termination of our split-dollar life insurance program realized a tax benefit to us in fiscal year 2004 of approximately $130,000 and resulted in an annual net cost saving to us of approximately $48,000. |
(10) | Includes for Mr. Northrup a long-term service award of $5,306 for fiscal year 2004. |
(11) | Mr. Johnson was our President and Chief Executive Officer from November 29, 2004 through June 12, 2006. |
(12) | Club dues paid by us on Mr. Johnson’s behalf in fiscal year 2006. |
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(13) | Includes $24,887 for fiscal year 2006 and $125,338 for fiscal year 2005, respectively, in relocation and related expenses in connection with Mr. Johnson’s commencement of service as our President and Chief Executive Officer. Also includes a contribution by us of $6,825 in fiscal year 2006 and $734 in fiscal year 2005 pursuant to our Defined Contribution Pension Plan. |
Individual Grants | Potential Realizable | |||||||||||||||||||||||
Value at Assumed | ||||||||||||||||||||||||
Percent of | Annual Rates of | |||||||||||||||||||||||
Number of | Total | Stock Price | ||||||||||||||||||||||
Securities | Options/SARs | Exercise | Appreciation for | |||||||||||||||||||||
Underlying | Granted to | or Base | Option Term | |||||||||||||||||||||
Options/SARs | Employees in | Price | Expiration | |||||||||||||||||||||
Name | Granted (#)(1) | Fiscal Year (%) | ($/Share) | Date | 5% ($) | 10% ($) | ||||||||||||||||||
James R. Lines | 6,000 | 13.6 | % | 13.90 | 10/26/15 | 52,450 | 132,918 | |||||||||||||||||
J. Ronald Hansen | 6,000 | 13.6 | % | 13.90 | 10/26/15 | 52,450 | 132,918 | |||||||||||||||||
Stephen P. Northrup | 6,000 | 13.6 | % | 13.90 | 10/26/15 | 52,450 | 132,918 | |||||||||||||||||
William C. Johnson | 12,000 | 27.3 | % | 13.90 | 10/26/15 | 104,900 | 265,836 |
(1) | All stock options are currently vested, non-qualified stock options. |
Shares | Number of Securities | |||||||||||||||||||||||
Acquired | Underlying Unexercised | Value of Unexercised In-the- | ||||||||||||||||||||||
on | Options/SARs at Fiscal | Money Options/SARs at | ||||||||||||||||||||||
Exercise | Value | Year-End (#) | Fiscal Year-End ($)(1) | |||||||||||||||||||||
Name | (#) | Realized ($) | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||||||||
James R. Lines | 26,400 | 233,205 | 6,000 | — | 33,600 | — | ||||||||||||||||||
J. Ronald Hansen | 8,400 | 85,307 | 6,000 | — | 33,600 | — | ||||||||||||||||||
Stephen P. Northrup | 32,400 | 353,063 | 6,000 | — | 33,600 | — | ||||||||||||||||||
William C. Johnson | 15,200 | 160,223 | 32,800 | — | 337,600 | — |
(1) | Based on the closing price of our common stock on March 31, 2006, which was $19.50 per share. |
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Years of Service | ||||||||||||||||
Remuneration ($) | 15 | 20 | 25 | 30/35 | ||||||||||||
100,000 | $ | 25,000 | $ | 33,333 | $ | 41,670 | $ | 50,000 | ||||||||
125,000 | $ | 31,250 | $ | 41,662 | $ | 52,088 | $ | 62,500 | ||||||||
150,000 | $ | 37,500 | $ | 49,995 | $ | 62,505 | $ | 75,000 | ||||||||
160,000 | $ | 40,000 | $ | 53,333 | $ | 67,667 | $ | 80,000 | ||||||||
175,000(1) | $ | 43,750 | $ | 58,328 | $ | 72,922 | $ | 87,500 | ||||||||
260,000(1) | $ | 65,000 | $ | 86,667 | $ | 108,334 | $ | 130,000 |
(1) | For our Retirement Income Plan, with respect to fiscal year 2005, $205,000 was the maximum amount of compensation that could be used as the basis for determining benefits under applicable law; for fiscal year 2006 the amount was $210,000. For the Supplemental Plan (as defined below), with respect to fiscal year 2005, only base salary over $205,000 was used as the basis for determining benefits, and for fiscal year 2006, only base salary over $210,000 was used as such basis |
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• | To provide a reasonable level of compensation sufficient to attract and retain executive personnel best suited by training, ability, and other relevant criteria for the company’s management requirements. | |
• | To balance base compensation (non-contingent) and incentive compensation (contingent upon performance) for the purpose of motivating executive personnel. | |
• | To determine the extent and method of aligning the financial interest of the company’s executive personnel with the interest of its stockholders in the appreciation of their investment. |
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Compensation Committee: | |
H. Russel Lemcke, Chairman | |
Helen H. Berkeley | |
Jerald D. Bidlack | |
James J. Malvaso | |
Cornelius S. Van Rees |
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BY ORDER OF THE BOARD OF DIRECTORS | |
James R. Lines | |
President and Chief Operating Officer |
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(a) “Award” shall mean any Option, Stock Award or Performance Award granted under the Plan to a Participant by the Committee pursuant to such terms, conditions, restrictions and/or limitations, if any, as the Committee may establish by the Award Agreement or otherwise. | |
