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<SEC-DOCUMENT>0000950123-06-008024.txt : 20060623
<SEC-HEADER>0000950123-06-008024.hdr.sgml : 20060623
<ACCEPTANCE-DATETIME>20060623072036
ACCESSION NUMBER:		0000950123-06-008024
CONFORMED SUBMISSION TYPE:	DEF 14A
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20060727
FILED AS OF DATE:		20060623
DATE AS OF CHANGE:		20060623
EFFECTIVENESS DATE:		20060623

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			GRAHAM CORP
		CENTRAL INDEX KEY:			0000716314
		STANDARD INDUSTRIAL CLASSIFICATION:	GENERAL INDUSTRIAL MACHINERY & EQUIPMENT [3560]
		IRS NUMBER:				161194720
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			0331

	FILING VALUES:
		FORM TYPE:		DEF 14A
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-08462
		FILM NUMBER:		06920917

	BUSINESS ADDRESS:	
		STREET 1:		20 FLORENCE AVE
		STREET 2:		POST OFFICE BOX 719
		CITY:			BATAVIA
		STATE:			NY
		ZIP:			14020
		BUSINESS PHONE:		5853432216

	MAIL ADDRESS:	
		STREET 1:		20 FLORENCE AVENUE
		STREET 2:		POST OFFICE BOX 719
		CITY:			BATAVIA
		STATE:			NY
		ZIP:			14021-0719
</SEC-HEADER>
<DOCUMENT>
<TYPE>DEF 14A
<SEQUENCE>1
<FILENAME>l20780adef14a.htm
<DESCRIPTION>GRAHAM CORPORATION  DEF 14A
<TEXT>
<HTML>
<HEAD>
<TITLE>Graham Corp.  DEF 14A</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>UNITED STATES</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>WASHINGTON, DC 20549</B>
</DIV>

<DIV align="center" style="font-size: 14.0pt;color: #000000; background: #ffffff; margin-top: 4pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>SCHEDULE 14A</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>(RULE 14a-101)</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>SCHEDULE 14A INFORMATION</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 4pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Proxy Statement Pursuant to Section 14(a) of the Securities
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
Exchange Act of 1934 (Amendment
No. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;)
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
Filed by the Registrant&nbsp;<FONT face="wingdings">&#254;
</FONT>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
Filed by a Party other than the
Registrant&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Check the appropriate box:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="51%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="46%">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <FONT face="wingdings">&#111;
    </FONT>&nbsp;&nbsp;Preliminary Proxy Statement</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <FONT face="wingdings">&#111;
    </FONT>&nbsp;&nbsp;Confidential, for Use of the Commission Only
    (as permitted by Rule&nbsp;14a-6(e)(2))</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <FONT face="wingdings">&#254;
    </FONT>&nbsp;&nbsp;Definitive Proxy Statement</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <FONT face="wingdings">&#111;
    </FONT>&nbsp;&nbsp;Definitive Additional Materials</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <FONT face="wingdings">&#111;
    </FONT>&nbsp;&nbsp;Soliciting Material Pursuant to Section
    240.14a-12</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 4pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
GRAHAM CORPORATION
</DIV>

<DIV align="left" style="font-size: 3.0pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 8.0pt;color: #000000; background: #ffffff;">
(Name of Registrant as Specified In Its Charter)
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 4pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">

</DIV>

<DIV align="left" style="font-size: 3.0pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 8.0pt;color: #000000; background: #ffffff;">
(Name of Person(s) Filing Proxy Statement)
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Payment of Filing Fee (Check the appropriate box):
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#254;</FONT></TD>
    <TD align="left">
    No fee required.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#111;</FONT></TD>
    <TD align="left">
    Fee computed on table below per Exchange Act
    Rules&nbsp;<FONT style="white-space: nowrap">14a-6(i)(1)</FONT>
    and <FONT style="white-space: nowrap">0-11.</FONT></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="12%"></TD>
    <TD width="88%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)</TD>
    <TD align="left">
    Title of each class of securities to which transaction applies:</TD>
</TR>

</TABLE>

<DIV align="right" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 87%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="12%"></TD>
    <TD width="88%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)</TD>
    <TD align="left">
    Aggregate number of securities to which transaction applies:</TD>
</TR>

</TABLE>

<DIV align="right" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 87%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="12%"></TD>
    <TD width="88%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3)</TD>
    <TD align="left">
    Per unit price or other underlying value of transaction computed
    pursuant to Exchange Act
    Rule&nbsp;<FONT style="white-space: nowrap">0-11</FONT> (set
    forth the amount on which the filing fee is calculated and state
    how it was determined):</TD>
</TR>

</TABLE>

<DIV align="right" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 87%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="12%"></TD>
    <TD width="88%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4)</TD>
    <TD align="left">
    Proposed maximum aggregate value of transaction:</TD>
</TR>

</TABLE>

<DIV align="right" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 87%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="12%"></TD>
    <TD width="88%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(5)</TD>
    <TD align="left">
    Total fee paid:</TD>
</TR>

</TABLE>

<DIV align="right" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 87%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#111;</FONT></TD>
    <TD align="left">
    Fee paid previously with preliminary materials.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT face="wingdings">&#111;</FONT></TD>
    <TD align="left">
    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.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="12%"></TD>
    <TD width="88%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)</TD>
    <TD align="left">
    Amount Previously Paid:</TD>
</TR>

</TABLE>

<DIV align="right" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 87%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="12%"></TD>
    <TD width="88%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)</TD>
    <TD align="left">
    Form, Schedule or Registration Statement No.:</TD>
</TR>

</TABLE>

<DIV align="right" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 87%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="12%"></TD>
    <TD width="88%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3)</TD>
    <TD align="left">
    Filing Party:</TD>
</TR>

</TABLE>

<DIV align="right" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 87%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="12%"></TD>
    <TD width="88%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4)</TD>
    <TD align="left">
    Date Filed:</TD>
</TR>

</TABLE>

<DIV align="right" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 4pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 87%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<IMG src="l20780agraham.jpg" alt="(GRAHAM LOGO)">
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>GRAHAM CORPORATION</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>NOTICE OF ANNUAL MEETING OF STOCKHOLDERS</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>TO BE HELD JULY&nbsp;27, 2006</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The 2006 annual meeting of stockholders of Graham Corporation
will be held on Thursday, July&nbsp;27, 2006, at
11:00&nbsp;a.m., Eastern Time, in the 2nd&nbsp;Floor Conference
Room at 1 Bausch&nbsp;&#38; Lomb Place, Rochester, New York
14604, for the following purposes, which are more fully
described in the accompanying proxy statement:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    To elect two Directors.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    To approve the Amended and Restated 2000 Graham Corporation
    Incentive Plan to Increase Shareholder Value.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(3)&nbsp;</TD>
    <TD align="left">
    To ratify the selection of Deloitte&nbsp;&#38; Touche LLP as the
    company&#146;s independent registered public accounting firm for
    the fiscal year ending March&nbsp;31, 2007.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>(4)&nbsp;</TD>
    <TD align="left">
    To transact such other business as may properly come before the
    annual meeting or any adjournment of the annual meeting.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Board of Directors has fixed the close of business on
June&nbsp;1, 2006 as the record date for determining the
stockholders who are entitled to receive notice of and to vote
at the annual meeting as well as at any adjournments of the
annual meeting.
</DIV>

<DIV style="margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    BY ORDER OF THE BOARD OF DIRECTORS</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="36%"></TD>
    <TD width="64%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <IMG src="l20780al2078003.gif" alt="-s- James R. Lines"></TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    James R. Lines</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    President and Chief Operating Officer</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
Dated: June&nbsp;23, 2006
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>

<!-- TOC -->
<A name="toc"><DIV align="CENTER" style="page-break-before:always"><U><B>TABLE OF CONTENTS</B></U></DIV></A>

<P><CENTER>
<TABLE border="0" width="90%" cellpadding="0" cellspacing="0">
<TR>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="76%"></TD>
</TR>
<TR><TD colspan="9"><A HREF="#000">SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT</A></TD></TR>
<TR><TD colspan="9"><A HREF="#001">PROPOSAL ONE: ELECTION OF DIRECTORS</A></TD></TR>
<TR><TD colspan="9"><A HREF="#002">PROPOSAL TWO: APPROVAL OF THE AMENDED AND RESTATED 2000 GRAHAM CORPORATION INCENTIVE PLAN TO INCREASE SHAREHOLDER VALUE</A></TD></TR>
<TR><TD colspan="9"><A HREF="#003">PROPOSAL THREE: RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</A></TD></TR>
<TR><TD colspan="9"><A HREF="#004">REPORT OF THE AUDIT COMMITTEE</A></TD></TR>
<TR><TD colspan="9"><A HREF="#005">CORPORATE GOVERNANCE</A></TD></TR>
<TR><TD colspan="9"><A HREF="#006">EXECUTIVE OFFICERS</A></TD></TR>
<TR><TD colspan="9"><A HREF="#007">EXECUTIVE COMPENSATION</A></TD></TR>
<TR><TD colspan="9"><A HREF="#008">REPORT OF THE COMPENSATION COMMITTEE REGARDING EXECUTIVE COMPENSATION</A></TD></TR>
<TR><TD colspan="9"><A HREF="#009">Stock Price Performance Graph</A></TD></TR>
<TR><TD colspan="9"><A HREF="#010">CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS</A></TD></TR>
<TR><TD colspan="9"><A HREF="#011">OTHER MATTERS</A></TD></TR>
</TABLE>
</CENTER>
<!-- /TOC -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<IMG src="l20780agraham.jpg" alt="(GRAHAM LOGO)">
</DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>GRAHAM CORPORATION</B>
</DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff;">
<B>20 Florence Avenue</B>
</DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff;">
<B>Batavia, New York 14020</B>
</DIV>

<DIV align="center" style="font-size: 14.0pt;color: #000000; background: #ffffff; margin-top: 22pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>PROXY STATEMENT</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are furnishing this proxy statement to our stockholders in
connection with the solicitation by our Board of Directors of
proxies for use at the annual meeting of stockholders for our
fiscal year ended March&nbsp;31, 2006, referred to as
&#147;fiscal year 2006,&#148; as well as for use at any
adjournment of the annual meeting. This proxy statement and the
accompanying form of proxy are being first mailed to our
stockholders on or about June&nbsp;23, 2006.
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Location of Annual Meeting</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The annual meeting will be held on Thursday, July&nbsp;27, 2006,
at 11:00&nbsp;a.m., Eastern Time, in the 2nd&nbsp;Floor
Conference Room at 1 Bausch&nbsp;&#38; Lomb Place, Rochester,
New York 14604.
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Record Date and Shares Outstanding</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Stockholders of record at the close of business on June&nbsp;1,
2006, the record date for the annual meeting, are entitled to
notice of and to vote at the annual meeting. We have one class
of stock outstanding, designated common stock, $0.10&nbsp;par
value per share. As of the record date, there were
3,832,390&nbsp;shares of our common stock issued and outstanding.
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Proxy Cards and Voting</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Each stockholder is entitled to one vote for each share of
common stock held as of the record date.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If we receive the enclosed proxy, properly executed and dated,
in time to be voted at the annual meeting, the Board of
Directors will vote the shares represented by it in accordance
with the instructions marked on the proxy. An executed proxy
without instructions marked on it will be voted:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="1%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <U>FOR</U> each of the nominees for election as Director;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <U>FOR</U> approval of the Amended and Restated 2000 Graham
    Corporation Incentive Plan to Increase Shareholder Value; and</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <U>FOR</U> the ratification of the selection of
    Deloitte&nbsp;&#38; Touche LLP as our independent registered
    public accounting firm for our fiscal year ending March&nbsp;31,
    2007.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The shares may also be voted by the named proxies for such other
business as may properly come before the annual meeting or at
any adjournment or postponement of the annual meeting.
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Quorum</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A quorum is required for our stockholders to conduct business at
the annual meeting. Pursuant to our by-laws, the holders of
record of a majority of the shares present in person or by proxy
and entitled to vote at the annual meeting will constitute a
quorum.
</DIV>

<P align="right" style="font-size: 10.0pt;color: #000000; background: #ffffff;">1

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<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Effect of Abstentions</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Abstentions may be specified on all proposals other than the
election of Directors and will be counted for the purpose of
establishing a quorum. Abstentions will have the effect of
&#147;no&#148; votes with respect to approving the Amended and
Restated 2000 Graham Corporation Incentive Plan to Increase
Shareholder Value and with respect to ratifying the selection of
Deloitte&nbsp;&#38; Touche LLP as our independent registered
public accounting firm for our fiscal year ending March&nbsp;31,
2007, referred to as &#147;fiscal year 2007.&#148;
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Effect of &#147;Broker Non-Votes&#148;</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under the rules governing brokers who have record ownership of
shares that they hold in &#147;street name&#148; for their
clients, who are the beneficial owners of such shares, brokers
normally have the discretion to vote such shares on routine
matters, such as director elections and the ratification of the
selection of an independent registered public accounting firm,
but not on non-routine matters. Broker non-votes occur when
shares held by a broker nominee for a beneficial owner are not
voted with respect to a non-routine proposal because the broker
nominee has not received voting instructions from the beneficial
owner and lacks discretionary authority to vote the shares.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Because the proposals to be acted upon at the annual meeting
include routine matters as well as one non-routine matter (the
approval of the Amended and Restated 2000 Graham Corporation
Incentive Plan to Increase Shareholder Value), with respect to
uninstructed shares, a broker may turn in a proxy card and vote
on the routine matters but not on the non-routine matter. Broker
non-votes will be counted for the purpose of determining the
presence or absence of a quorum, but will not be counted for the
purpose of determining the number of shares entitled to vote on
a non-routine proposal. Accordingly, broker non-votes will not
affect the outcome of the proposal to approve the Amended and
Restated 2000 Graham Corporation Incentive Plan to Increase
Shareholder Value.
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Vote Required</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The table below shows the vote required to approve each of the
proposals described in this proxy statement, assuming the
presence of a quorum at the annual meeting.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="18%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="45%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="31%">&nbsp;</TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR style="font-size: 8.0pt;">
    <TD align="left" nowrap><B>Proposal Number</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Proposal Description</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Vote Required</B></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    One</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Election of two Directors</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Plurality of the votes duly cast</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Two</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Approval of the Amended and Restated 2000 Graham Corporation
    Incentive Plan to Increase Shareholder Value</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Majority of the votes duly cast*</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Three</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Approval of the selection of Deloitte&nbsp;&#38; Touche LLP as
    our independent registered public accounting firm for fiscal
    year 2007</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Majority of the votes duly cast</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>*&nbsp;</TD>
    <TD align="left">
    without regard to broker non-votes</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Revocability of Proxies</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Your presence at the annual meeting will not automatically
revoke your proxy. However, you can revoke your proxy at any
time before it is voted at the annual meeting by:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    delivering a written notice of revocation to our Corporate
    Secretary;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    delivering a duly executed proxy bearing a later date to our
    Corporate Secretary;&nbsp;or</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    attending the annual meeting and filing a written notice of
    revocation with our Corporate Secretary.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Notices of revocation and revised proxies should be sent to our
Corporate Secretary at the following address: Graham
Corporation, Attention: Corporate Secretary, 20&nbsp;Florence
Avenue, Batavia, New York&nbsp;14020.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Please note, however, that if your shares are held of record by
a broker, bank or other nominee, and you wish to vote at the
annual meeting, you must bring to the annual meeting a letter
from the broker, bank or other nominee confirming both
(1)&nbsp;your beneficial ownership of the shares, and
(2)&nbsp;that the broker, bank or other nominee is not voting
the shares at the annual meeting.
</DIV>

<P align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">2

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<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Solicitation of Proxies</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This proxy solicitation is made by the Board of Directors on our
behalf, and we will bear the cost of soliciting proxies. In
addition to solicitation by mail, our Directors, officers and
employees may solicit proxies personally or by telephone or
other telecommunication. We will not compensate our Directors,
officers or employees for making proxy solicitations on our
behalf. We will provide persons holding shares in their names or
in the names of nominees, which in either case are beneficially
owned by others, proxy materials for delivery to those
beneficial owners and will reimburse the record owners for their
expenses in doing so.
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Principal Executive Offices</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our principal executive offices are located at 20 Florence
Avenue, Batavia, New York 14020. Our telephone number is
585-343-2216.
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Annual Report to Stockholders and Annual Report on
Form&nbsp;<FONT style="white-space: nowrap">10-K</FONT></B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have enclosed with this proxy statement our 2006 annual
report to stockholders and annual report on
Form&nbsp;<FONT style="white-space: nowrap">10-K</FONT> for
fiscal year 2006, as filed with the Securities and Exchange
Commission. These reports include our audited financial
statements, along with other information about us, which we
encourage you to read.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
To obtain an additional copy of our annual report on
Form&nbsp;<FONT style="white-space: nowrap">10-K</FONT> without
charge, please address your request to Graham Corporation,
Attention: Annual Report Request, 20 Florence Avenue, Batavia,
New York, 14020 or telephone us at 585-343-2216.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
You can also obtain a copy of our annual report on
Form&nbsp;<FONT style="white-space: nowrap">10-K</FONT> and the
other periodic filings that we make with the Securities and
Exchange Commission from the Securities and Exchange
Commission&#146;s EDGAR database located at www.sec.gov.
</DIV>