(b) “Award Agreement” shall mean the document establishing the terms, conditions, restrictions and limitations of an Award in addition to those established by the Plan and by the Committee’s exercise of its administrative powers. | |
(c) “Board” shall mean the Board of Directors of the Corporation. | |
(d) “CEO” shall mean the Chief Executive Officer of the Corporation. | |
(e) “Change in Control” shall mean any of the following events: |
(i) the reorganization, merger or consolidation of Graham Corporation with one or more other Persons, other than a transaction following which at least 51% of the ownership interests of the institution resulting from such transaction are owned by Persons who, immediately prior to such transaction, owned at least 51% of the outstanding voting share of Graham Corporation; | |
(ii) the acquisition of substantially all of the assets of Graham Corporation or more than 25% of the voting shares of Graham Corporation by any Person or Persons acting in concert; or | |
(iii) the occurrence of any event if, immediately following such event, at least 50% of the members of the Board do not belong to any of the following groups: |
(A) individuals who were members of the Board on November 2, 2000; or | |
(B) individuals who first became members of the Board after November 2, 2000 either: |
(1) upon election to serve as a member of the Board by the affirmative vote of a majority of the members of the Board, or a nominating committee thereof, in office at the time of such first election; or | |
(2) upon election by the stockholders of Graham Corporation to serve as a member of the Board, but only if nominated for election by affirmative vote of a majority of the members of the Board, or a nominating committee thereof, in office at the time of such first nomination; provided, however, that no benefit conferred under the Plan, or under the terms of any Option granted under the Plan, solely as a result of the occurrence of a Change in Control of Graham Corporation shall be conferred upon any Person, or any member of the group of Persons, who makes an acquisition described in Section 2(e)(ii) and for purposes of this provision, the term Change in Control as applied to such a Person shall not include any acquisition made by such group of Persons of which he is a member. |
(f) “Code” shall mean the Internal Revenue Code of 1986, as it may be amended from time to time. | |
(g) “Committee” shall mean the Compensation Committee of the Board, or such other Board committee as may be designated by the Board to administer the Plan; provided that the Committee shall consist of not |
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less than two directors, and each member shall be both a “Non-Employee Director” and an “Outside Director.” The Committee shall be appointed by and serve at the pleasure of the Board. | |
(h) “Control Person” shall mean any person who, as of the date of grant of an ISO, owns (within the meaning of Section 422A(b)(6) of the Code) stock possessing more than 10% of the total combined voting power or value of all classes of stock of the Corporation or of any Parent or Subsidiary. | |
(i) “Corporation” shall mean Graham Corporation, a Delaware corporation. | |
(j) “Disability” shall mean permanent and total disability as defined by Section 22(e)(3) of the Code. | |
(k) “Effective Date” shall mean July 27, 2006. | |
(l) “Eligible Individual” shall mean any individual whom the Committee may determine to be an Employee or Non-Employee Director of the Corporation or a Subsidiary who is selected to receive an Award pursuant to the Plan. | |
(m) “Employee” shall mean any person employed by the Corporation or its Subsidiaries on a full or part-time basis, including directors who are otherwise employed by the Corporation or its Subsidiaries. | |
(n) “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time. | |
(o) “Exchange Act” shall mean the Securities Exchange Act of 1934, as it may be amended from time to time, including the rules thereunder and any successor provisions and the rules thereto. | |
(p) “Exercise Price” shall mean the price per share at which Stock subject to an Option may be purchased upon exercise of the Option, determined in accordance with Section 6. | |
(q) “Fair Market Value” shall mean, with respect to a share of Stock on a specified date: |
(i) the final quoted sales price on the date in question (or, if there is no reported sale on such date, on the last preceding date on which any reported sale occurred) as reported in the principal consolidated reporting system with respect to securities listed or admitted to trading on the principal United States securities exchange on which the shares of Stock are listed or admitted to trading; or | |
(ii) if the Stock is not listed or admitted to trading on any such exchange, the closing bid quotation with respect to a share of Stock on such date on the National Association of Securities Dealers Automated Quotations System, or, if no such quotation is provided, on another similar system, selected by the Committee, then in use; or | |
(iii) if Section 2(q)(i) and Section 2(q)(ii) are not applicable, the fair market value of a share of Stock as the Committee may determine. |
(r) “ISO” shall mean an Option granted pursuant to the Plan to purchase shares of Stock that is intended to qualify as an incentive stock option under Section 422 of the Code. | |
(s) “NQSO” shall mean an Option granted pursuant to the Plan to purchase shares of Stock that is not intended to be an ISO or that is granted to a Non-Employee Director. | |
(t) “Non-Employee Director” shall mean a “Non-Employee Director” within the meaning of Rule 16b-3 under the Exchange Act. | |
(u) “Options” shall refer collectively to NQSOs and ISOs subject to the Plan. | |
(v) “Outside Director” shall mean an “Outside Director” for purposes of Section 162(m) of the Code. | |
(w) “Parent” shall mean any parent (as defined in Section 425 of the Code) of the Corporation. | |
(x) “Participant” shall mean any Employee or Non-Employee Director who receives an Award under the Plan. | |
(y) “Performance Award” shall mean an award granted to pursuant to Section 8. | |
(z) “Performance Formula” shall mean, for a Performance Period, the one or more objective formulas (expressed as a percentage or otherwise) applied against the relevant Performance Objective(s) to determine, with regards to the Performance Award of a particular Participant, whether all, some portion but less than all, or none of the Performance Award has been earned for the Performance Period. |
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(aa) “Performance Objectives” shall mean the performance objectives established by the Committee pursuant to the Plan for Performance Awards. Performance Objectives may be measured on an absolute or relative basis. Performance Objectives shall be limited to specified levels of or increases in the Corporation’s or Subsidiary’s return on equity, diluted earnings per share, total earnings, earnings growth, return on capital, return on assets, earnings before interest and taxes, sales, sales growth, gross margin return on investment, increase in the fair market value of the Stock, share price (including but not limited to, growth measures and total stockholder return), net earnings, cash flow (including, but not limited to, operating cash flow and free cash flow), cash flow return on investment (which equals net cash flow divided by total capital), inventory turns, financial return ratios, total return to shareholders, market share, earnings measures/ratios, economic value added (EVA), balance sheet measurements such as receivable turnover, internal rate of return, increase in net present value or expense targets, working capital measurements (such as average working capital divided by sales), customer satisfaction surveys and productivity. Performance Objectives may provide for adjustments to exclude the impact of any significant acquisitions or dispositions of businesses by the Corporation, one-time non-operating charges, or accounting changes (including the early adoption of any accounting change mandated by any governing body, organization or authority). | |
(bb) “Performance Period” shall mean the one or more periods of time, which may be of varying and overlapping durations, as the Committee may select, over which the attainment of one or more Performance Objectives will be measured for the purpose of determining a Participant’s right to and the payment of a Performance Award. | |
(cc) “Person” shall mean an individual, a corporation, a partnership, an association, a joint-stock company, a trust, an estate, an unincorporated organization and any other business organization. | |
(dd) “Plan” shall mean this Amended and Restated 2000 Graham Corporation Incentive Plan to Increase Shareholder Value, as set forth herein and as amended from time to time. | |
(ee) “Securities Act” shall mean the Securities Act of 1933, as it may be amended from time to time, including the rules thereunder and any successor provisions and the rules thereto. | |
(ff) “Stock” shall mean shares of the common stock of the Corporation. | |
(gg) “Stock Award” shall mean an award of shares of Stock or restricted shares of Stock granted pursuant to Section 7. | |
(hh) “Subsidiary” shall mean any subsidiary (as defined in Section 425 of the Code) of the Corporation. |
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(i) determine eligibility for participation in the Plan; | |
(ii) select the Eligible Individuals and determine the type of Awards to be made to Eligible Individuals, the number of shares of Stock subject to Awards and the terms, conditions, restrictions and limitations of the Awards, including, but not by way of limitation, restrictions on the transferability of Awards and conditions with respect to continued employment or performance criteria; | |
(iii) interpret the Plan or any Award Agreement; | |
(iv) construe any ambiguous provision, correct any default, supply any omission, and reconcile any inconsistency of the Plan or an Award Agreement; | |