<!-- link1 "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" -->
<DIV align="left"><A NAME="000"></A></DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The table below sets forth the beneficial ownership of our
common stock as of June&nbsp;1, 2006, by:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    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;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    each of our &#147;named executive officers&#148; (See
    &#147;&nbsp;<FONT style="font-variant:SMALL-CAPS">Executive
    Compensation
    </FONT>&#148; on page&nbsp;21);</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    each of our Directors and Director nominees who beneficially own
    shares of our common stock;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    all of our executive officers and Directors as a group.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Unless otherwise indicated in the footnotes to the below table,
each stockholder named in the table has sole voting and
investment power with respect to all shares shown as
beneficially owned by that stockholder. The designated address
of each individual listed in the table is Graham Corporation,
20&nbsp;Florence Avenue, Batavia, New York&nbsp;14020.
</DIV>

<P align="right" style="font-size: 10.0pt;color: #000000; background: #ffffff;">3

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All numbers reported in the table have been adjusted to reflect
the two-for-one stock split in the nature of a dividend that was
effective as of October&nbsp;3, 2005.
</DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>COMMON STOCK OWNERSHIP
TABLE<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="64%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="9" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>


<TR style="font-size: 9.0pt;">
    <TD colspan="9" align="center" nowrap><B>Common Stock Beneficially Owned</B></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="9" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Percentage of</B></TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD align="left" nowrap><B>Name of Beneficial Owner</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Shares<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Class<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></B></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="9" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Employee Stock Ownership Plan of Graham Corporation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>155,809</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(5)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.1</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Van Den Berg Management</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>335,240</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(6)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Helen H.
    Berkeley<SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>192,744</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(7)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Jerald D.
    Bidlack<SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>52,000</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(8)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    William C.
    Denninger<SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,500</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(9)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    J. Ronald
    Hansen<SUP style="font-size: 85%; vertical-align: text-top">(4)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,440</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(10)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    William C.
    Johnson<SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,800</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(11)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    H. Russel
    Lemcke<SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>67,900</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(12)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    James R.
    Lines<SUP style="font-size: 85%; vertical-align: text-top">(4)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,228</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(13)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    James J.
    Malvaso<SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,000</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(14)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stephen P.
    Northrup<SUP style="font-size: 85%; vertical-align: text-top">(4)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24,710</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(15)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cornelius S. Van
    Rees<SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>43,600</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(16)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    All executive officers and Directors as a group (10&nbsp;persons)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>459,992</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(17)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11.5</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>*&nbsp;</TD>
    <TD align="left">
    Less than 1%.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">&nbsp;(1)</SUP>&nbsp;</TD>
    <TD align="left">
    On March&nbsp;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)&nbsp;our chief
    executive officer is required to own common stock in an amount
    equal to 1.25 times his base salary; (ii)&nbsp;our other
    executive officers are required to own common stock in an amount
    equal to 1.00 times their respective base salaries; and
    (iii)&nbsp;our Directors are required to own not less than
    4,000&nbsp;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.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">&nbsp;(2)</SUP>&nbsp;</TD>
    <TD align="left">
    Based upon 3,832,390, that being the number of shares of common
    stock outstanding as of June&nbsp;1, 2006. Under the rules of
    the Securities and Exchange Commission, &#147;beneficial
    ownership&#148; 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&#146;s benefit, and includes shares that may be
    acquired within 60&nbsp;days upon exercise of options.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">&nbsp;(3)</SUP>&nbsp;</TD>
    <TD align="left">
    Director.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">&nbsp;(4)</SUP>&nbsp;</TD>
    <TD align="left">
    Executive officer.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">&nbsp;(5)</SUP>&nbsp;</TD>
    <TD align="left">
    The Employee Benefits Committee of our Board of Directors
    administers the Employee Stock Ownership Plan of Graham
    Corporation (the &#147;ESOP&#148;). 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&#146;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&#146;s fiduciary obligations
    under the Employee Retirement Income Security Act of 1974, as
    amended. As of June&nbsp;1, 2006, all 155,809&nbsp;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.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">4
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">&nbsp;(6)</SUP>&nbsp;</TD>
    <TD align="left">
    The amount and percentage shown and the information in this
    footnote is derived from Schedule&nbsp;13G (Amendment
    No.&nbsp;2) of Van Den Berg Management dated January&nbsp;9,
    2006. Van Den Berg Management&#146;s address is 805 Las Cimas
    Parkway, Suite&nbsp;430, Austin, Texas 78746. Van Den Berg
    Management has reported that it shares voting and dispositive
    power with respect to all of such shares.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">&nbsp;(7)</SUP>&nbsp;</TD>
    <TD align="left">
    Includes 32,000&nbsp;shares that Mrs.&nbsp;Berkeley may acquire
    within 60&nbsp;days upon exercise of stock options.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">&nbsp;(8)</SUP>&nbsp;</TD>
    <TD align="left">
    Includes 21,000&nbsp;shares that Mr.&nbsp;Bidlack may acquire
    within 60&nbsp;days upon exercise of stock options.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">&nbsp;(9)</SUP>&nbsp;</TD>
    <TD align="left">
    These are shares that Mr.&nbsp;Denninger may acquire within
    60&nbsp;days upon exercise of stock options.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(10)</SUP>&nbsp;</TD>
    <TD align="left">
    Includes 6,000&nbsp;shares that Mr.&nbsp;Hansen may acquire
    within 60&nbsp;days upon exercise of stock options and
    1,440&nbsp;shares held by the ESOP trustee and allocated to
    Mr.&nbsp;Hansen&#146;s account, as to which Mr.&nbsp;Hansen has
    sole voting power but no dispositive power, except in limited
    circumstances.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(11)</SUP>&nbsp;</TD>
    <TD align="left">
    These are shares that Mr.&nbsp;Johnson may acquire within
    60&nbsp;days upon exercise of stock options.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(12)</SUP>&nbsp;</TD>
    <TD align="left">
    Includes 25,500&nbsp;shares that Mr.&nbsp;Lemcke may acquire
    within 60&nbsp;days upon exercise of stock options.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(13)</SUP>&nbsp;</TD>
    <TD align="left">
    Includes 6,000&nbsp;shares that Mr.&nbsp;Lines may acquire
    within 60&nbsp;days upon exercise of stock options and
    2,228&nbsp;shares held by the ESOP trustee and allocated to
    Mr.&nbsp;Lines&#146;s account, as to which Mr.&nbsp;Lines has
    sole voting power but no dispositive power, except in limited
    circumstances.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(14)</SUP>&nbsp;</TD>
    <TD align="left">
    These are shares that Mr.&nbsp;Malvaso may acquire within
    60&nbsp;days upon exercise of stock options.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(15)</SUP>&nbsp;</TD>
    <TD align="left">
    Includes 6,000&nbsp;shares that Mr.&nbsp;Northrup may acquire
    within 60&nbsp;days upon exercise of stock options and
    2,710&nbsp;shares held by the ESOP trustee and allocated to
    Mr.&nbsp;Northrup&#146;s account, as to which Mr.&nbsp;Northrup
    has sole voting power but no dispositive power, except in
    limited circumstances.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(16)</SUP>&nbsp;</TD>
    <TD align="left">
    Includes 25,500&nbsp;shares that Mr.&nbsp;Van Rees may acquire
    within 60&nbsp;days upon exercise of stock options.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(17)</SUP>&nbsp;</TD>
    <TD align="left">
    See footnotes&nbsp;7 through 16 to this table. Includes
    169,300&nbsp;shares that members of the group may acquire within
    60&nbsp;days upon exercise of stock options and
    6,378&nbsp;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.</TD>
</TR>

</TABLE>

<P align="right" style="font-size: 10.0pt;color: #000000; background: #ffffff;">5

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<!-- link1 "PROPOSAL ONE: ELECTION OF DIRECTORS" -->
<DIV align="left"><A NAME="001"></A></DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>PROPOSAL&nbsp;ONE:</B>
</DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff;">
<B>ELECTION OF DIRECTORS</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our Board of Directors currently consists of seven members. Our
by-laws provide for a classified Board of Directors consisting
of three classes of Directors, with each class serving a
staggered three-year term. As a result, only a portion of our
Board of Directors is elected each year.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The term of two of our seven Directors, Helen H. Berkeley and
William C. Johnson, will expire at the annual meeting. The
Nominating Committee has nominated Helen H. Berkeley for
re-election as a Director and James R. Lines for election as a
Director. If elected, each of Mrs.&nbsp;Berkeley and
Mr.&nbsp;Lines would hold office for a three-year term expiring
in 2009 or until his or her successor is duly elected and
qualified. Mr.&nbsp;Johnson has informed the Board of Directors
that he does not wish to stand for re-election.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Unless authority to vote for one or more of the Director
nominees is specifically withheld, proxies will be voted
<U>FOR</U> the election of both nominees.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Board of Directors does not contemplate that either nominee
will be unable to serve as a Director, but if that contingency
should occur before the proxies are voted, the persons named in
the enclosed proxy reserve the right to vote for such substitute
nominees as they, in their discretion, determine.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our by-laws require mandatory retirement at age&nbsp;75 for
Directors who become members of the Board of Directors for the
first time after October&nbsp;30, 2002. No retirements pursuant
to this provision occurred during fiscal year 2006.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The table below sets forth information concerning each Director
nominee.
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Nominees Proposed for Election as Directors</B>
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff;">
<B>for a Three-Year Term Expiring in 2009</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="78%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="17%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD align="left" nowrap><B>Name and Background</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Director Since</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Helen H. Berkeley, </B>age&nbsp;77, is a private investor.</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>1998</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>James R. Lines, </B>age&nbsp;45, became our President and
    Chief Operating Officer in June 2006. Mr.&nbsp;Lines has been
    with our company since 1984. Previously, and since December
    2004, Mr.&nbsp;Lines was our Vice President and General Manager.
    Mr.&nbsp;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.&nbsp;Lines holds a
    Bachelor of Science degree in Aerospace Engineering from the
    University of Buffalo.</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<P align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">6
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The table below sets forth information concerning each Director
whose term in office does not expire at the annual meeting.
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Directors Whose Terms Do Not Expire</B>
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff;">
<B>at the Annual Meeting</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="65%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="8" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD align="left" nowrap><B>Name and Background</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Director Since</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Term Expires</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="8" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Jerald D. Bidlack, </B>age&nbsp;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.</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>1985</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2007</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>William C. Denninger, </B>age&nbsp;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.</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2008</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>H. Russel Lemcke, </B>age&nbsp;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.&nbsp;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.</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>1996</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2008</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>James J. Malvaso, </B>age&nbsp;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.</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2007</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Cornelius S. Van Rees, </B>age&nbsp;77, was a partner in the
    New York City law firm of Thacher Proffitt&nbsp;&#38; Wood until
    his retirement in 1994. Mr.&nbsp;Van Rees received his law
    degree in 1954 from Columbia University. He also serves as our
    Corporate Secretary.</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>1969</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2008</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<P align="right" style="font-size: 10.0pt;color: #000000; background: #ffffff;">7

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<!-- link1 "PROPOSAL TWO: APPROVAL OF THE AMENDED AND RESTATED 2000 GRAHAM CORPORATION INCENTIVE PLAN TO INCREASE SHAREHOLDER VALUE" -->
<DIV align="left"><A NAME="002"></A></DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>PROPOSAL&nbsp;TWO:</B>
</DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff;">
<B>APPROVAL OF THE</B>
</DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff;">
<B>AMENDED AND RESTATED 2000</B>
</DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff;">
<B>GRAHAM CORPORATION INCENTIVE PLAN TO INCREASE</B>
</DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff;">
<B>SHAREHOLDER VALUE</B>
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Background, Purpose and Effective Date</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On June&nbsp;1, 2006, our Board of Directors adopted an
amendment and restatement of the 2000 Graham Corporation
Incentive Plan to Increase Shareholder Value (referred to as the
&#147;Current Plan&#148;) and recommended that the plan, as
amended and restated (referred to as the &#147;Amended
Plan&#148;), be submitted to our stockholders for approval at
the annual meeting. If approved by our stockholders at the
annual meeting, the Amended Plan will become effective as of
July&nbsp;27, 2006.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The purpose of the Amended Plan is to increase shareholder value
by (i)&nbsp;promoting the growth and profitability of our
company; (ii)&nbsp;providing officers and Directors with an
incentive to achieve corporate objectives; (iii)&nbsp;attracting
and retaining officers and Directors of outstanding ability; and
(iv)&nbsp;providing such persons with an equity interest in our
company in order to better align their interests with the
interests of stockholders.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under the Amended Plan, the Compensation Committee will be
authorized to grant eligible individuals: (i)&nbsp;options to
purchase shares of common stock; (ii)&nbsp;shares of common
stock; (iii)&nbsp;restricted shares of common stock; and
(iv)&nbsp;cash awards or restricted shares that qualify as
deductible &#147;performance-based compensation&#148; for
purposes of Section&nbsp;162(m) of the Internal Revenue Code of
1986, as amended, referred to as the &#147;Code.&#148; The
Current Plan only permits the grant of options to purchase
shares of common stock.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Board of Directors believes that the proposed amendments to
the Current Plan are necessary to permit us to provide the range
of incentives and rewards to our officers and Directors required
to attract and retain such persons on a competitive basis and to
better align the interests of such persons with those of our
company, and that the Amended Plan will therefore promote our
growth and profitability.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Board of Directors believes that the flexibility the Amended
Plan will provide to utilize different forms of common
stock-based awards is critical, as the regulatory, tax and
accounting treatment of common stock-based awards continues to
evolve and such changes may impact our ability to provide
long-term incentives to our employees and Directors.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, the 1995 Graham Corporation Incentive Plan to
Increase Shareholder Value, which had a
<FONT style="white-space: nowrap">10-year</FONT> term, has
expired and no additional grants may be made under such plan.
The 1995 Graham Corporation Incentive Plan to Increase
Shareholder Value provided for the issuance of shares of our
common stock in connection with grants of incentive stock
options to our officers and employees and non-qualified stock
options to our officers, employees and non-employee Directors.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Furthermore, as of the date of this proxy statement, only
37,300&nbsp;shares remain available under the Current Plan. The
Board of Directors believes that an increase in available shares
as provided in the Amended Plan is necessary given this limited
number of shares available for option issuances under the
Current Plan. The Amended Plan will make 250,000 additional
shares available for issuance.
</DIV>

<P align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">8

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The proposed amendments to the Current Plan include, among other
things, the following:
</DIV>

<DIV align="left" style="font-size: 4.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 100%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; ">

<TR style="font-size: 1pt;">
    <TD width="32%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="31%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="31%">&nbsp;</TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Current Plan</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Amended Plan</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Shares Available for Issuance</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    37,300</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    287,300<BR>
    (i.e., the Amended Plan will<BR>
    make 250,000 additional<BR>
    shares available for issuance)</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Originally Available Shares</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    300,000</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    550,000</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Types of Available Awards</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Stock options</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Stock options, stock awards, restricted stock awards, and
    performance awards</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Exercise Price</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Determined by the<BR>
    Compensation Committee</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Determined by the<BR>
    Compensation Committee, but cannot be less than 100% of the fair
    market value of the underlying stock on the date of grant</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Minimum Option Vesting Period</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    None</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    One year</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Performance Awards</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Not permitted</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Cash awards or restricted stock contingent on the achievement of
    approved performance criteria</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Plan Expiration Date</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    November&nbsp;1, 2010</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    July&nbsp;26, 2016</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Reuse/Reloading</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Permitted</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Not Permitted</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, the Current Plan provides that no participant is
permitted to dispose of common stock acquired pursuant to the
exercise of an incentive stock option, except with the prior
written approval of the Compensation Committee, until after the
later of (i)&nbsp;the second anniversary of the option grant, or
(ii)&nbsp;the first anniversary of the date the shares were
acquired. Because we have adopted stock ownership guidelines
applicable to our executive officers and Directors, which
guidelines require our executive officers to hold a specified
percentage of the shares received from stock awards or the
exercise of stock options until designated ownership amounts are
reached, no such restrictions on disposition are contained in
the Amended Plan. See
&#147;&#151;&nbsp;<FONT style="font-variant:SMALL-CAPS">Security
Ownership of Certain Beneficial Owners and Management
</FONT>&#148; on page&nbsp;3 of this proxy statement for
additional information regarding our stock ownership guidelines.
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Required Vote</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Assuming the presence of a quorum, the affirmative vote of at
least a majority of our common stock, present at the annual
meeting, in person or by proxy, without regard to broker
non-votes, is required to approve the Amended Plan.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Board of Directors recommends a vote <U>FOR</U> this
proposal. Unless otherwise directed, the persons named in the
enclosed proxy will vote such proxies <U>FOR</U> this proposal.
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Summary of the Amended Plan</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The below summary of the Amended Plan is qualified in its
entirety by reference to the text of the Amended Plan, a copy of
which is attached as <U>Appendix&nbsp;A</U> to this proxy
statement. Stockholders are urged to read the Amended Plan in
its entirety.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Shares
of Stock Subject to the Amended Plan</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The maximum number of shares of stock to be available for the
grant or issuance of awards under the Amended Plan (including
issuance of shares of common stock, restricted shares of common
stock, and options) may not exceed 550,000, and no more than
100,000&nbsp;shares of common stock may be used for awards of
shares of common stock or awards of restricted shares of stock,
subject to adjustment upon certain corporate events (as
described below). All 262,700&nbsp;shares previously used under
the Current Plan since its adoption count against the
</DIV>

<P align="right" style="font-size: 10.0pt;color: #000000; background: #ffffff;">9

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
number of shares remaining available for issuance under the
Amended Plan. Therefore, if the Amended Plan is approved by our
stockholders at the annual meeting, an aggregate of
287,300&nbsp;shares will be available for awards under the
Amended Plan.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any shares of stock related to awards that terminate by
expiration, forfeiture, cancellation or otherwise without the
issuance of such shares will again become available for grant
under the Amended Plan. Except for expired, forfeited or
cancelled shares, the Amended Plan is intended to prohibit the
&#147;recycling&#148; or &#147;reloading&#148; of shares back
into the Amended Plan. This means that shares exchanged or
withheld to pay the exercise price of an award or to satisfy tax
withholding obligations with respect to an award count against
the numerical limits of the Amended Plan. The shares of stock
available for issuance under the Amended Plan may be authorized
and unissued shares or treasury shares.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Award
Limits</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Subject to adjustment upon certain corporate events (as
described below), and notwithstanding any provision contained in
the Amended Plan to the contrary:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the maximum number of shares of stock for which awards may be
    granted to any participant during a calendar year is
    24,000;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the maximum aggregate number of shares of stock for which awards
    may be granted to all participants during any continuous
    <FONT style="white-space: nowrap">36-month</FONT> period is 3%
    of the total number of our aggregate authorized shares of common
    stock as of the beginning of such period.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Administration</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Amended Plan will be administered by the Compensation
Committee of our Board of Directors. The Compensation Committee
will determine and designate from time to time our employees and
non-employee Directors to be granted awards under the Amended
Plan, the nature of each award granted and the number of shares
subject to each such award.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Compensation Committee may delegate its responsibilities and
powers under the Amended Plan to any one or more of its members,
our chief executive officer or other senior members of
management as the Compensation Committee deems appropriate,
provided that only the Compensation Committee, or other
committee consisting of two or more non-employee Directors may
select and grant awards under the Amended Plan to our officers
and Directors, and provided further, that only the Compensation
Committee may grant performance awards.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Eligibility</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All of our employees and non-employee Directors (as well as the
employees and non-employee Directors of any of our subsidiaries)
are eligible to participate in the Amended Plan. However, only
our employees are eligible to receive stock options granted
pursuant to the Amended Plan that are intended to qualify as
incentive stock options, or ISOs, under the Code.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of March&nbsp;31, 2006, we had four executive officers, six
non-employee Directors, and approximately 250 employees
(including employees of subsidiaries), each of whom will be
eligible to participate in the Amended Plan if it is approved at
the annual meeting. The selection of those persons within a
particular class who will receive awards will be made by the
Compensation Committee.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Awards
of Options</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Compensation Committee may grant awards in the form of
options to buy our common stock that are ISOs or options that
are not intended to be ISOs, referred to as &#147;NQSOs.&#148;
Our non-employee Directors may only receive NQSOs.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
An option granted under the Amended Plan will be exercisable in
accordance with such terms and conditions as may be determined
by the Compensation Committee. In addition to any such terms and
conditions, the terms and conditions described below will apply
to all options granted under the Amended Plan.
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Exercise Price.</I> 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</TD>
</TR>

</TABLE>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    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 &#147;Control
    Person.&#148;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Term.</I> 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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Aggregate Fair Market Value of ISOs.</I> 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.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Upon exercise, the exercise price of an option may be paid in
cash, or, to the extent permitted by the Compensation Committee,
by tendering shares of our common stock, a combination of the
foregoing, or such other consideration as the Compensation
Committee may deem appropriate. Options awarded under the
Amended Plan may also be exercised by way of a broker-assisted
stock option exercise program, if any.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Awards
of Stock</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Compensation Committee may grant awards in the form of
common stock or restricted shares of stock, in such numbers and
at such times as the Compensation Committee determines,
provided, however, that the Compensation Committee may grant
awards of unrestricted shares of stock only if the Compensation
Committee has determined that such award is made in lieu of
salary or cash bonus.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Compensation Committee may condition, restrict or limit the
grant of awards of common stock or restricted shares of stock on
the achievement of enumerated performance objectives or on
continued employment or service to our company through a
specified period of time. In addition, the grant or vesting of
shares of stock or restricted shares of stock may be granted in
the form performance awards, which are intended to qualify as
deductible &#147;performance-based compensation&#148; for
purposes of Section&nbsp;162(m) of the Code.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During the period in which any shares of common stock received
pursuant to a stock award are subject to any restrictions, the
Compensation Committee may, in its sole and absolute discretion,
deny the participant to whom such shares have been awarded all
or any of the rights of a stockholder with respect to such
shares, including limiting the right to vote such shares or the
right to receive dividends on such shares.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Performance
Awards</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Compensation Committee may also grant awards in the form of
performance awards, which are intended to be deductible
&#147;performance-based compensation&#148; within the meaning of
Section&nbsp;162(m) of the Code. A performance award granted
under the Amended Plan may be payable in cash or in shares of
stock (including restricted shares of stock), as determined by
the Compensation Committee.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Performance awards shall be conditioned solely on the
achievement of one or more objective performance standards, and
such performance objectives shall be established by the
Compensation Committee within the first 90&nbsp;days of a
performance period (or, if longer, within the maximum period
allowed under Section&nbsp;162(m) of the Code), and shall
otherwise comply with the requirements of Section&nbsp;162(m) of
the Code. Performance objectives may be measured on an absolute
or relative basis, and may provide for adjustments to exclude
the impact of any significant acquisitions or dispositions of
businesses by the Company, one-time non-operating charges, or
accounting changes (including the early adoption of any
accounting change mandated by any governing body, organization
or authority).
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Performance objectives are limited to specified levels of or
increases in our 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 common 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 stockholders, 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.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Following the completion of a performance period, the
Compensation Committee shall meet to review and certify in
writing whether, and to what extent, the performance objectives
for the performance period have been achieved and, if so, to
also calculate and certify in writing the amount of the
performance awards earned for the
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
period based upon the performance formula. The Compensation
Committee shall then determine the actual size of each
participant&#146;s performance award for the performance period
and, in so doing, may apply negative discretion, if and when it
deems appropriate.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Generally, a participant must be employed by us on the last day
of a performance period to be eligible for a performance award
for such performance period. A participant is eligible to
receive a performance award for a performance period only to the
extent that: (i)&nbsp;the performance objectives for such period
are achieved; and (ii)&nbsp;and the performance formula as
applied against such performance objectives determines that all
or some portion of such participant&#146;s performance award has
been earned for the performance period. Performance awards for a
performance period are paid to participants as soon as
administratively practicable following the certification of the
awards by the Compensation Committee.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Effect
of Death, Disability or Termination</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Amended Plan provides for the treatment of awards of stock
and options prior to their complete exercise or vesting, upon
the death or total and permanent disability of participants.
Unless otherwise decided by the Compensation Committee and
provided in an award agreement, upon the death or disability of
a participant, the vested portion of any remaining options held
by the participant may be exercised in whole or in part within
one year after such death or disability, to the extent that the
participant would have been entitled to exercise the option at
the date of death or disability, and only prior to the
expiration of the term of the option. Any unvested restricted
shares of a stock award held by the participant at the time of
death or disability will be forfeited.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Unless otherwise decided by the Compensation Committee and
provided in an award agreement, upon termination of a
participant&#146;s employment or term of directorship for
reasons other than death or disability and prior to the complete
exercise or vesting of an award granted to him or her under the
Amended Plan, 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 his or her termination, to the
extent that the participant would have been entitled to exercise
the option at the date of termination, and only prior to the
expiration of the term of the option. Any unvested restricted
shares of a stock award held by the participant at the time of
his or her termination will be forfeited.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Adjustments
Upon Certain Corporate Events</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In the event of any reclassification, recapitalization, merger,
consolidation, reorganization or any other change in corporate
structure which, in the judgment of the Compensation Committee,
materially affects the value of our common stock, the
Compensation Committee may determine such substitutions or
adjustments to the maximum number of shares available under the
Amended Plan, the number and class of shares and the exercise
price per share set forth in any award that has been granted, or
any other affected terms of an award or the Amended Plan as the
Compensation Committee, in its sole discretion, deems equitable
or appropriate. However, no such adjustments may be made to an
ISO without the participant&#146;s consent, if such adjustment
would cause such ISO to fail to qualify as an ISO.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Amendment
or Termination of the Amended Plan</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Subject to certain limitations regarding repricing of options
(which requires the affirmative approval of our stockholders at
a stockholders&#146; meeting except for an adjustment in the
event of a change in capitalization), our Board of Directors
may, at any time, alter, amend, suspend, discontinue or
terminate the Amended Plan. However, no such action may
adversely affect the rights of participants to awards previously
granted under the Amended Plan.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Duration
of the Amended Plan</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Awards may not be granted under the Plan after July&nbsp;26,
2016, but awards granted under the Plan before such date may
extend beyond that date.
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Securities Act Registration</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We intend to register the additional 250,000&nbsp;shares of
common stock to be made available for issuance under the Amended
Plan with the Securities and Exchange Commission pursuant to a
registration statement on
Form&nbsp;<FONT style="white-space: nowrap">S-8</FONT> if the
Amended Plan is approved by the stockholders at the annual
meeting.
</DIV>

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<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Tax Status of Awards Under the Amended Plan</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following discussion of the U.S.&nbsp;federal income tax
consequences of awards under the Amended Plan is based on
present federal tax laws and regulations and does not purport to
be complete. Foreign, state and local taxes not described below
may also apply.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Incentive
Stock Options</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Pursuant to the requirements of Section&nbsp;422 of the Code,
only employees are eligible to receive ISOs. If an option is an
ISO, no income is realized by the employee upon grant or
exercise of the ISO, and no deduction is available to us at such
times. If the shares of common stock purchased upon the exercise
of an ISO are held by the employee for at least two years from
the date of the grant of such ISO and for at least one year
after exercise, any resulting gain is taxed at long-term capital
gains rates. If the shares purchased pursuant to an ISO are
disposed of before the expiration of that period, any gain on
the disposition, up to the difference between the fair market
value of the shares at the time of exercise and the exercise
price of the ISO, is taxed at ordinary rates as compensation
paid to the employee, and we are entitled to a deduction for an
equivalent amount. Any amount realized by the employee in excess
of the fair market value of the shares at the time of exercise
is taxed at capital gains rates.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Non-Qualified
Stock Options</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If an option is a NQSO, no income is realized by the participant
at the time of grant of the NQSO, and no deduction is available
to us at such time. At the time of exercise, ordinary income is
realized by the participant in an amount equal to the difference
between the exercise price and the fair market value of the
shares of common stock on the date of exercise, and we receive
an income tax deduction for such amount. Upon disposition, any
appreciation or depreciation of the shares after the date of
exercise will be treated as capital gain or loss depending on
how long the shares have been held.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Stock
Awards</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Upon the grant of an award of shares of common stock, a
participant realizes taxable income equal to the fair market
value at such time of the shares received by the participant
under such award (less the purchase price therefor, if any),
and, subject to the limitations of Section&nbsp;162(m) of the
Code, we are entitled to a corresponding tax deduction at that
time.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Restricted
Stock Awards</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Upon the grant of an award of restricted shares of common stock,
no income is realized by a participant (unless the participant
makes an election under Section&nbsp;83(b) of the Code), and we
are not allowed a deduction at that time. When the restricted
shares vest and are no longer subject to a substantial risk of
forfeiture for income tax purposes, the participant realizes
taxable ordinary income in an amount equal to the fair market
value at the time of vesting of the restricted shares which have
vested (less the purchase price therefor, if any), and, subject
to the limitations of Section&nbsp;162(m) of the Code, we are
entitled to a corresponding deduction at such time. If a
participant makes a timely election under Section&nbsp;83(b) of
the Code, then the participant recognizes taxable ordinary
income in an amount equal to the fair market value at the time
of grant of the restricted shares (less the purchase price
therefor, if any), and, subject to the limitations of
Section&nbsp;162(m) of the Code, we are entitled to a
corresponding deduction at such time.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Performance
Awards</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Generally, a participant receiving a performance award will not
recognize income and we will not be allowed a tax deduction at
the time the award is granted. When the participant receives
payment of the performance award, the amount of cash and the
fair market value of any shares received will be ordinary income
to the participant and we are entitled to a corresponding
deduction at such time.
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>New Plan Benefits</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Because the benefits conveyed under the Amended Plan will be at
the discretion of the Compensation Committee, it is not possible
to determine what benefits eligible participants will receive
under the Amended Plan. Further, since the Amended Plan would
authorize new types of awards not previously available under the
Current Plan, it is not possible to determine which, if any, of
these new awards might have been granted to any of the current
Directors or officers during the past fiscal year, or if granted
the amounts thereof.
</DIV>

<P align="right" style="font-size: 10.0pt;color: #000000; background: #ffffff;">13

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Equity Compensation Plan Information</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table summarizes, as of March&nbsp;31, 2006, the
number of shares subject to currently outstanding options, their
weighted average exercise price, and the number of shares
available for future grants under the Current Plan, before
taking into account the additional number of shares that would
be authorized for issuance if the Amended Plan is approved by
stockholders at the annual meeting:
</DIV>

<DIV align="left" style="font-size: 8.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 100%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; ">

<TR style="font-size: 1pt;">
    <TD width="32%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="17%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of securities</B></TD><TD></TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of securities</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>remaining available for</B></TD><TD></TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>to be issued upon</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted-average</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>future issuance under</B></TD><TD></TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>exercise of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>exercise price of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>equity compensation plans</B></TD><TD></TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>outstanding options,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>outstanding options,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(excluding securities</B></TD><TD></TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD align="left" nowrap><B>Plan category</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>warrants and rights</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>warrants and rights</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>reflected in column (a))</B></TD><TD></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="12" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(a)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(b)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(c)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Equity compensation plans approved by security holders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>199,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8.65</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>93,300</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Equity compensation plans not approved by security holders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Totals</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>199,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8.65</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>93,300</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Stock Price</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The closing price of a share of our common stock as reported on
the American Stock Exchange on June&nbsp;15, 2006 was $18.75 per
share.
</DIV>

<P align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">14
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<!-- link1 "PROPOSAL THREE: RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM" -->
<DIV align="left"><A NAME="003"></A></DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>PROPOSAL&nbsp;THREE:</B>
</DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff;">
<B>RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Audit Committee of the Board of Directors has selected
Deloitte&nbsp;&#38; Touche LLP (&#147;Deloitte&nbsp;&#38;
Touche&#148;) as our independent registered public accounting
firm for fiscal year 2007. This selection will be presented to
our stockholders for ratification at the annual meeting. If our
stockholders do not approve of the selection of
Deloitte&nbsp;&#38; Touche, the Audit Committee will reconsider
its choice.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Board of Directors unanimously recommends a vote <U>FOR</U>
the proposal to ratify the selection of Deloitte&nbsp;&#38;
Touche to serve as our independent registered public accounting
firm for fiscal year 2007. Unless otherwise instructed in the
proxy, the persons named in the enclosed proxy will vote the
proxies <U>FOR</U> this proposal.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have been advised by Deloitte&nbsp;&#38; Touche that it will
have a representative present at the annual meeting and that
such representative will be available to respond to appropriate
questions. Such representative will be given an opportunity to
make a statement if he or she so desires.
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Fees Paid to Deloitte&nbsp;&#38; Touche LLP</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We paid the following fees to Deloitte&nbsp;&#38; Touche for
fiscal year 2006 and for the fiscal year ended March&nbsp;31,
2005, referred to as &#147;fiscal year 2005&#148;:
</DIV>

<DIV align="left" style="font-size: 8.0pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; ">

<TR style="font-size: 1pt;">
    <TD width="51%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="26%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Fiscal Year</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Fiscal Year</B></TD><TD></TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2006</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Audit fees</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>141,050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>145,845</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Audit-related fees</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47,348</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>65,540</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Tax fees</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>35,182</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>51,325</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    All other fees</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>223,580</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>262,710</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Audit fees for each of fiscal year 2006 and fiscal year 2005
included fees associated with audits of our financial
statements, reviews of financial statements included in our
quarterly reports on
Form&nbsp;<FONT style="white-space: nowrap">10-Q</FONT> and
reviews of our registration statements.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
For fiscal year 2006, audit-related fees included fees
associated with employee benefit plan audits, assistance with
internal control over financial reporting and
<FONT style="white-space: nowrap">out-of</FONT>-pocket expenses
billed. For fiscal year 2005, audit-related fees included fees
associated with employee benefit plan audits, assistance with
responses to Securities and Exchange Commission comment letters,
consultation regarding revenue recognition policy change,
consultation regarding the discontinuance of operations in the
United Kingdom, consultation regarding restatement of prior year
financial statements, and
<FONT style="white-space: nowrap">out-of</FONT>-pocket expenses
billed.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
For each of fiscal year 2006 and fiscal year 2005, tax fees
primarily included tax compliance, tax consulting and tax
planning services, as well as
<FONT style="white-space: nowrap">out-of</FONT>-pocket expenses
billed.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Audit Committee has determined that the provision of
permitted non-audit services described above has not compromised
the independence of Deloitte&nbsp;&#38; Touche.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Audit Committee has adopted procedures for pre-approving all
audit and permitted non-audit services provided by our
independent registered public accounting firm. The Audit
Committee annually pre-approves a list of specific services and
categories of services, subject to a specified cost level. Part
of this approval process includes making a determination as to
whether non-audit services are consistent with the Securities
and Exchange Commission&#146;s rules on auditor independence.
The Audit Committee has delegated pre-approval authority to the
Chairman of the Audit Committee, subject to reporting any such
approvals at the next Audit Committee meeting. The Audit
Committee monitors the services rendered and actual fees paid to
our independent registered public accounting firm quarterly to
ensure such services are within the scope of approval. All audit
and permitted non-audit services for which Deloitte and Touche
were engaged were pre-approved by the Chairman of the Audit
Committee.
</DIV>