(v) to the extent permitted under the Plan, grant waivers of Plan terms, conditions, restrictions and limitations; | |
(vi) promulgate rules and regulations regarding treatment of Awards of an Eligible Individual under the Plan in the event of such Participant’s death, Disability, retirement, termination from the Corporation or breach of agreement by the Participant, or in the event of a Change in Control of the Corporation; | |
(vii) accelerate the vesting, exercise, or payment of an Award when such action or actions would be in the best interest of the Corporation; | |
(viii) subject to Section 4(d), grant Awards in replacement of Awards previously granted under the Plan or any other executive compensation plan of the Corporation; | |
(ix) determine the terms and provisions of any Award Agreements entered into hereunder, including, a provision in an Award Agreement that requires, upon the occurrence of a Change in Control specified in Section 2(e)(iii), the cancellation for cash of outstanding Awards or the issuance of comparable replacement Awards granted by the successor entity in such event; | |
(x) take any and all other action it deems necessary or advisable for the proper operation or administration of the Plan; and | |
(xi) make all other determinations it deems necessary or advisable for the administration of the Plan, including factual determinations. |
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(i) the maximum number of shares of Stock for which Awards may be granted to any Participant during a calendar year is 24,000; | |
(ii) the maximum aggregate number of shares of Stock for which Awards may be granted to all Participants during any continuous36-month period is 3% of the Corporation’s total number of authorized shares of Stock as of the beginning of such period; | |
(iii) the maximum aggregate number of shares of Stock that may be issued under the Plan upon the exercise of ISOs is 550,000; | |
(iv) the aggregate Fair Market Value (determined at the time an ISO is granted) of the Stock with respect to which ISOs are exercisable for the first time by any Employee during any calendar year under all plans of the Corporation and any Parent or Subsidiary shall not exceed $100,000; and | |
(v) the maximum Performance Award payable to any one Participant under the Plan for a calendar year is 24,000 shares of Stock or, in the event the Performance Award is paid in cash, $500,000. |
(i) the exercise price per share of Stock subject to an Option shall be not less than 100% of the Fair Market Value of a share of the Stock on the date such Option is granted, provided, however, that the exercise price shall not be less than 110% of such Fair Market Value for any ISO granted to a Control Person; and | |
(ii) the term of each Option shall be determined by the Committee, provided that no Option shall be exercisable before one year or after more than ten years from the date such Option is granted, and provided further that no ISO granted to a Control Person shall be exercisable after more than five years from the date of grant. |
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(i) the vested portion of any remaining Options held by the Participant at the time of his or her death may be exercised in whole or in part within one year after the date of the Participant’s death and then only: |
(A) by the beneficiary designated by the Participant in a writing submitted to the Corporation prior to the Participant’s death, or in the absence of same, by the Participant’s estate or by or on behalf of such person or persons to whom the Participant’s rights pass under his or her will or the laws of descent and distribution; | |
(B) to the extent that the Participant would have been entitled to exercise the Option at the date of his or her death and subject to all of the conditions on exercise imposed by the Plan and the Award Agreement; and | |
(C) prior to the expiration of the term of the Option. |
(ii) any unvested restricted shares of a Stock Award held by the Participant at the time of his or her death shall be forfeited. |
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(i) the vested portion of any remaining Options held by the Participant at the time of his or her Disability may be exercised in whole or in part within one year after the date of the Participant’s Disability and then only: |
(A) by the Participant or his or her legal representative; | |
(B) to the extent that the Participant would have been entitled to exercise the Option on the date of his or her Disability, subject to all of the conditions on exercise imposed by the Plan and the Award Agreement; and | |
(C) prior to the expiration of the term of the Option. |
(ii) any unvested restricted shares of a Stock Award held by the Participant at the time of his or her Disability shall be forfeited. |
(i) the vested portion of any remaining Options held by the Participant may be exercised in whole or in part within three months after the date of the Participant’s termination and then only: |