<P align="right" style="font-size: 10.0pt;color: #000000; background: #ffffff;">15

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<!-- link1 "REPORT OF THE AUDIT COMMITTEE" -->
<DIV align="left"><A NAME="004"></A></DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>REPORT OF THE AUDIT COMMITTEE</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Audit Committee is currently comprised of Directors
Denninger (Chairman), Berkeley, Bidlack, and Lemcke, each of
whom the Board of Directors has affirmatively determined is
independent pursuant to the listing standards of the American
Stock Exchange and applicable Securities and Exchange Commission
rules. The duties and responsibilities of the Audit Committee
are set forth in the Audit Committee&#146;s charter, as amended
and restated by the Board of Directors on January&nbsp;27, 2006.
The Audit Committee&#146;s charter, as amended and restated, is
attached as <U>Appendix&nbsp;B</U> to this proxy statement.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Audit Committee oversees the company&#146;s financial
reporting process on behalf of the Board of Directors, and has
other duties and functions as described in its charter.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Management has the primary responsibility for the company&#146;s
financial statements and the reporting process. The
company&#146;s independent registered public accounting firm,
Deloitte&nbsp;&#38; Touche LLP, is responsible for auditing the
company&#146;s financial statements and expressing an opinion as
to their conformity with accounting principles generally
accepted in the United States.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Audit Committee has:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="1%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    reviewed and discussed the company&#146;s audited financial
    statements for fiscal year 2006 with management and the
    independent registered public accounting firm;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    discussed with the company&#146;s independent registered public
    accounting firm the matters required to be discussed by
    Statement on Auditing Standards No.&nbsp;61 (Communication with
    Audit Committees); and</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    received and discussed the written disclosures and the letter
    from the company&#146;s independent registered public accounting
    firm required by Independence Standards Board Standard
    No.&nbsp;1 (Independence Discussions with Audit Committees), and
    has discussed with the company&#146;s independent registered
    public accounting firm its independence.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
When evaluating Deloitte&nbsp;&#38; Touche&#146;s independence,
the Audit Committee discussed with Deloitte&nbsp;&#38; Touche
any relationships that may impact such firm&#146;s objectivity
and independence. The Audit Committee has also considered
whether the provision of non-audit services by
Deloitte&nbsp;&#38; Touche is compatible with maintaining such
firm&#146;s independence, and has satisfied itself with respect
to Deloitte&nbsp;&#38; Touche&#146;s independence from the
company and its management.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Audit Committee discussed with the company&#146;s internal
auditor and independent registered public accounting firm the
overall scope and plans for their respective audits. The Audit
Committee meets with the internal auditor and independent
registered public accounting firm, with and without management
present, to discuss the results of their examinations, the
evaluations of the company&#146;s internal controls, and the
overall quality of the company&#146;s financial reporting.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In reliance on the reviews and discussions referred to above,
the Audit Committee recommended to the Board of Directors (and
the Board has approved) that the audited financial statements be
included in the company&#146;s annual report on
Form&nbsp;<FONT style="white-space: nowrap">10-K</FONT> for the
year ended March&nbsp;31, 2006 for filing with the Securities
and Exchange Commission. The Audit Committee has also selected
the company&#146;s independent registered public accounting firm
for the fiscal year ending March&nbsp;31, 2007 and has submitted
such selection for ratification by the stockholders at the
company&#146;s annual meeting.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Audit Committee:</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    William C. Denninger, Chairman</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Helen H. Berkeley</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Jerald D. Bidlack</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    H. Russel Lemcke</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">16

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<!-- link1 "CORPORATE GOVERNANCE" -->
<DIV align="left"><A NAME="005"></A></DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>CORPORATE GOVERNANCE</B>
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Board Meetings and Committees of the Board</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Board of Directors has affirmatively determined that
Directors Berkeley, Bidlack, Denninger, Lemke, Malvaso, and Van
Rees are each independent within the meaning of the American
Stock Exchange&#146;s director independence standards.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Board of Directors has an Audit Committee, a Compensation
Committee, a Nominating Committee, and an Employee Benefits
Committee. The function, composition, and number of meetings of
each of these committees are described below. Effective
April&nbsp;1, 2006, the Board of Directors discontinued its
Executive Committee.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Audit
Committee</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The current members of the Audit Committee are Directors
Denninger (Chairman), Berkeley, Bidlack and Lemcke. The Audit
Committee held five meetings during fiscal year 2006. The Board
of Directors has determined that the Audit Committee has at
least one &#147;audit committee financial expert&#148; in
accordance with applicable Securities and Exchange Commission
rules, Director Denninger, based upon his professional work
experience as referenced in his biography on page&nbsp;7 of this
proxy statement. The Board of Directors has affirmatively
determined that each member of the Audit Committee satisfies the
independence standards specified in Section&nbsp;121A of the
listing standards of the American Stock Exchange and applicable
Securities and Exchange Commission rules.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Audit Committee reviews with Deloitte&nbsp;&#38; Touche LLP,
our independent registered public accounting firm, our financial
statements and internal control over financial reporting,
Deloitte&nbsp;&#38; Touche&#146;s auditing procedures and fees,
and the possible effects of professional services upon the
independence of Deloitte&nbsp;&#38; Touche.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Audit Committee works closely with the Board of Directors,
our executive management team, and our independent registered
public accounting firm to assist the Board in overseeing our
accounting and financial reporting processes and financial
statement audits. In furtherance of these responsibilities, the
Audit Committee is charged with assisting the Board of Directors
in its oversight of: (i)&nbsp;the integrity of our financial
statements and internal controls; (ii)&nbsp;our compliance with
legal and regulatory requirements; (iii)&nbsp;the qualifications
and independence of our independent registered public accounting
firm; (iv)&nbsp;the performance of our independent registered
public accounting firm; and (v)&nbsp;the planning for and
performance of our internal audit function.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Audit Committee is also responsible for preparing the Audit
Committee&#146;s report set forth in this proxy statement that
the Securities and Exchange Commission&#146;s rules require be
included in our annual proxy statement, and performing such
other tasks that are consistent with the Audit Committee&#146;s
charter.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Audit Committee&#146;s charter, which was most recently
amended and restated on January&nbsp;27, 2006, is attached to
this proxy statement as <U>Appendix&nbsp;B.</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Compensation
Committee</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The members of the Compensation Committee are Directors Lemcke
(Chairman), Berkeley, Bidlack, Malvaso and Van Rees. The
Compensation Committee held two meetings during fiscal year
2006. The Board of Directors has affirmatively determined that
each member of the Compensation Committee satisfies the
independence standards specified in Section&nbsp;121A of the
listing standards of the American Stock Exchange.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Compensation Committee: (i)&nbsp;reviews and determines
annually salaries, bonuses and other forms of compensation paid
to our executive officers and management; (ii)&nbsp;approves
recipients of awards of incentive stock options and
non-qualified stock options and establishes the number of shares
and other terms applicable to such awards; and
(iii)&nbsp;construes the provisions of and generally administers
the 2000 Incentive Plan to Increase Shareholder Value, the
Annual Stock-Based Incentive Award Plan for Senior Executives
and the Graham Annual Executive Cash Bonus Program. The
Compensation Committee&#146;s report relating to fiscal year
2006 appears on page&nbsp;25 of this proxy statement.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Nominating
Committee</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The members of the Nominating Committee are Directors Van Rees
(Chairman), Bidlack and Malvaso. The Board of Directors has
affirmatively determined that each member of the Nominating
Committee satisfies the independence standards specified in
Section&nbsp;121A of the listing standards of the American Stock
Exchange.
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Nominating Committee evaluates, interviews and nominates
candidates for election to the Board of Directors. The
Nominating Committee held one meeting during fiscal year 2006.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The charter of the Nominating Committee was attached as
Appendix&nbsp;B to the proxy statement for our 2004 annual
meeting of stockholders. Such charter is not available on our
website.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
When identifying nominees for Director, the Nominating Committee
solicits suggestions from incumbent Directors, management,
stockholders and others. In identifying and evaluating nominees,
the Nominating Committee seeks candidates possessing the highest
standards of personal and professional ethics and integrity;
practical wisdom, independent thinking, maturity and the ability
to exercise sound business judgment; skills, experience and
demonstrated abilities that help meet the current needs of the
Board of Directors; and a firm commitment to the interests of
our stockholders.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, the Nominating Committee takes into consideration
such other factors as it deems appropriate. These factors may
include knowledge of our industry and markets, experience with
businesses and other organizations of comparable size, the
interplay of the nominee&#146;s experience with the experience
of other members of the Board of Directors, and the extent to
which the candidate would be a desirable addition to the Board
of Directors and any of its committees. The Nominating Committee
may consider, among other factors, experience or expertise in
the heat-transfer industry, global business, science and
technology, competitive positioning, corporate governance,
finance or economics, and public affairs.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Pursuant to our by-laws, stockholders of record entitled to vote
in the election of Directors at any annual meeting may recommend
individuals for consideration by the Nominating Committee as
potential nominees by submitting written recommendations to our
Corporate Secretary so that they are delivered or received no
later than (i)&nbsp;60&nbsp;days in advance of the annual
meeting, if the annual meeting is to be held within 30&nbsp;days
preceding the anniversary of the previous year&#146;s annual
meeting, or (ii)&nbsp;90&nbsp;days in advance of the annual
meeting, if the annual meeting is to be held on or after the
anniversary of the previous year&#146;s annual meeting. For an
annual meeting held at a time other than within these time
periods, or for a special meeting of stockholders for the
election of Directors, nominations must be submitted no later
than the close of business on the 10th&nbsp;day following the
date on which notice of such meeting is first given to
stockholders.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Stockholder recommendations must contain: (i)&nbsp;each
nominee&#146;s name, age, business and residence addresses;
(ii)&nbsp;principal occupation or employment; (iii)&nbsp;the
nominee&#146;s written consent to serve as a Director, if
elected; and (iv)&nbsp;such other information regarding the
nominee as would be required to be included in a proxy statement
filed pursuant to applicable rules of the Securities and
Exchange Commission.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, any stockholder submitting a recommendation must
provide his or her own name and address as they appear on our
books and records, as well as the class and number of our shares
owned of record and the dates he or she acquired such shares.
The stockholder also must describe all arrangements or
understandings between the stockholder and the nominee and any
other person or persons (naming such person or persons) pursuant
to which the nominations are made by the stockholder.
Furthermore, the stockholder must identify any person employed,
retained, or to be compensated by the stockholder submitting the
nomination or by the person nominated, or any person acting on
his or her behalf, to make solicitations or recommendations to
stockholders for the purpose of assisting in the election of
such nominee, and briefly describe the terms of such employment,
retainer or arrangement for compensation.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Nominating Committee will evaluate nominees proposed by
stockholders using the same criteria, and in the same manner, as
described above for other nominees.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Employee
Benefits Committee</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The members of the Employee Benefits Committee are Directors Van
Rees (Chairman), Berkeley, Bidlack and Denninger. The Employee
Benefits Committee held one meeting during fiscal year 2006.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Employee Benefits Committee serves as the plan administrator
of our employee benefit plans that are subject to the Employee
Retirement Income Security Act of 1974, as amended, or
&#147;ERISA,&#148; including our Retirement Income Plan,
Incentive Savings Plan, Medical Plan, Life Insurance Plan,
Long-Term Disability Plan, Employee Stock Ownership Plan and any
other employee benefit plan we maintain for which a named
fiduciary is designated. The Employee Benefits Committee
oversees the operation, administration, investments and
compliance of each of these plans.
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Meeting
Attendance</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During fiscal year 2006, the Board of Directors held a total of
five meetings. Each Director attended at least 75% of the
aggregate of (i)&nbsp;the total number of meetings of the Board
of Directors and (ii)&nbsp;the total number of meetings of all
committees of the Board of Directors on which he or she served
(during the periods that he or she served).
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Company policy requires that each Director attend our annual
meeting of stockholders or provide the Chairman of the Board
with advance notice of the reason for not attending. All of our
Directors attended our 2005 annual meeting of stockholders.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Communications
from Stockholders</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Stockholders may send communications to the Board of Directors,
or to individual Directors, to the attention of: Cornelius S.
Van Rees, Corporate Secretary, Graham Corporation, 20 Florence
Avenue, Batavia, New York 14020. The Corporate Secretary will
convey all such communications to the Board, or if addressed to
an individual member of the Board, to that Director.
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Compensation of Directors</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Employee-Directors do not receive any remuneration for service
on the Board of Directors.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Cash
Compensation</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Each of our non-employee Directors receives an annual fee of
$15,000 for service on the Board of Directors. Additionally,
each non-employee Director receives a fee of $1,000 for each
Board or committee meeting attended, except that if such meeting
is held by telephone conference call or by unanimous written
consent, the fee is reduced to $500. If the Board of Directors
and/or one or more committees meet on the same day, a full
meeting fee is paid for one meeting and one-half of the meeting
fee is paid for each additional meeting attended that day.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Chairman of the Board of Directors and each of our Directors
serving as chairman of committees of the Board of Directors
receive additional fees for such service. During fiscal year
2006, the Chairman of the Board of Directors received an
additional annual fee of $10,000, the Chairman of the Audit
Committee received an additional annual fee of $5,000, and the
chairman of each of the other committees received an additional
annual fee of $2,000. Effective April&nbsp;1, 2006, these
additional annual fees were increased as follows: the Chairman
of the Board of Directors&nbsp;&#151; $15,000, the Chairman of
the Audit Committee&nbsp;&#151; $6,000, the Chairman of the
Compensation Committee&nbsp;&#151; $5,000, and the Chairman of
the Employee Benefits Committee and the Chairman of the
Nominating Committee&nbsp;&#151; $3,000.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Equity
Compensation</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Non-employee Directors participate in the Outside
Directors&#146; Long-Term Incentive Plan, or &#147;LTIP.&#148;
The LTIP credits each of our non-employee Directors with Share
Equivalent Units, or &#147;SEUs&#148; for five fiscal years
during the term of such Director&#146;s service, subject to our
attainment of certain performance objectives. Upon termination
of a non-employee Director&#146;s service, but not before, the
Director may redeem each SEU for one share of our common stock
or, alternatively and subject to our discretion, for the cash
equivalent at the closing price of the stock on the American
Stock Exchange on the date of termination of service, subject to
certain limitations which are discussed further below.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under the LTIP, SEUs will be credited to each non-employee
Director&#146;s account for each of the first five fiscal years
in which we produce consolidated net income in an amount at
least equal to the consolidated net income specified in our
budget for each such fiscal year. Each SEU is valued at the
market value of one share of our common stock on the valuation
date, which is the last day of trading of the first quarter
following the end of a fiscal year for which SEUs are to be
credited. The number of SEUs to be credited is determined by
dividing the value of one SEU into 10,000.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In the event that we elect under the LTIP to redeem a
Director&#146;s SEUs for cash representing a commensurate number
of our shares of our common stock, the cash value will be
determined by multiplying the number of SEUs held by such
Director on the date of his or her termination from service
multiplied by the closing price of our stock on the date of such
termination. However, the cash value of each SEU may not exceed
the greater of $8.00&nbsp;per share or the price on the
valuation date when initially credited to such Director&#146;s
account.
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In the event that we elect to redeem a Director&#146;s SEUs for
a commensurate number of shares of our common stock, the number
of shares we pay to such Director shall be determined as
follows: (i)&nbsp;if the fair market value is at or below the
valuation date price, each SEU will be redeemed for one share of
common stock; (ii)&nbsp;if the fair market value is greater than
the valuation date price but less than $8.00&nbsp;per share,
each SEU will be redeemed for one share of our common stock;
(iii)&nbsp;if the fair market value is greater than
$8.00&nbsp;per share and the valuation date price was less than
or equal to $8.00&nbsp;per share, the number of shares
constituting the redemption price of a Director&#146;s SEUs will
be determined by multiplying the number of SEUs times $8.00 and
dividing the product by the fair market value; and (iv)&nbsp;if
the fair market value is greater than the valuation date price
and the valuation date price was greater than $8.00&nbsp;per
share, the number of shares constituting the redemption price of
a Director&#146;s SEUs will be determined by multiplying the
number of SEUs times the valuation date price and dividing the
product by the fair market value.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our non-employee Directors are also eligible to participate in
the 2000 Graham Corporation Incentive Plan to Increase
Shareholder Value, pursuant to which they may be granted options
to purchase shares of our common stock. On October&nbsp;26,
2005, each of our non-employee Directors was granted an option
to purchase&nbsp;2,000&nbsp;shares of our common stock at its
closing price on the American Stock Exchange on the date of
grant ($13.90), pursuant to such plan.
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Compensation Committee Interlocks and Insider
Participation</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The members of our Compensation Committee during fiscal year
2006 were Directors Lemcke (Chairman), Berkeley, Bidlack,
Malvaso and Van Rees. Director Van Rees is our Corporate
Secretary but receives no compensation for his service in such
capacity. Mr.&nbsp;Van Rees participated in the Board of
Directors&#146; deliberations regarding compensation of all of
our compensated officers.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Except as set forth in this proxy statement, under the heading
&#147;Certain Relationships and Related Transactions,&#148; no
member of our Compensation Committee: (i)&nbsp;was an officer or
employee of ours or any of our subsidiaries during fiscal year
2006; (ii)&nbsp;was formerly an officer of ours or any of our
subsidiaries; or (iii)&nbsp;had any relationship requiring
disclosure in this proxy statement pursuant to Securities and
Exchange Commission rules. In addition, none of our executive
officers served: (i)&nbsp;as a member of the Compensation
Committee (or other Board committee performing equivalent
functions or, in the absence of any such committee, the entire
Board of Directors) of another entity, one of whose executive
officers served on our Compensation Committee; (ii)&nbsp;as a
Director of another entity, one of whose executive officers
served on our Compensation Committee; or (iii)&nbsp;as a member
of the Compensation Committee (or other Board committee
performing equivalent functions or, in the absence of any such
committee, the entire Board of Directors) of another entity, one
of whose executive officers served on our Board of Directors.
</DIV>