(A) by the Participant or his or her legal representative; | |
(B) to the extent that the Participant would have been entitled to exercise the Option on the date of his or her termination, subject to all of the conditions on exercise imposed by the Plan and the Award Agreement; and | |
(C) prior to the expiration of the term of the Option. |
(ii) any unvested restricted shares of a Stock Award held by the Participant at the time of his or her other termination shall be forfeited. |
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(i) the listing, or approval for listing upon notice of issuance, of such shares on any securities exchange on which the Stock may then be traded; | |
(ii) any registration or other qualification of such shares under any state or federal law or regulation, or other qualification which the Board shall, in its absolute discretion and upon the advice of counsel, deem necessary or advisable; | |
(iii) the obtaining of any other consent approval or permit from any state or federal government agency which the Board shall, in its absolute discretion and upon the advice of counsel, determine to be necessary or advisable; and | |
(iv) the execution by the Participant (or the Participant’s legal representative) of such written representation that the Committee may in its sole discretion deem necessary or advisable to the effect that the shares then being purchased are being purchased for investment with no present intention of reselling or otherwise disposing of such shares in any manner which may result in a violation of the Securities Act and the placement upon certificates for such shares of an appropriate legend in connection therewith. |
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(i) If to the Corporation: |
Graham Corporation | |
20 Florence Avenue | |
Batavia, New York 14020 | |
Attention: Chief Financial Officer |
(ii) If to a Participant, to the Participant’s address as shown in the Corporation’s personnel records. |
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1. the integrity of the Company’s financial statements and internal controls; | |
2. the Company’s compliance with legal and regulatory requirements; | |
3. the independent auditor’s qualifications and independence; | |
4. the performance of the Company’s independent auditor; and | |
5. the planning for and performance of the Company’s internal audit function. |
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1. Have authority to select, evaluate and, where appropriate, replace the independent auditor and to nominate the independent auditor for stockholder approval at the Company’s annual meeting of stockholders. The independent auditor will report directly to the Audit Committee. | |
2. Have authority and direct responsibility to resolve any disagreements between Company management and the independent auditor regarding financial reporting. | |
3. Receive such funding from the Company as the Audit Committee deems appropriate for: (a) the compensation of the independent auditor; and (b) the payment of any expenses that the Audit Committee determines are necessary or appropriate to carry out its duties. | |
4. Pre-approve all audit services and permitted non-audit services to be performed by the independent auditor and establish policies and procedures for the engagement of the independent auditor to provide permitted non-audit services. The Audit Committee may delegate to one or more of its members the authority to pre-approve such non-audit services between regularly scheduled meetings, provided that such approvals are reported to the full Audit Committee at the next meeting. | |
5. Obtain and review, at least annually, written periodic reports from the independent auditor describing such firm’s internal quality-control procedures. | |
6. At least annually, consider the independence of the independent auditor and, for this purpose, (a) obtain from the Company’s independent auditor a formal written statement delineating all relationships between such auditor and the Company, consistent with Independence Standards Board Standard 1; (b) discuss with the independent auditor any disclosed relationships or services that, in the Audit Committee’s judgment, may affect the objectivity or independence of the independent auditor; and (c) as the Audit Committee from time to time may determine to be necessary or desirable, take or recommend the Board take appropriate action to oversee the independent auditor’s independence. | |
7. Review with the independent auditor: (a) the scope and results of the audit; (b) any problems or difficulties that the independent auditor encountered in the course of the audit work, and management’s response thereto; and (c) any questions, comments or suggestions the independent auditor may have relating to the Company’s internal controls, accounting practices or procedures. | |
8. Obtain and review timely reports from the independent auditor on all material written communications between Company management and the independent auditor, including, but not limited to, any management letter or schedule of unadjusted differences. | |