<!-- link1 "EXECUTIVE OFFICERS" -->
<DIV align="left"><A NAME="006"></A></DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>EXECUTIVE OFFICERS</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are currently served by the following executive officers, who
are elected by the Board of Directors and serve until their
respective successors are elected and qualified:
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>James R. Lines,</B> age&nbsp;45, became our President and
Chief Operating Officer in June 2006. Mr.&nbsp;Lines has been
with our company since 1984. Previously, and since December
2004, Mr.&nbsp;Lines was our Vice President and General Manager.
Mr.&nbsp;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.&nbsp;Lines holds a
Bachelor of Science degree in Aerospace Engineering from the
University of Buffalo.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>J.&nbsp;Ronald Hansen,</B> age&nbsp;59, has been our Vice
President-Finance and Administration and Chief Financial Officer
since joining us in 1993.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>Stephen P. Northrup,</B> age&nbsp;54, was appointed our Vice
President of Asia Operations in January 2006. Previously, and
from 2005 to 2006, he served as our Vice President and Chief
Technology Officer. From 1995 to 2005, Mr.&nbsp;Northrup served
as our Vice President-Engineering. He has been employed with us
since 1973.
</DIV>

<P align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">20

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<!-- link1 "EXECUTIVE COMPENSATION" -->
<DIV align="left"><A NAME="007"></A></DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>EXECUTIVE COMPENSATION</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth the annual compensation for
services to us in all capacities for the past three fiscal years
by our President and Chief Operating Officer and our three most
highly compensated executive officers (other than our President
and Chief Operating Officer) who were serving as executive
officers on March&nbsp;31, 2006, the last day of fiscal year
2006 (collectively, the &#147;named executive officers&#148;).
</DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>SUMMARY COMPENSATION TABLE</B>
</DIV>

<DIV align="left" style="font-size: 8.0pt;color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9.0pt; ">

<TR style="font-size: 1pt;">
    <TD width="17%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>

<TR style="font-size: 7.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Long-Term</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="center" nowrap><B>Annual Compensation</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Compensation</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Other Annual</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Securities</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Fiscal</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Salary</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Bonus</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Compensation</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Underlying</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>All Other</B></TD>
</TR>

<TR style="font-size: 7.0pt;">
    <TD align="left" nowrap><B>Name and Position</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Year</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>($)<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>($)<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>($)<SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Options/SARs(#)<SUP style="font-size: 85%; vertical-align: text-top">(4)</SUP></B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Compensation($)</B></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="25" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>James R. Lines
    </B><SUP style="font-size: 85%; vertical-align: text-top">(5)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>163,010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>86,754</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,924</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(6)(7)</SUP></TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    President and Chief</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>137,966</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,813</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(6)(8)</SUP></TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating Officer</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>137,966</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>43,132</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(8)(9)</SUP></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>J. Ronald Hansen</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>165,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>87,816</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,549</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(7)</SUP></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Vice President-Finance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>146,931</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>-0-</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    and Administration and</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>146,931</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>86,475</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(9)</SUP></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Chief Financial Officer</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Stephen P. Northrup</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>157,274</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>83,169</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,036</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(7)</SUP></TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Vice President of Asia</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>137,966</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>-0-</TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>137,966</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>86,960</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(9)(10)</SUP></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>William C.
    Johnson</B><SUP style="font-size: 85%; vertical-align: text-top">(11)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>241,247</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>192,587</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,241</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(12)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>41,400</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(7)(13)</SUP></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Former President and</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>80,140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>-0-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>126,072</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(13)</SUP></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Chief Executive Officer</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP>&nbsp;</TD>
    <TD align="left">
    The figures shown include amounts (if any) deferred by the named
    executive officers pursuant to section&nbsp;401(k) of the
    Internal Revenue Code as deferred contingent salary. Any amounts
    deferred under section&nbsp;401(k) of the Internal Revenue Code
    are deposited in the named executive officer&#146;s 401(k)
    account for investment and payment according to the terms of our
    Incentive Savings Plan.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP>&nbsp;</TD>
    <TD align="left">
    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&nbsp;31, 2004 (&#147;fiscal year
    2004&#148;) and fiscal year 2005.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP>&nbsp;</TD>
    <TD align="left">
    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 &#147;Other Annual
    Compensation&#148; column. Such information for fiscal year 2006
    can be found under the table entitled &#147;Aggregated Option/
    SAR Exercises in Fiscal Year 2006 and Fiscal Year-End Option/
    SAR Values&#148; on page&nbsp;22 of this proxy statement.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(4)</SUP>&nbsp;</TD>
    <TD align="left">
    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&nbsp;3, 2005.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(5)</SUP>&nbsp;</TD>
    <TD align="left">
    Mr.&nbsp;Lines was appointed President and Chief Operating
    Officer by our Board of Directors on June&nbsp;14, 2006.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(6)</SUP>&nbsp;</TD>
    <TD align="left">
    Includes $2,160 for each of fiscal years 2006 and 2005 in
    premiums paid on insurance policies on Mr.&nbsp;Lines.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(7)</SUP>&nbsp;</TD>
    <TD align="left">
    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.&nbsp;Johnson; $5,549 for Mr.&nbsp;Hansen; $7,764 for
    Mr.&nbsp;Lines; and $10,036 for Mr.&nbsp;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.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(8)</SUP>&nbsp;</TD>
    <TD align="left">
    Includes for Mr.&nbsp;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.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(9)</SUP>&nbsp;</TD>
    <TD align="left">
    Includes cash proceeds received in fiscal year 2004 upon
    termination of split-dollar life insurance policies maintained
    by us as follows: Mr.&nbsp;Hansen&nbsp;&#151; $86,475;
    Mr.&nbsp;Lines&nbsp;&#151; $41,757; and
    Mr.&nbsp;Northrup&nbsp;&#151; $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.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(10)</SUP>&nbsp;</TD>
    <TD align="left">
    Includes for Mr.&nbsp;Northrup a long-term service award of
    $5,306 for fiscal year 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(11)</SUP>&nbsp;</TD>
    <TD align="left">
    Mr.&nbsp;Johnson was our President and Chief Executive Officer
    from November&nbsp;29, 2004 through June&nbsp;12, 2006.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(12)</SUP>&nbsp;</TD>
    <TD align="left">
    Club dues paid by us on Mr.&nbsp;Johnson&#146;s behalf in fiscal
    year 2006.</TD>
</TR>

</TABLE>

<P align="right" style="font-size: 10.0pt;color: #000000; background: #ffffff;">21

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(13)</SUP>&nbsp;</TD>
    <TD align="left">
    Includes $24,887 for fiscal year 2006 and $125,338 for fiscal
    year 2005, respectively, in relocation and related expenses in
    connection with Mr.&nbsp;Johnson&#146;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.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Stock Options</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
After taking into account our October&nbsp;3, 2005 two-for-one
stock split in the nature of a dividend, the number of
unoptioned shares available at the beginning of fiscal year 2006
under the 2000 Graham Corporation Incentive Plan to Increase
Shareholder Value was 149,300. The number of unoptioned shares
available at the end of fiscal year 2006 under the 2000 Graham
Corporation Incentive Plan to Increase Shareholder Value was
93,300&nbsp;shares.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table shows information with respect to the total
number of stock options we granted to each named executive
officer during fiscal year 2006.
</DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Option/ SAR Grants During Fiscal Year 2006</B>
</DIV>

<DIV align="left" style="font-size: 4.0pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 100%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; ">

<TR style="font-size: 1pt;">
    <TD width="24%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 9.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" align="center" nowrap><B>Individual Grants</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>Potential Realizable</B></TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>Value at Assumed</B></TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Percent of</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>Annual Rates of</B></TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>Stock Price</B></TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Securities</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Options/SARs</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Exercise</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>Appreciation for</B></TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Underlying</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Granted to</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>or Base</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>Option Term</B></TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Options/SARs</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Employees in</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Price</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Expiration</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD align="left" nowrap><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Granted (#)<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Fiscal Year (%)</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>($/Share)</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Date</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>5% ($)</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>10% ($)</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="25" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    James R. Lines</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13.6</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13.90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10/26/15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>52,450</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>132,918</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    J. Ronald Hansen</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13.6</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13.90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10/26/15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>52,450</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>132,918</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stephen P. Northrup</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13.6</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13.90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10/26/15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>52,450</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>132,918</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    William C. Johnson</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27.3</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13.90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10/26/15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>104,900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>265,836</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP>&nbsp;</TD>
    <TD align="left">
    All stock options are currently vested, non-qualified stock
    options.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table shows information with respect to
(i)&nbsp;stock options exercised by the named executives during
fiscal year 2006, and (ii)&nbsp;the total number of exercisable
and unexercisable stock options held by each named executive
officer on March&nbsp;31, 2006, the last day of fiscal year
2006, and the corresponding value. All numbers reported in the
table have been adjusted to reflect the two-for-one stock split
in the nature of a dividend that was effective as of
October&nbsp;3, 2005.
</DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Aggregated Option/SAR Exercises in Fiscal Year 2006</B>
</DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff;">
<B>and Fiscal Year-End Option/SAR Values</B>
</DIV>

<DIV align="left" style="font-size: 4.0pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 100%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; ">

<TR style="font-size: 1pt;">
    <TD width="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 9.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>Number of Securities</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Acquired</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>Underlying Unexercised</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>Value of Unexercised In-the-</B></TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>on</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>Options/SARs at Fiscal</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>Money Options/SARs at</B></TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Exercise</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Value</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>Year-End (#)</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>Fiscal Year-End ($)<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></B></TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD align="left" nowrap><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>(#)</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Realized ($)</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Exercisable</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Unexercisable</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Exercisable</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Unexercisable</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="25" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    James R. Lines</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>233,205</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    J. Ronald Hansen</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>85,307</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stephen P. Northrup</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>353,063</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    William C. Johnson</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>160,223</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>337,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP>&nbsp;</TD>
    <TD align="left">
    Based on the closing price of our common stock on March&nbsp;31,
    2006, which was $19.50&nbsp;per share.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">22

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Pension Plans</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table shows estimated annual pension benefits
payable at normal retirement age under our Retirement Income
Plan, setting forth straight-life annuity amounts without regard
to offsets for social security benefits. Benefits listed in the
table are subject to a deduction of an amount equal to 50% of an
eligible employee&#146;s estimated primary social security
benefit.
</DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Pension Plan Table</B>
</DIV>

<DIV align="left" style="font-size: 4.0pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 100%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10.0pt; ">

<TR style="font-size: 1pt;">
    <TD width="32%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>


<TR style="font-size: 9.0pt;">
    <TD colspan="17" align="center" nowrap><B>Years of Service</B></TD>
</TR>

<TR style="font-size: 9.0pt;">
    <TD align="left" nowrap><B>Remuneration ($)</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>15</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>20</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>25</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>30/35</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    100,000</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>25,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>33,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>41,670</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>50,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    125,000</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>31,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>41,662</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>52,088</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>62,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    150,000</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>37,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>49,995</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>62,505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>75,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    160,000</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>40,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>53,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>67,667</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>80,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    175,000<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>43,750</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>58,328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>72,922</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>87,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    260,000<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>65,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>86,667</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>108,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>130,000</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP>&nbsp;</TD>
    <TD align="left">
    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</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our Retirement Income Plan is a defined benefit pension plan for
the benefit of our domestic employees hired prior to
January&nbsp;1, 2003. Benefits are based on the employee&#146;s
years of service and average annual base salary for the five
highest consecutive calendar years of compensation in the
ten-year period preceding retirement. The portion of fiscal year
2006 compensation that is taken into account by the Retirement
Income Plan for the purpose of calculating future pension
benefits for each of the eligible named executive officers is as
follows: $165,006 for Mr.&nbsp;Hansen; $163,010 for
Mr.&nbsp;Lines; and $157,274 for Mr.&nbsp;Northrup.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The approximate years of creditable service as of March&nbsp;31,
2006 of each of the named executive officers eligible to
participate in the Retirement Income Plan are as follows:
13&nbsp;years for Mr.&nbsp;Hansen; 22&nbsp;years for
Mr.&nbsp;Lines; and 32&nbsp;years for Mr.&nbsp;Northrup.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition to the Retirement Income Plan, we maintain a
Supplemental Executive Retirement Plan, referred to as the
&#147;Supplemental Plan&#148;, that is intended to provide
eligible participants and their surviving spouses and
beneficiaries with the amount of employer-provided retirement
benefits that the Retirement Income Plan would provide but for
the limitation on compensation that may be recognized under
tax-qualified plans imposed by section&nbsp;401(a)(17) of the
Internal Revenue Code and the limitations on benefits imposed by
sections 415(b) and (e)&nbsp;of the Internal Revenue Code. All
of our named executive officers as of the date of this proxy
statement are eligible to participate in the Supplemental Plan.
The Supplemental Plan takes income into account for future
benefits on a calendar year basis. With respect to fiscal year
2006, no compensation for any officer was taken into account by
the Supplemental Plan for the purpose of calculating future
benefits.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We also maintain a Defined Contribution Pension Plan. Under the
Defined Contribution Pension Plan, eligible employees with at
least one hour of service during the relevant plan year who are
employed by us at the end of such year receive a contribution in
an amount equal to 3.25% of eligible compensation received
during such year, which contribution is paid on the first
$210,000 of compensation. The amounts allocated to participants
under the contribution plan vest after five years of employment.
Mr.&nbsp;Johnson participated in such plan during fiscal years
2005 and 2006.
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Employment Agreements, Termination of Employment and Change
in Control Arrangements</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are a party to employment agreements with each of our named
executive officers. The following is a summary of the key terms
of our employment agreements with our President and Chief
Operating Officer and our other named executive officers.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>James R. Lines.</I> We are a party to an employment agreement
with Mr.&nbsp;Lines, our President and Chief Operating Officer,
which we entered into in December 1993 and amended in September
1996. The agreement provides that Mr.&nbsp;Lines will receive a
minimum base salary and customary benefits. Mr.&nbsp;Lines is
also eligible under
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
the agreement to receive discretionary bonuses. The agreement
automatically renews such that it always has a one-year term
remaining, unless Mr.&nbsp;Lines or we elect not to extend the
term further, in which case the term will end on the first
anniversary of the date on which notice of such election not to
extend is given. If not terminated sooner, the agreement will
end on the last day of the month in which Mr.&nbsp;Lines turns
65.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>J.&nbsp;Ronald Hansen.</I> We are a party to an employment
agreement with Mr.&nbsp;Hansen, our Vice President-Finance and
Administration and Chief Financial Officer, which we entered
into in May 1993 and amended in September 1996. The agreement
provides that Mr.&nbsp;Hansen will receive a minimum base salary
and customary benefits. Mr.&nbsp;Hansen is also eligible under
the agreement to receive discretionary bonuses. The agreement
automatically renews such that it always has a one-year term
remaining, unless Mr.&nbsp;Hansen or we elect not to extend the
term further, in which case the term will end on the first
anniversary of the date on which notice of such election not to
extend is given. If not terminated sooner, the agreement will
end on the last day of the month in which Mr.&nbsp;Hansen turns
65.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Mr.&nbsp;Hansen is also a party to a Senior Executive Severance
Agreement with us. This agreement provides that upon the
occurrence of certain events within three years after a change
in control of the company or if our Board of Directors
determines that Mr.&nbsp;Hansen is no longer a key executive
officer of ours in certain circumstances related to a potential
change in control (including, for example, if
Mr.&nbsp;Hansen&#146;s employment is terminated for any reason
other than death, disability or cause, or if he were to resign
as a result of a reduction in his compensation), Mr.&nbsp;Hansen
would be entitled to certain payments, including a payment equal
to one dollar less than three times his average tax-includable
compensation (including bonus) for the five most recent taxable
years ending before the date of such change in control. In
addition, all unvested stock options held by Mr.&nbsp;Hansen
would accelerate. Upon termination of his employment following a
change in control, Mr.&nbsp;Hansen would also be entitled to the
total retirement benefits actually payable to him under our
retirement plans, as well as an additional payment equal to the
excess, if any, of (i)&nbsp;the present value of the aggregate
benefits to which he would be entitled under any defined benefit
pension plans of ours if he were 100% vested under such plans,
over (ii)&nbsp;the present value of the benefits to which he is
actually entitled under such defined benefit pension plan as of
the date of his termination. If, following a change in control,
for any taxable year Mr.&nbsp;Hansen is liable for the payment
of an excise tax with respect to any payment of money or
property made by us or other related parties to him or for his
benefit, we will be responsible to pay to Mr.&nbsp;Hansen a
portion of such excise tax.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Stephen P. Northrup.</I> We are a party to an employment
agreement with Mr.&nbsp;Northrup, our Vice President of Asia
Operations, which we entered into in September 1996. The
agreement provides that Mr.&nbsp;Northrup will receive a minimum
base salary and customary benefits. Mr.&nbsp;Northrup is also
eligible under the agreement to receive discretionary bonuses.
The agreement automatically renews such that it always has a
one-year term remaining, unless Mr.&nbsp;Northrup or we elect
not to extend the term further, in which case the term will end
on the first anniversary of the date on which notice of such
election not to extend is given. If not terminated sooner, the
agreement will end on the last day of the month in which
Mr.&nbsp;Northrup turns 65.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>William C. Johnson.</I> During fiscal year 2006 we were party
to a letter agreement with Mr.&nbsp;Johnson, our former
President and Chief Executive Officer, that provided for his
receipt of a starting base salary of $235,000, as well as an
annual cash bonus if our return on capital employed and the
personal goals set for Mr.&nbsp;Johnson by the Compensation
Committee were attained. Mr.&nbsp;Johnson&#146;s agreement also
provided for his participation in our Defined Contribution
Pension Plan and that our payment of certain club dues on his
behalf. Additionally, Mr.&nbsp;Johnson&#146;s agreement provided
for our payment of certain term life insurance on his behalf and
for his participation in a long-term disability program.
Pursuant to his agreement, we awarded an option to
purchase&nbsp;18,000 (36,000 after taking into account our
October&nbsp;3, 2005 two-for-one stock split in the nature of a
dividend) shares of our common stock to Mr.&nbsp;Johnson at the
time his employment commenced, and also reimbursed him for
certain relocation costs. Mr.&nbsp;Johnson resigned as our
President and Chief Executive Officer on June&nbsp;12, 2006.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>General.</I> Our employment agreements with
Messrs.&nbsp;Hansen, Lines and Northrup each contain a
<FONT style="white-space: nowrap">12-month</FONT> covenant not
to compete with us and not to interfere in certain of our
business relationships if the executive resigns for reasons
other than a material breach of the agreement by us, if the
executive departs from our employment without the approval of
our Board of Directors, or if the executive is discharged for
cause.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our employment agreements with Messrs.&nbsp;Hansen, Lines and
Northrup each also provide that, upon dismissal without cause,
we will (i)&nbsp;pay to the executive compensation due him to
the date of termination, including any accrued bonus,
(ii)&nbsp;pay to the executive a payment equal to
12&nbsp;months&#146; base salary, (iii)&nbsp;provide the
executive with continuing health care coverage for a period of
36&nbsp;months following the effective date of termination of
employment, and (iv)&nbsp;pay for certain outplacement services.
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, if Messrs.&nbsp;Hansen, Lines or Northrup is not
granted an annual specified salary increase or if his base
salary is decreased (in each case, after the occurrence of
certain specified events that could constitute a change in
control of the company), then such executive may terminate his
employment agreement, and would be entitled to receive the
payments to which he would be entitled upon dismissal without
cause. In the event of any sale, merger or any form of business
combination affecting us, each of these agreements requires us
to obtain the express written assumption of the agreement by the
acquiring or surviving entity, and failure to do so would
entitle the executive to all payments and other benefits to be
provided by us in the event of termination without cause.
</DIV>

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<DIV align="left"><A NAME="008"></A></DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>REPORT OF THE COMPENSATION COMMITTEE</B>
</DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff;">
<B>REGARDING EXECUTIVE COMPENSATION</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Compensation Committee establishes levels of cash
compensation and forms and amounts of non-cash compensation for
the company&#146;s executive officers. Additional duties of the
Compensation Committee are described on page&nbsp;17 of this
proxy statement under the heading
&#147;&#151;&nbsp;<FONT style="font-variant:SMALL-CAPS">Corporate
Governance
</FONT>&nbsp;&#151; Board Meetings and Committees of the
Board.&#148;
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Executive Compensation Policies</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In establishing executive compensation, the guiding principles
of the Compensation Committee are as follows:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="1%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    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&#146;s
    management requirements.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    To balance base compensation (non-contingent) and incentive
    compensation (contingent upon performance) for the purpose of
    motivating executive personnel.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    To determine the extent and method of aligning the financial
    interest of the company&#146;s executive personnel with the
    interest of its stockholders in the appreciation of their
    investment.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We consider various measures of company and industry performance
when determining executive officer compensation, including
revenue, net income, earnings per share, total market value and
total stockholder return. We also compare the company&#146;s
executive compensation programs with the programs of other
comparably sized companies both in the company&#146;s industry
and in its geographic region. We believe that during fiscal year
2006 compensation for the company&#146;s chief executive officer
and its other executive officers was approximately at the median
for similarly situated executive officers of companies in the
company&#146;s industry and geographic region. We believe that
during fiscal year 2006 non-cash compensation for the
company&#146;s chief executive officer, in the form of stock
options, was below that offered by comparably sized companies in
the company&#146;s industry and geographic region.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We also periodically retain an independent compensation
consultant, and did retain such a consultant in fiscal year
2006, to assist us in our evaluation of the company&#146;s
executive compensation programs and in setting the compensation
of the company&#146;s executive officers, including its chief
executive officer.
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Components of Executive Compensation for Fiscal Year 2006</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Annual
Compensation</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Annual cash compensation for fiscal year 2006 consisted of base
salary and a cash bonus.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Base salaries.</I> We review the base salaries for each
executive officer at least annually. For fiscal year 2006, we
set the base salaries for executive officers based on company
and individual performance for the previous year, internal
relativity and market conditions, including our understanding of
the base salaries received by similarly situated executive
officers at comparably sized companies in the company&#146;s
industry and in its geographic region.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Based on these factors, in March 2005, we approved an annual
base salary increase for James R. Lines, the company&#146;s
President and Chief Operating Officer (Mr.&nbsp;Lines was our
Vice President and General Manager at the time such salary
increase was approved); J. Ronald Hansen, the company&#146;s
Vice President-Finance and Administration and Chief Financial
Officer; and Stephen P. Northrup, the company&#146;s Vice
President of Asia Operations (Mr.&nbsp;Northrup was our Vice
President and Chief Technology Officer at the time such salary
increase was approved). In January 2006, in connection with the
change in Mr.&nbsp;Northrup&#146;s title to Vice President of
Asia Operations, the Compensation Committee approved an
additional annual increase in his base salary, effective
February&nbsp;1, 2006, in order to equalize his salary with the
increased costs and expenses incurred by him as a China-based
employee. As discussed below, the base salary
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
of our former President and Chief Executive Officer was also
increased during fiscal year 2006, effective November&nbsp;1,
2005.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Cash bonuses.</I> Under the annual executive cash bonus
program in effect for fiscal year 2006, in the interest of
linking corporate performance to executive officer compensation
while maintaining competitive overall nominal salary rates, a
portion of compensation for each executive officer was a
contingent bonus. The bonus was payable, on a deferred basis,
following the end of fiscal year 2006, and payment was subject
to attainment of performance-based goals for fiscal year 2006 by
the company and by each executive officer individually. In order
for any eligible officer to receive performance-based pay, the
company must have met a predetermined earnings threshold. Under
this arrangement, a target performance-based amount for each
eligible officer, representing a percentage of base salary, was
implemented by the Compensation Committee. The actual amount of
performance-based pay earned depended upon the degree of
attainment of goals that we established for fiscal year 2006 in
the following areas: net income, working capital employed and an
individual performance goal for each officer. These
determinations were based on our review of pertinent data and on
our understanding of industry practices for comparably sized
companies, as well as our expectations of attainable results
under existing market conditions.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Long-Term
Incentives</U>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Long-term incentive awards are designed to provide the
company&#146;s executive officers with an incentive to achieve
corporate objectives, to attract and retain executive officers
of outstanding competence, and to provide such persons with an
equity interest in the company in order to better align their
interests with the interests of the company&#146;s stockholders.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Long-term incentive awards to executive officers are made under
the 2000 Graham Corporation Incentive Plan to Increase
Shareholder Value, which we administer. Such plan currently
permits us to grant to the executive officers awards of stock
options. If the Amended and Restated 2000 Graham Corporation
Incentive Plan to Increase Shareholder Value is approved by the
stockholders at the annual meeting, executive officers will also
be eligible to receive stock awards and restricted stock awards.
See
&#147;&#151;&nbsp;<FONT style="font-variant:SMALL-CAPS">Proposal&nbsp;Two:
Approval of the Amended and Restated 2000 Graham Corporation
Incentive Plan to Increase Shareholder Value
</FONT>&#148; on page&nbsp;8 of this proxy statement.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During fiscal year 2006, all long-term incentive awards to the
executive officers consisted of grants of stock options having
exercise prices equal to 100% of the fair market value of the
company&#146;s common stock on the date of grant. Each such
stock option was exercisable six months after the date of grant
and will expire 10&nbsp;years from the date of grant. For more
information on the stock options granted to the executive
officers, see page&nbsp;22 of this proxy statement.
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>President and Chief Executive Officer Compensation for Fiscal
Year 2006</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In establishing Mr.&nbsp;Johnson&#146;s compensation for fiscal
year 2006, we applied the principles outlined above in the same
manner as they were applied to the company&#146;s other
executives. We also considered the company&#146;s and
Mr.&nbsp;Johnson&#146;s accomplishments of objectives that had
been established at the commencement of his employment with the
company and our own subjective assessment of his performance. We
noted that under Mr.&nbsp;Johnson&#146;s leadership, the
company&#146;s sales, net income and profit margin increased. We
also considered the company&#146;s successful completion in
November 2005 of the public sale of 198,246&nbsp;shares of
common stock previously held as treasury shares. Additionally,
during fiscal year 2006 the company developed and began to
implement marketing, manufacturing and engineering growth
strategies in Asia. We further took into
account&nbsp;Mr.&nbsp;Johnson&#146;s efforts to enhance the
company&#146;s engineering and manufacturing capacities,
especially in connection with product design, as well as his
commencement of front-end bid automation and design processes.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During fiscal year 2006 we increased Mr.&nbsp;Johnson&#146;s
annual base salary to $250,000 (from $235,000), effective
November&nbsp;1, 2005. In accordance with the formulaic
incentive compensation program establishment by the Compensation
Committee, on June&nbsp;1, 2006, we also granted
Mr.&nbsp;Johnson a cash bonus in the amount of $192,587. In
addition, on October&nbsp;26, 2005, we granted Mr.&nbsp;Johnson
an option to purchase&nbsp;12,000&nbsp;shares of the
company&#146;s common stock at an exercise price of
$13.90&nbsp;per share (that being the closing price of the
company&#146;s common stock on the American Stock Exchange on
the date of grant).
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Compensation Committee:</TD>
</TR>

<TR>
    <TD style="font-size: 4.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    H. Russel Lemcke, Chairman</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Helen H. Berkeley</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Jerald D. Bidlack</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    James J. Malvaso</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Cornelius S. Van Rees</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">26

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<!-- link1 "Stock Price Performance Graph" -->
<DIV align="left"><A NAME="009"></A></DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Stock Price Performance Graph</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our common stock is traded on the American Stock Exchange under
the symbol &#147;GHM.&#148; Set forth below is a line graph
comparing the cumulative stockholder return on our common stock
for a five-year period beginning with the last trade of our
common stock on March&nbsp;31, 2001, to the cumulative total
return of (i)&nbsp;companies on the American Stock Exchange
Market Value Index (the &#147;AMEX Index&#148;) over the same
period, (ii)&nbsp;a selection of peer group public companies
that we have used for this purpose since 2001, comprised of
Flowserve Corp., Paul Mueller Co. and IntriCon Corporation
(formerly named Selas Corporation of America) (collectively, the
&#147;Peer Group&#148;), and (iii)&nbsp;companies on the AMEX
Industrial Manufacturing Index (in which we are included), which
we are selecting for this purpose for the first time. We have
selected the AMEX Industrial Manufacturing Index because we are
a global industrial company, and this index includes a broader
base of industrial companies that tend to be affected by the
same global economic conditions that tend to affect us.
</DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Comparison of 5 Year Cumulative Total Return*</B>
</DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff;">
<B>Among Graham Corporation, AMEX Market Value (U.S. &#38;
Foreign) Index</B>
</DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff;">
<B>AMEX Industrial Manufacturing Index and a Peer Group</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<IMG src="l20780al2078002.gif" alt="(PEFORMANNCE GRAPH)">
</DIV>

<DIV align="left" style="font-size: 8.0pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;
*$100 invested on 3/30/01 in stock or index-including
reinvestment of dividends. Fiscal year ending March 31.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;
The above line graph assumes an investment of $100 on
March&nbsp;31, 2001 in (i)&nbsp;our common stock, (ii)&nbsp;the
stocks comprising the AMEX Index, (iii)&nbsp;the stocks of the
Peer Group public companies noted above, and (iv)&nbsp;the
stocks comprising the AMEX Industrial Manufacturing Index. Total
returns assume the reinvestment of all dividends.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our stock performance may not continue into the future with the
trends similar to those depicted in the line graph above. We
neither make nor endorse any predictions as to our future stock
performance.
</DIV>

<P align="right" style="font-size: 10.0pt;color: #000000; background: #ffffff;">27

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<!-- link1 "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" -->
<DIV align="left"><A NAME="010"></A></DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS</B>
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Long-Term Stock Ownership Plan</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
At our annual meeting for our fiscal year ended March&nbsp;31,
2000, our stockholders approved the Long-Term Stock Ownership
Plan of Graham Corporation. Certain of our Directors and
executive officers are participants in this plan and are
indebted to us for a balance due on the purchase of shares of
our common stock at the closing price on the American Stock
Exchange on the date of purchase, which was April&nbsp;5, 2001.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of June&nbsp;1, 2006, pursuant to the terms of both a stock
subscription agreement executed by each participant in this plan
and a note executed by each such person, Mr.&nbsp;Hansen is
indebted to us in the amount of $8,075 and Mr.&nbsp;Northrup is
indebted to us in the amount of $7,674. Of the Director
participants as of the same date, Mr.&nbsp;Lemcke is indebted to
us for $28,592 and Mr.&nbsp;Van Rees for $28,592. The largest
aggregate amount of indebtedness to us by each participating
executive officer since the beginning of our last fiscal year
was $10,597 for Mr.&nbsp;Hansen and $10,074 for
Mr.&nbsp;Northrup. The largest aggregate amount of indebtedness
outstanding during such fiscal year for each participating
Director was $37,532 for Mr.&nbsp;Bidlack, $35,744 for
Mr.&nbsp;Lemcke and $37,532 for Mr.&nbsp;Van Rees. Each
subscription agreement states that 18&nbsp;months after
purchasing the shares of common stock, a participant is entitled
to sell up to 50% of his shares and that the participant agrees
to hold the remainder of his shares until such time as he
terminates employment with us or his service as a Director ends.
The terms of each note require the participant to repay the
balance of the note in thirty-two equal consecutive quarterly
installments beginning on June&nbsp;30, 2002.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The loans are interest-free during a participant&#146;s
employment or service as Director. Interest on each note is
imputed as income to each participant at the applicable federal
rate established by the Internal Revenue Service. Shares remain
in our custody until a participant&#146;s note is paid in full,
unless the participant sells his shares (when and to the extent
permitted). Each note provides that until it is paid in full,
any shares sold will be sold through a broker who will forward
any proceeds, less expenses, to us to pay off all or a portion
of such note. Each note also contains provisions that grant a
security interest to us in the purchased shares and any proceeds
from any subsequent sale of the purchased shares. If a
participant ceases to be an officer or Director any time after
18&nbsp;months after purchase, the participant may sell all or a
portion of his shares. The Sarbanes-Oxley Act that became law on
July&nbsp;30, 2002 prohibits any further loans under the
Long-Term Stock Ownership Plan. It also prohibits renewal, or
any material modification of the terms, of any of the loans
outstanding under the plan.
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Consultation Agreement</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Director Cornelius S. Van Rees, Corporate Secretary to the
company, is party to a consultation agreement with us whereby he
is compensated $22,000 annually to consult with us regarding
legal matters.
</DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>SECTION&nbsp;16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Section&nbsp;16(a) of the Securities Exchange Act of 1934, as
amended, requires our Directors and officers to file with the
Securities and Exchange Commission reports of ownership and
changes in ownership of our common stock. Based solely on the
written representations of our Directors and officers and copies
of the reports that they have filed with the Securities and
Exchange Commission, we believe that during fiscal year 2006 all
of our Directors and officers timely complied with the filing
requirements of Section&nbsp;16(a), except that each of our
non-employee Directors and each of our officers inadvertently
filed one late report disclosing one transaction, an option
grant, which option grants were timely reported in a Current
Report on Form&nbsp;<FONT style="white-space: nowrap">8-K</FONT>
dated October&nbsp;26, 2005. In addition, Mr.&nbsp;Lemcke
inadvertently filed one other late report disclosing one
transaction.
</DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>STOCKHOLDER PROPOSALS FOR 2007 ANNUAL MEETING</B>
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Proposals Submitted for Inclusion in Our Proxy Materials</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In order for any stockholder proposal to be included in our
proxy statement to be issued in connection with our annual
meeting of stockholders for our fiscal year ending
March&nbsp;31, 2007, we must receive the proposal no later than
February&nbsp;23, 2007. If the proposal is in compliance with
all of the requirements set forth in
Rule&nbsp;<FONT style="white-space: nowrap">14a-8</FONT>
</DIV>

<P align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">28

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
under the Securities Exchange Act of 1934, we will include the
stockholder proposal in our proxy statement and place it on the
form of proxy issued for the 2007 annual meeting. Stockholder
proposals submitted for inclusion in our proxy materials should
be mailed to the following address: Graham Corporation,
Attention: Corporate Secretary, 20 Florence Avenue, Batavia, New
York 14020.
</DIV>