9. Review, prior to implementation, proposals by management to comply with requirements for internal auditing and review any significant matters contained in reports from Company employees involved in planning for such compliance. | |
10. Review at least annually with the independent auditor, the Company’s principal internal audit staff, and management: (a) the adequacy and effectiveness of the Company’s systems of internal controls (including any significant deficiencies and significant changes in internal controls reported to the Audit Committee by the independent auditor, the Company’s principal internal audit staff or management), accounting practices, and disclosure controls and procedures (and any management reports thereon); and (b) current accounting trends and developments, and take such action with respect thereto as it may deem appropriate. | |
11. Review with management and the independent auditor the annual and quarterly financial statements of the Company, including: (a) the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; (b) any material changes in accounting principles or practices used by management in preparing the Company’s financial statements prior to their filing on Forms 10-K or 10-Q, as applicable; and (c) the items required by Statement of Auditing Standards 61 as amended by Statements 89 and 90 and as in effect at that time in the case of annual statements and Statement of Auditing Standards 71 as in effect at that time in the case of quarterly statements. | |
12. Recommend to the Board of Directors, whether the Company’s financial statements should be included in its Annual Report on Form 10-K. |
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13. Review earnings press releases, Company policies with respect to earnings press releases, and earnings guidance and other information provided by the Company to the public, analysts, institutional investors and/or rating agencies. | |
14. Discuss Company policies with respect to risk assessment and risk management, and review contingent material liabilities and risks as well as legislative and regulatory developments which could materially affect the Company’s contingent liabilities and risks. | |
15. Review: (a) the status of the Company’s compliance with applicable laws, regulations, and internal procedures, including the Company’s Code of Business Conduct and Ethics; and (b) the scope and status of systems designed to promote Company’s compliance with applicable laws, regulations and internal procedures. Reports from Company management, legal counsel and such third parties shall be utilized as deemed necessary or desirable by the Audit Committee. | |
16. Discuss with the independent auditor the required communications with audit committees as prescribed by the Auditing Standards Board. | |
17. Discuss with the independent auditor whether it has identified the existence of any issues concerning detection of illegal acts, as described in Section 10A of the Exchange Act. | |
18. Establish procedures for: (a) the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters; and (b) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters. | |
19. Have authority to engage and compensate independent counsel, accountants and other advisers, as the Audit Committee deems necessary or appropriate to carry out its duties. | |
20. Have free and confidential access at any time to Company’s management, the Company’s controller, staff members involved in any internal auditing process the Company may adopt and the Company’s legal counsel; and all such individuals shall have free and confidential access to the Audit Committee. | |
21. Review disclosures made by the chief executive officer and chief financial officer in Forms 10-K and 10-Q certifications regarding, among other things, any deficiencies in the design or operation of the Company’s internal controls or any fraud that involves management or other employees who have a significant role in the Company’s internal controls. | |
22. Review and oversee any transactions between the Company and any related party. | |
23. Prepare the report required by the rules of the Securities and Exchange Commission to be included in the Company’s annual proxy statement. | |
24. At least annually, review and assess the adequacy of this Charter and conduct a performance evaluation of the Audit Committee. The Audit Committee shall recommend any proposed changes to the Board for approval. |
1. planning, directing or conducting audits; | |
2. determining whether the Company’s financial statements are complete and accurate and in accordance with U.S. generally accepted accounting principles; or | |
3. ensuring compliance with any laws, regulations or the Company’s Code of Business Conduct and Ethics. |
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Please Mark Here for Address Change or Comments | o | |
SEE REVERSE SIDE |
1. | Election of Directors | FORnominee(s) listed except as marked to the contrary | WITHHOLD AUTHORITY for all nominees | |||||