<DIV align="left" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Proposals Not Submitted for Inclusion in Our Proxy
Materials</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Pursuant to our by-laws, stockholder proposals that are not
submitted for inclusion in our proxy materials pursuant to
Rule&nbsp;<FONT style="white-space: nowrap">14a-8</FONT> may be
acted upon at the 2007 annual meeting only if written notice of
the proposal complying with the requirements set forth in our
by-laws is delivered to or received by our Corporate Secretary
not later than the following dates: (i)&nbsp;60&nbsp;days in
advance of the 2007 annual meeting if such meeting is to be held
on a day which is within 30&nbsp;days preceding the anniversary
of the 2006 annual meeting or (ii)&nbsp;90&nbsp;days in advance
of the 2007 annual meeting if such meeting is to be held on or
after the anniversary of the 2006 annual meeting. If the 2007
annual meeting is to be held at a time other than within such
periods, then stockholder notices and proposals must be
delivered to or received by our Corporate Secretary before the
close of business on the 10th&nbsp;day following the date on
which notice of the 2007 annual meeting is first given to
stockholders via press release or in a document that we publicly
file with the Securities and Exchange Commission. Assuming that
the 2007 annual meeting of stockholders is held on July&nbsp;27,
2007, stockholder proposals must be received by April&nbsp;30,
2007. Stockholder proposals that do not comply with the
foregoing requirements will be considered untimely and will not
be acted upon at the 2007 annual meeting. Stockholder notices
and proposals should be delivered to the following address:
Graham Corporation, Attention: Corporate Secretary, 20 Florence
Avenue, Batavia, New York 14020.
</DIV>

<!-- link1 "OTHER MATTERS" -->
<DIV align="left"><A NAME="011"></A></DIV>

<DIV align="center" style="font-size: 12.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>OTHER MATTERS</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Board of Directors does not know of any other matters that
may be presented for action at the annual meeting. Should any
other matters come before the annual meeting, however, the
persons named in the enclosed proxy will have discretionary
authority to vote all proxies with respect to such matters in
accordance with their judgment.
</DIV>

<DIV style="margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    BY ORDER OF THE BOARD OF DIRECTORS</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <IMG src="l20780al2078003.gif" alt="-s- James R. Lines"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    James R. Lines</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    President and Chief Operating Officer</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Dated: June&nbsp;23, 2006
</DIV>

<P align="right" style="font-size: 10.0pt;color: #000000; background: #ffffff;">29

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<DIV align="right" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Appendix&nbsp;A</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>AMENDED AND RESTATED</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>2000 GRAHAM CORPORATION INCENTIVE PLAN</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>TO INCREASE SHAREHOLDER VALUE</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
Effective July&nbsp;27, 2006
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>Section&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purpose.</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The purpose of the Plan is to increase shareholder value by
promoting growth and profitability of the Corporation; to
provide certain directors and key executives of the Corporation
with an incentive to achieve corporate objectives; to attract
and retain directors and key executives of outstanding
competence; and to provide such directors and key executives
with an equity interest in the Corporation.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>Section&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Definitions.</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Unless the context clearly indicates otherwise, the following
terms, when used in the Plan, shall have the meanings set forth
in this Section&nbsp;2:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (a)&nbsp;&#147;<U>Award</U>&#148; 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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (b)&nbsp;&#147;<U>Award Agreement</U>&#148; 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&#146;s exercise of its administrative
    powers.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (c)&nbsp;&#147;<U>Board</U>&#148; shall mean the Board of
    Directors of the Corporation.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (d)&nbsp;&#147;<U>CEO</U>&#148; shall mean the Chief Executive
    Officer of the Corporation.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (e)&nbsp;&#147;<U>Change in Control</U>&#148; shall mean any of
    the following events:</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (i)&nbsp;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;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (ii)&nbsp;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;&nbsp;or</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (iii)&nbsp;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:</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (A)&nbsp;individuals who were members of the Board on
    November&nbsp;2, 2000;&nbsp;or</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (B)&nbsp;individuals who first became members of the Board after
    November&nbsp;2, 2000 either:</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="13%"></TD>
    <TD width="87%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (1)&nbsp;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;&nbsp;or</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (2)&nbsp;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&nbsp;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.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (f)&nbsp;&#147;<U>Code</U>&#148; shall mean the Internal Revenue
    Code of 1986, as it may be amended from time to time.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (g)&nbsp;&#147;<U>Committee</U>&#148; 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</TD>
</TR>

</TABLE>

<P align="right" style="font-size: 10.0pt;color: #000000; background: #ffffff;">A-1

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    <TD>&nbsp;</TD>
    <TD align="left">
    less than two directors, and each member shall be both a
    &#147;Non-Employee Director&#148; and an &#147;Outside
    Director.&#148; The Committee shall be appointed by and serve at
    the pleasure of the Board.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (h)&nbsp;&#147;<U>Control Person</U>&#148; shall mean any person
    who, as of the date of grant of an ISO, owns (within the meaning
    of Section&nbsp;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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (i)&nbsp;&#147;<U>Corporation</U>&#148; shall mean Graham
    Corporation, a Delaware corporation.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (j)&nbsp;&#147;<U>Disability</U>&#148; shall mean permanent and
    total disability as defined by Section&nbsp;22(e)(3) of the Code.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (k)&nbsp;&#147;<U>Effective Date</U>&#148; shall mean
    July&nbsp;27, 2006.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (l)&nbsp;&#147;<U>Eligible Individual</U>&#148; 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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (m)&nbsp;&#147;<U>Employee</U>&#148; 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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (n)&nbsp;&#147;<U>ERISA</U>&#148; shall mean the Employee
    Retirement Income Security Act of 1974, as it may be amended
    from time to time.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (o)&nbsp;&#147;<U>Exchange Act</U>&#148; 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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (p)&nbsp;&#147;<U>Exercise Price</U>&#148; 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&nbsp;6.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (q)&nbsp;&#147;<U>Fair Market Value</U>&#148; shall mean, with
    respect to a share of Stock on a specified date:</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (i)&nbsp;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;&nbsp;or</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (ii)&nbsp;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;&nbsp;or</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (iii)&nbsp;if Section&nbsp;2(q)(i) and Section&nbsp;2(q)(ii) are
    not applicable, the fair market value of a share of Stock as the
    Committee may determine.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (r)&nbsp;&#147;<U>ISO</U>&#148; 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&nbsp;422 of the Code.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (s)&nbsp;&#147;<U>NQSO</U>&#148; 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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (t)&nbsp;&#147;<U>Non-Employee Director</U>&#148; shall mean a
    &#147;Non-Employee Director&#148; within the meaning of
    Rule&nbsp;<FONT style="white-space: nowrap">16b-3</FONT> under
    the Exchange Act.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (u)&nbsp;&#147;<U>Options</U>&#148; shall refer collectively to
    NQSOs and ISOs subject to the Plan.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (v)&nbsp;&#147;<U>Outside Director</U>&#148; shall mean an
    &#147;Outside Director&#148; for purposes of Section&nbsp;162(m)
    of the Code.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (w)&nbsp;&#147;<U>Parent</U>&#148; shall mean any parent (as
    defined in Section&nbsp;425 of the Code) of the Corporation.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (x)&nbsp;&#147;<U>Participant</U>&#148; shall mean any Employee
    or Non-Employee Director who receives an Award under the Plan.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (y)&nbsp;&#147;<U>Performance Award</U>&#148; shall mean an
    award granted to pursuant to Section&nbsp;8.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (z)&nbsp;&#147;<U>Performance Formula</U>&#148; 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.</TD>
</TR>

</TABLE>

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<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (aa)&nbsp;&#147;<U>Performance Objectives</U>&#148; 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&#146;s or Subsidiary&#146;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).</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (bb)&nbsp;&#147;<U>Performance Period</U>&#148; 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&#146;s
    right to and the payment of a Performance Award.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (cc)&nbsp;&#147;<U>Person</U>&#148; 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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (dd)&nbsp;&#147;<U>Plan</U>&#148; 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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (ee)&nbsp;&#147;<U>Securities Act</U>&#148; 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.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (ff)&nbsp;&#147;<U>Stock</U>&#148; shall mean shares of the
    common stock of the Corporation.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (gg)&nbsp;&#147;<U>Stock Award</U>&#148; shall mean an award of
    shares of Stock or restricted shares of Stock granted pursuant
    to Section&nbsp;7.</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (hh)&nbsp;&#147;<U>Subsidiary</U>&#148; shall mean any
    subsidiary (as defined in Section&nbsp;425 of the Code) of the
    Corporation.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Section&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares of Stock
Subject to the Plan.</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(a)&nbsp;<U>In General</U>.&nbsp;The maximum number of shares of
Stock which shall be available for the grant or issuance of
Awards under the Plan (including ISOs) during its term shall not
exceed 550,000; provided, however, that no more than
100,000&nbsp;shares of Stock may be used for Awards other than
Options. Such amounts shall be subject to adjustment as provided
in Section&nbsp;3(b). Any shares of Stock related to Awards
which terminate by expiration, forfeiture, cancellation or
otherwise without the issuance of such shares shall be available
again for grant under the Plan. Except for expired, forfeited or
cancelled shares, the Plan is intended to restrict the
&#147;recycling&#148; of shares of Stock back into the Plan;
this means that shares of Stock exchanged or withheld to pay the
exercise price of an Award or to satisfy tax withholding
obligations with respect to an Award count against the numerical
limits of the Plan. The shares of Stock available for issuance
under the Plan may be authorized and unissued shares or treasury
shares, including shares purchased in open market or private
transactions.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(b)&nbsp;<U>Adjustment Upon Changes in
Capitalization</U>.&nbsp;In the event of any reclassification,
recapitalization, merger, consolidation, reorganization,
issuance of warrants, rights or debentures, stock dividend,
stock split or reverse stock split, cash dividend, property
dividend, combination or exchange of shares, repurchase of
shares or any other change in corporate structure which in the
judgment of the Committee materially affects the value of
shares, then the Committee may determine the substitutions or
adjustments to the maximum number of shares available for the
grant or issuance of Awards under the Plan pursuant to
Section&nbsp;3(a), the number and class of shares and the
exercise price per share set forth in any Award theretofore
granted, or any other affected terms of an Award or the Plan as
the Committee, in its sole discretion and without liability to
any person, deems equitable or appropriate; provided, however,
that no such adjustments shall be made to any ISO without the
Participant&#146;s consent, if such adjustment would cause such
ISO to fail to qualify as such.
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Section&nbsp;4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Administration
of the Plan.</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(a)&nbsp;<U>In General</U>. The Committee shall have total and
exclusive responsibility to control, operate, manage and
administer the Plan in accordance with its terms. The Committee
may act only by a majority of its members. Any determination of
the Committee may be made, without a meeting, by a writing or
writings signed by all of the members of the Committee. The
decisions of the Committee and its actions with respect to the
Plan shall be final, binding and conclusive upon all persons
having or claiming to have any right or interest in or under the
Plan.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(b)&nbsp;<U>Authority</U>. The Committee shall have all the
authority that may be necessary or helpful to enable it to
discharge its responsibilities with respect to the Plan. Without
limiting the generality of the preceding sentence, the Committee
shall have the exclusive right to:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (i)&nbsp;determine eligibility for participation in the Plan;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (ii)&nbsp;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;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (iii)&nbsp;interpret the Plan or any Award Agreement;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (iv)&nbsp;construe any ambiguous provision, correct any default,
    supply any omission, and reconcile any inconsistency of the Plan
    or an Award Agreement;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (v)&nbsp;to the extent permitted under the Plan, grant waivers
    of Plan terms, conditions, restrictions and limitations;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (vi)&nbsp;promulgate rules and regulations regarding treatment
    of Awards of an Eligible Individual under the Plan in the event
    of such Participant&#146;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;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (vii)&nbsp;accelerate the vesting, exercise, or payment of an
    Award when such action or actions would be in the best interest
    of the Corporation;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (viii)&nbsp;subject to Section&nbsp;4(d), grant Awards in
    replacement of Awards previously granted under the Plan or any
    other executive compensation plan of the Corporation;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (ix)&nbsp;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&nbsp;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;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (x)&nbsp;take any and all other action it deems necessary or
    advisable for the proper operation or administration of the
    Plan;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (xi)&nbsp;make all other determinations it deems necessary or
    advisable for the administration of the Plan, including factual
    determinations.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(c)&nbsp;<U>Delegation</U>. The Committee may allocate all or
any portion of its responsibilities and powers under the Plan to
any one or more of its members, the CEO or other senior members
of management as the Committee deems appropriate and may
delegate all or any part of its responsibilities and powers to
any such person or persons, provided that any such allocation or
delegation be in writing; provided, however, that only the
Committee, or other committee consisting of two or more
Non-Employee Directors may select and grant Awards to Eligible
Individuals who are subject to Section&nbsp;16 of the Exchange
Act, and provided further, that only the Committee may grant
Performance Awards. The Committee may revoke any such allocation
or delegation at any time for any reason with or without prior
notice.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(d)&nbsp;<U>Repricing</U>. Except for adjustments pursuant to
Section&nbsp;3(b), the Committee shall not reprice any Options
unless such action is approved by the stockholders of the
Corporation. For purposes of the Plan, the term
&#147;reprice&#148; shall mean: (i)&nbsp;the reduction, directly
or indirectly, in the per-share exercise price of an outstanding
Option by amendment, cancellation or substitution; (ii)&nbsp;any
action that is treated as a repricing under United States
generally accepted accounting principles; (iii)&nbsp;canceling
an Option when its exercise price exceeds the fair market value
of the underlying Stock in exchange for another Option or other
equity security (unless the cancellation and exchange occurs in
connection with a merger, acquisition, or similar transaction);
and (iv)&nbsp;any other action that is treated as a repricing by
the rules or regulations of any stock exchange on which the
securities of the Corporation
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
are traded. Any amendment or repeal of this provision shall
require the affirmative vote of a majority of shares of voting
capital stock present at a stockholders meeting in person or by
proxy and entitled to vote thereon.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>Section&nbsp;5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Awards.</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(a)&nbsp;<U>Eligibility</U>. All Employees and Non-Employee
Directors are eligible to participate in the Plan; provided,
however, only Employees are eligible to receive ISOs. The
Committee shall determine and designate from time to time those
Employees and Non-Employee Directors who are to be granted
Awards, the nature of each Award granted and the number of
shares of Stock subject to each such Award.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(b)&nbsp;<U>In General</U>. Awards may, at the Committee&#146;s
sole discretion, be paid in the form of Options pursuant to
Section&nbsp;6, Stock Awards pursuant to Section&nbsp;7,
Performance Awards pursuant to Section&nbsp;8 or a combination
thereof. Each Award shall be subject to the terms, conditions,
restrictions and limitations of the Plan and the Award Agreement
for such Award. Awards under a particular Section of the Plan
need not be uniform and Awards under two or more Sections may be
combined into a single Award Agreement. Any combination of
Awards may be granted at one time and on more than one occasion
to the same Eligible Individual.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(c)&nbsp;<U>Award Limitation</U>. Subject to adjustment as
provided by Section&nbsp;3(b), and notwithstanding any provision
contained in the Plan to the contrary:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (i)&nbsp;the maximum number of shares of Stock for which Awards
    may be granted to any Participant during a calendar year is
    24,000;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (ii)&nbsp;the maximum aggregate number of shares of Stock for
    which Awards may be granted to all Participants during any
    continuous <FONT style="white-space: nowrap">36-month</FONT>
    period is 3% of the Corporation&#146;s total number of
    authorized shares of Stock as of the beginning of such period;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (iii)&nbsp;the maximum aggregate number of shares of Stock that
    may be issued under the Plan upon the exercise of ISOs is
    550,000;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (iv)&nbsp;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;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (v)&nbsp;the maximum Performance Award payable to any one
    Participant under the Plan for a calendar year is
    24,000&nbsp;shares of Stock or, in the event the Performance
    Award is paid in cash, $500,000.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(d)&nbsp;<U>Foreign Jurisdictions</U>. With respect to Eligible
Individuals who reside or work outside of the United States, the
Committee may, in its sole and absolute discretion, amend the
terms of the Plan or Awards with respect to such Eligible
Individuals in order to conform such terms with the provisions
of local law and practice or otherwise as deemed necessary or
desirable by the Committee.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>Section&nbsp;6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock
Options.</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(a)&nbsp;<U>In General</U>. Awards may be granted in the form of
Options. Options granted under the Plan may be of two types:
ISOs and NQSOs. The Committee shall have the authority and
discretion to grant to an Eligible Individual either ISOs,
NQSOs, or both, but shall clearly designate the nature of each
Option at the time of grant. Non-Employee Directors may only
receive NQSOs.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(b)&nbsp;<U>Terms of Options</U>. An Option shall be exercisable
in accordance with such terms and conditions and at such times
and during such periods as may be determined by the Committee.
In addition to any such terms and conditions, the following
terms and conditions shall apply to all Options granted under
the Plan:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (i)&nbsp;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;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (ii)&nbsp;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.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(c)&nbsp;<U>Exercise of Options</U>. Except as provided in
Section&nbsp;10, no Option granted to an Employee shall be
exercised unless at the time of such exercise the Participant is
then an employee. Upon exercise, the exercise price of an Option
may be paid in cash, or, to the extent permitted by the
Committee, by tendering, by either actual delivery of shares or
by attestation, shares of Stock, a combination of the foregoing,
or such other consideration as
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
the Committee may deem appropriate. The Committee shall
establish appropriate methods for accepting Stock, whether
restricted or unrestricted, and may impose such conditions as it
deems appropriate on the use of such Stock to exercise an
Option. Options awarded under the Plan may also be exercised by
way of a broker-assisted stock option exercise program, if any,
provided such program is available at the time of the
Participant&#146;s exercise. Notwithstanding the foregoing or
the provision of any Award Agreement, a Participant may not pay
the exercise price of an Option using shares of Stock if, in the
opinion of counsel to the Corporation, (i)&nbsp;the Participant
is, or within the six months preceding such exercise was,
subject to reporting under Section&nbsp;16(a) of the Exchange
Act, (ii)&nbsp;there is a substantial likelihood that the use of
such form of payment or the timing of such form of payment would
subject the Participant to a substantial risk of liability under
Section&nbsp;16 of the Exchange Act, or (iii)&nbsp;there is a
substantial likelihood that the use of such form of payment
would result in accounting treatment to the Corporation under
generally accepted accounting principles that the Committee
reasonably determines is adverse to the Corporation.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>Section&nbsp;7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock Awards.</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(a)&nbsp;<U>In General</U>. Awards may be granted in the form of
Stock Awards; provided, however, that the Committee may grant
Awards of unrestricted shares of Stock only if the Committee has
determined that such Award is made in lieu of salary or cash
bonus. Stock Awards shall be awarded in such numbers and at such
times during the term of the Plan as the Committee shall
determine.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(b)&nbsp;<U>Restrictions</U>. The Committee may condition,
restrict or limit the grant of a Stock Award on the achievement
of enumerated performance objectives or, with respect to Stock
Awards issued to an Employee or a Non-Employee Director, on such
Employee&#146;s or Non-Employee Director&#146;s continued
employment or service to the Corporation through a specified
period of time.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(c)&nbsp;<U>Performance&nbsp;- Based Stock Awards</U>. The grant
or vesting of any Stock Award may be conditioned upon the
attainment of Performance Objectives established by the
Committee in accordance with the applicable provisions of
Section&nbsp;8 regarding Performance Awards.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(d)&nbsp;<U>Rights as Stockholders</U>. During the period in
which any shares of Stock received pursuant to a Stock Award are
subject to any restrictions, the Committee may, in its sole and
absolute discretion, deny the Participant to whom such shares
have been awarded all or any of the rights of a stockholder with
respect to such shares, including, but not by way of limitation,
limiting the right to vote such shares or the right to receive
dividends on such shares.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>Section&nbsp;8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Performance
Awards.</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(a)&nbsp;<U>In General</U>. Awards may be granted in the form of
Performance Awards, which are intended to be &#147;qualified
performance-based compensation&#148; within the meaning of
Section&nbsp;162(m) of the Code. A Performance Award granted
under the Plan may be payable in cash or in shares of Stock
(including, without limitation, restricted shares of Stock), as
determined by the Committee.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(b)&nbsp;<U>Terms</U>. Performance Awards shall, to the extent
required by Section&nbsp;162(m) of the Code, be conditioned
solely on the achievement of one or more objective Performance
Objectives, and such Performance Objectives shall be established
by the Committee within the first 90&nbsp;days of a Performance
Period (or, if longer, within the maximum period allowed under
Section&nbsp;162(m) of the Code), and shall otherwise comply
with the requirements of, Section&nbsp;162(m) of the Code.
Subject to the terms of the Plan and any applicable Award
Agreement, the Performance Objectives to be achieved during any
Performance Period, the Performance Formula, the length of any
Performance Period, the amount of any Performance Award granted,
the amount of any payment or transfer to be made pursuant to any
Performance Award and any other terms and conditions of any
Performance Award shall be determined by the Committee and set
forth in writing.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(c)&nbsp;<U>Payment of Performance Awards</U>.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(i)&nbsp;<I>Limitations.</I> Unless otherwise provided in the
relevant Award Agreement, a Participant must be employed by the
Corporation on the last day of a Performance Period to be
eligible for a Performance Award for such Performance Period. A
Participant shall be eligible to receive a Performance Award for
a Performance Period only to the extent that: (1)&nbsp;the
Performance Objectives for such period are achieved; and
(2)&nbsp;and the Performance Formula as applied against such
Performance Objectives determines that all or some portion of
such Participant&#146;s Performance Award has been earned for
the Performance Period.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(ii)&nbsp;<I>Certification.</I> Following the completion of a
Performance Period, the Committee shall meet to review and
certify in writing whether, and to what extent, the Performance
Objectives for the Performance Period have
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
been achieved and, if so, to also calculate and certify in
writing the amount of the Performance Awards earned for the
period based upon the Performance Formula. The Committee shall
then determine the actual size of each Participant&#146;s
Performance Award for the Performance Period and, in so doing,
may apply negative discretion, if and when it deems appropriate.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(iii)&nbsp;<I>Timing of Award Payments.</I> Performance Awards
for a Performance Period shall be paid to Participants as soon
as administratively practicable following completion of the
certifications required by Section&nbsp;8(c)(ii).
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>Section&nbsp;9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payment of
Awards.</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(a)&nbsp;<U>In General</U>. Absent a Plan or Award Agreement
provision to the contrary, payment of Awards may, at the
discretion of the Committee, be made in cash, Stock, a
combination of cash and Stock, or any other form of property as
the Committee shall determine. In addition, payment of Awards
may include such terms, conditions, restrictions and/or
limitations, if any, as the Committee deems appropriate,
including, in the case of Awards paid in the form of Stock,
restrictions on transfer and forfeiture provisions; provided,
however, such terms, conditions, restrictions and/or limitations
are not inconsistent with the Plan.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(b)&nbsp;<U>Withholding</U>. The Corporation shall be entitled
to deduct from any payment under the Plan, regardless of the
form of such payment, the amount of all applicable income and
employment taxes required by law to be withheld with respect to
such payment or may require the Participant to pay to the
Corporation such tax prior to and as a condition of the making
of such payment. The Committee may allow a Participant to pay
the amount of taxes required by law to be withheld from an Award
by withholding from any payment of shares of Stock due as a
result of such Award, or by permitting the Participant to
deliver to the Corporation, shares of Stock having a Fair Market
Value equal to the minimum amount of such required withholding
taxes. Notwithstanding the foregoing or the provision of any
Award Agreement, a Participant may not pay the amount of taxes
required by law to be withheld using shares of Stock if, in the
opinion of counsel to the Corporation, (i)&nbsp;the Participant
is, or within the six months preceding such exercise was,
subject to reporting under Section&nbsp;16(a) of the Exchange
Act, (ii)&nbsp;there is a substantial likelihood that the use of
such form of payment or the timing of such form of payment would
subject the Participant to a substantial risk of liability under
Section&nbsp;16 of the Exchange Act, or (iii)&nbsp;there is a
substantial likelihood that the use of such form of payment
would result in accounting treatment to the Corporation under
generally accepted accounting principles that the Committee
reasonably determines is adverse to the Corporation.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>Section&nbsp;10.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effect of
Termination of Relationship with the Corporation.</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(a)&nbsp;<U>Death</U>. Unless otherwise decided by the Committee
and provided in an Award Agreement, upon a Participant&#146;s
death prior to the complete exercise or vesting of an Award
granted to him or her under the Plan, then:
</DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (i)&nbsp;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&#146;s death and then only:</TD>
</TR>