01 02 | Helen H. Berkeley to serve until 2009 James R. Lines to serve until 2009 | o | o | |||||
Withheld for the nominee you list below: (Write that nominee’s name in the space provided below.) | ||||||||
FOR | AGAINST | ABSTAIN | ||||||
2. | Approval of the Amended and Restated Graham Corporation 2000 Incentive Plan to Increase Shareholder Value. | o | o | o | ||||
FOR | AGAINST | ABSTAIN | ||||||
3 | Ratification of the selection of Deloitte & Touche LLP as the company’s independent registered public accounting firm for the fiscal year ending March 31, 2007. | o | o | o |
4. | In their discretion, to vote upon all other matters as may be properly brought before the meeting. | |
This Proxy, when properly executed, will be voted in the manner directed herein by the undersigned stockholder. If no direction is made, this Proxy will be voted FOR the two director nominees andFOR proposals 2 and 3. | ||
o | To help our preparation for the meeting, please check here if you plan to attend. | |
Please sign exactly as name(s) appears on this proxy and return it promptly whether you plan to attend the meeting or not. If you do attend, you may, of course, vote in person. The space below may be used for any questions or comments you may have. |
Signature | Signature | Date | ||||||||
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PROXY 2006
GRAHAM CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jerald D. Bidlack and James J. Malvaso, or either of them, each with power of substitution, as proxies to attend the Annual Meeting of Stockholders of Graham Corporation to be held in the 2nd Floor Conference Room at 1 Bausch & Lomb Place, Rochester, New York 14604 on Thursday, July 27, 2006 at 11:00 a.m., Eastern Time, and any adjournment thereof, and to vote in accordance with the following instructions the number of shares the undersigned would be entitled to vote if personally present at such meeting:
Address Change/Comments (Mark the corresponding box on the reverse side) | |||||
You can now access your Graham Corporation account online.
Access your Graham Corporation stockholder account online via Investor ServiceDirect®(ISD).
Mellon Investor Services LLC, Transfer Agent for Graham Corporation, now makes it easy and convenient to get current information on your stockholder account.
• | View account status | • | Make address changes | |||||||
• | View certificate history | • | Obtain a duplicate 1099 tax form | |||||||
• | View payment history for dividends | • | Establish/change your PIN |
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GRAHAM CORPORATION | CONFIDENTIAL VOTING INSTRUCTION |
of Graham Corporation
as a named fiduciary for the
EMPLOYEE STOCK OWNERSHIP PLAN OF GRAHAM CORPORATION (“Plan”)
For the Annual Meeting of Stockholders to be held on July 27, 2006
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IF THIS VOTING INSTRUCTION IS SIGNED BUT NO DIRECTION IS GIVEN, THIS VOTING INSTRUCTION CARD WILL BE DEEMED TO INSTRUCT VOTES “FOR” THE ELECTION OF THE NOMINEES AND “FOR” PROPOSALS 2 AND 3.
ESOP COMMON (as of 6/01/06) | PLEASE MARK YOUR CHOICE LIKE THISo IN BLUE OR BLACK INK. |
The Board of Directors Recommends a Vote “For” the election of nominees and “For” proposals 2 and 3. | |||||||||||||||||||
1. | Election of Directors | FOR | WITHHOLD | 2. | Approval of the Amended and Restated Graham Corporation 2000 Incentive Plan to Increase Shareholder Value. | ||||||||||||||
For a three-year term | |||||||||||||||||||
Helen H. Berkeley | o | o | FOR | AGAINST | ABSTAIN* | ||||||||||||||
James R. Lines | o | o | o | o | o | ||||||||||||||
3. | Ratification of the selection of Deloitte & Touche LLP as the independent registered public accounting firm for the period April 1, 2006 through March 31, 2007. | ||||||||||||||||||
FOR | AGAINST | ABSTAIN* | |||||||||||||||||
o | o | o | |||||||||||||||||
4. | In their discretion, the proxies are authorized to vote upon such other business as may properly come before the Annual Meeting or any adjournment thereof. |
The undersigned hereby instructs the Committee to direct the Trustee of the Plan to vote in accordance with the voting instructions indicated above and hereby acknowledges receipt of the letter from the Committee dated June 23, 2006, a Notice of Annual Meeting of Stockholders of Graham Corporation and a Proxy Statement for the Annual Meeting. | ||||||
Date | ||||||
Signature | ||||||
Signature | ||||||
Please sign exactly as your name appears on this instruction. Each owner of shares held jointly must sign this voting instruction. If signing as attorney, executor, administrator, trustee or guardian, please include your full title. Corporate proxies must be signed by an authorized officer. | ||||||
* For purposes of the unallocated Shares held by the Employee Stock Ownership Plan, abstention is equivalent to not voting. |
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Employee Benefits Committee
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OF GRAHAM CORPORATION