</TABLE>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (A)&nbsp;by the beneficiary designated by the Participant in a
    writing submitted to the Corporation prior to the
    Participant&#146;s death, or in the absence of same, by the
    Participant&#146;s estate or by or on behalf of such person or
    persons to whom the Participant&#146;s rights pass under his or
    her will or the laws of descent and distribution;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (B)&nbsp;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;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (C)&nbsp;prior to the expiration of the term of the Option.</TD>
</TR>

</TABLE>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (ii)&nbsp;any unvested restricted shares of a Stock Award held
    by the Participant at the time of his or her death shall be
    forfeited.</TD>
</TR>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(b)&nbsp;<U>Disability</U>. Unless otherwise decided by the
Committee and provided in an Award Agreement, upon a
Participant&#146;s Disability prior to the complete exercise or
vesting of an Award granted to him or her under the Plan, then:
</DIV>

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    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (i)&nbsp;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&#146;s Disability and then only:</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (A)&nbsp;by the Participant or his or her legal representative;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (B)&nbsp;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;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (C)&nbsp;prior to the expiration of the term of the Option.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

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    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (ii)&nbsp;any unvested restricted shares of a Stock Award held
    by the Participant at the time of his or her Disability shall be
    forfeited.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(c)&nbsp;<U>Other Termination</U>. Unless otherwise decided by
the Committee and provided in an Award Agreement, upon the
termination of a Participant&#146;s employment or term of
directorship with the Corporation for a reason other than the
Participant&#146;s death or Disability and prior to the complete
exercise or vesting of an Award granted to him or her under the
Plan, then:
</DIV>

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    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (i)&nbsp;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&#146;s termination and
    then only:</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (A)&nbsp;by the Participant or his or her legal representative;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (B)&nbsp;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;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (C)&nbsp;prior to the expiration of the term of the Option.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (ii)&nbsp;any unvested restricted shares of a Stock Award held
    by the Participant at the time of his or her other termination
    shall be forfeited.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(d)&nbsp;<U>Treatment of Intra-Corporation Transfers</U>. In the
case of an Employee, the transfer between the Corporation and
any Subsidiary shall not be deemed to be a termination of
employment or directorship.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>Section&nbsp;11.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General
Provisions.</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(a)&nbsp;<U>Award Agreement</U>. Each Award grant shall be
evidenced by a written Award Agreement containing such terms and
conditions, not inconsistent with the Plan, as the Committee
shall approve. The terms and provisions of Award Agreements may
vary among Participants and among different Awards granted to
the same Participant. Any Stock Award granted under the Plan may
be evidenced in such manner as the Committee deems appropriate,
including, without limitation, book-entry registration or
issuance of a stock certificate or certificates, with such
restrictive legends and/or stop transfer instructions as the
Committee deems appropriate.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(b)&nbsp;<U>No Right to Further Awards or Continued Service</U>.
The grant of an Award in any year shall not give the Participant
any right to similar grants in future years or any right to
continue such Participant&#146;s employment relationship with
the Corporation or its Subsidiaries. All Participants shall
remain subject to discharge to the same extent as if the Plan
were not in effect.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(c)&nbsp;<U>No Right, Title, or Interest in Corporation
Assets</U>. No Participant shall have any rights as a
stockholder as a result of participation in the Plan until the
date of issuance of a stock certificate in his or her name, and,
in the case of restricted shares of Stock, such rights are
granted to the Participant under the Plan. To the extent any
person acquires a right to receive payments from the Corporation
under the Plan, such rights shall be no greater than the rights
of an unsecured creditor of the Corporation and the Participant
shall not have any rights in or against any specific assets of
the Corporation. All of the Awards granted under the Plan shall
be unfunded and the Corporation shall not be required to
establish any fund or make any other segregation of assets to
assure the payment of any Award.
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(d)&nbsp;<U>Nonassignability</U>. No Award or other right under
the Plan shall be subject to anticipation, sale, assignment,
pledge, encumbrance, or charge except by will or the laws of
descent and distribution and an Award shall be exercisable
during the Participant&#146;s lifetime only by the Participant.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(e)&nbsp;<U>Regulatory Approvals and Listings</U>.
Notwithstanding any other provision of the Plan or Award
Agreements made pursuant thereto, the Corporation shall not be
required to issue or deliver any certificate or certificates for
shares of Stock under the Plan prior to fulfillment of all of
the following conditions:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (i)&nbsp;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;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (ii)&nbsp;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;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (iii)&nbsp;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;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (iv)&nbsp;the execution by the Participant (or the
    Participant&#146;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.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(f)&nbsp;<U>Grant to Employee of a Subsidiary</U>. In the case
of a grant of an Option to any Employee of a Subsidiary, the
Corporation may, if the Committee so directs, issue or transfer
the shares covered by the Option to the Subsidiary, for such
lawful consideration as the Committee may specify, upon the
condition or understanding that the Subsidiary will transfer the
shares to the Employee in accordance with the terms of the Plan
and the stock option agreement relating to such Option.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(g)&nbsp;<U>Status as an Employee Benefit Plan</U>. This Plan is
not intended to satisfy the requirements for qualification under
Section&nbsp;401(a) of the Code or to satisfy the definitional
requirement for an &#147;employee benefit plan&#148; under
Section&nbsp;3(3) of ERISA. It is intended to be a non-qualified
incentive compensation program that is exempt from the
regulatory requirements of ERISA. The Plan shall be construed
and administered so as to effectuate this intent.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(h)&nbsp;<U>Governing Law</U>. The Plan shall be governed by and
construed in accordance with the laws of the State of New York,
except as superseded by applicable federal law, without giving
effect to its conflicts of law provisions.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(i)&nbsp;<U>Construction of Language</U>. Whenever appropriate
in the Plan, words used in the singular may be read in the
plural, words used in the plural may be read in the singular,
and words importing the masculine gender may be read as
referring equally to the feminine or the neuter. Any reference
to a Section number shall refer to a Section of this Plan unless
otherwise indicated.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(j)&nbsp;<U>Headings</U>. The headings of Sections are included
solely for convenience of reference. If there is any conflict
between such headings and the text of the Plan, the text shall
control.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(k)&nbsp;<U>No Guarantee of Tax Consequences</U>. No person
connected with the Plan in any capacity, including, but not
limited to, the Corporation and its directors, officers, agents
and employees, makes any representation, commitment, or
guarantee that any tax treatment, including, but not limited to,
federal, state and local income, estate and gift tax treatment,
will be applicable with respect to the tax treatment of any
Award, or that such tax treatment will apply to or be available
to a Participant on account of participation in the Plan.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(l)&nbsp;<U>Amendment or Termination</U>. Subject to the
provisions of Section&nbsp;4(d), the Board may, at any time,
alter, amend, suspend, discontinue or terminate the Plan in
whole or in part at any time prior to the tenth anniversary of
the Effective Date; provided, however, that no such action shall
adversely affect the rights of Participants to Awards previously
granted hereunder and, provided further, however, that any
stockholder approval necessary or desirable in order to comply
with tax, securities, or other applicable laws or regulations,
including, but not limited to, the listing requirements of the
stock exchanges on which the securities of Corporation are
listed, shall be obtained in the manner required therein.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(m)&nbsp;<U>Notices</U>. Any communication required or permitted
to be given under the Plan, including any notice, direction,
designation, instruction, objection or waiver, shall be in
writing and shall be deemed to have been given at such time as
it is delivered personally or five days after mailing if mailed,
postage prepaid, by registered or
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
certified mail, return receipt requested, addressed to such
party at the address listed below, or at such other address as
one such party may by written notice specify to the other party:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (i)&nbsp;If to the Corporation:</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Graham Corporation</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    20 Florence Avenue</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Batavia, New York 14020</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Attention: Chief Financial Officer</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (ii)&nbsp;If to a Participant, to the Participant&#146;s address
    as shown in the Corporation&#146;s personnel records.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(n)&nbsp;<U>Duration of Plan</U>. The Plan (as amended and
restated hereby) was approved by the Board on June&nbsp;1, 2006,
and will become effective on July&nbsp;27, 2006, upon the date
of the approval by the stockholders of the Corporation at the
2006 Annual Meeting of the Stockholders. Awards may not be
granted under the Plan after July&nbsp;26, 2016, but Awards
theretofore granted may extend beyond that date.
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
* * * * *
</DIV>

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<DIV align="right" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Appendix&nbsp;B</B>
</DIV>

<DIV align="right" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
Amended and Restated on January&nbsp;27, 2006
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>GRAHAM CORPORATION</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>CHARTER OF THE AUDIT COMMITTEE</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>OF THE BOARD OF DIRECTORS</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Membership</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Members of the Audit Committee of the Board of Directors (the
&#147;Board&#148;) of Graham Corporation (the
&#147;Company&#148;) shall be appointed by the Board. The Audit
Committee shall consist of at least three (3)&nbsp;directors,
each of whom shall be &#147;independent&#148; in accordance with
Rule&nbsp;10A-3 as promulgated under the Securities Exchange Act
of 1934, as amended (the &#147;Exchange Act&#148;) and
Sections&nbsp;121 and 803 of the American Stock Exchange Company
Guide. Each member of the Audit Committee must have the ability
to read and understand the Company&#146;s financial statements,
including its balance sheet, income statement and cash flow
statement, or shall be able to do so within a reasonable time.
At least one member of the Audit Committee shall be an
&#147;audit committee financial expert&#148;, as such term is
defined in Section&nbsp;401(h) of
Regulation&nbsp;<FONT style="white-space: nowrap">S-K</FONT>
promulgated by the Securities and Exchange Commission. In
addition, at least one Audit Committee member (who may also
serve as the &#147;audit committee financial expert&#148;) shall
have past employment experience in finance or accounting,
professional certification in accounting, or any other
comparable experience which results in such person being
financially sophisticated in accordance with the standards set
forth in the American Stock Exchange Company Guide.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Meetings, Structure and Procedures</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Audit Committee shall meet at least four (4)&nbsp;times per
year. One Audit Committee member shall serve as the Committee
Chair and the Board shall determine which member shall be the
Chair. The agenda of each Audit Committee meeting will be
prepared under the direction of the Chair and, whenever
practicable, circulated to each Audit Committee member prior to
the meeting date. The Chair will preside, when present, at all
Audit Committee meetings. The Audit Committee shall meet at such
times and places as determined by the Chair, or as may be
requested by any two (2)&nbsp;Audit Committee members, upon
three (3)&nbsp;days notice to each member personally, by mail or
by written telecommunication. In addition, the Audit Committee
shall meet at such other times as it deems necessary or
desirable to fulfill its responsibilities. The Audit Committee
shall also periodically meet separately, in executive session,
with the Company&#146;s independent public accounting firm (the
&#147;independent auditor&#148;) and with such Company
management personnel, employees and advisors as the Audit
Committee deems appropriate.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A majority of the Audit Committee shall constitute a quorum. Any
action required or permitted to be taken at any Audit Committee
meeting may be taken without a meeting if all members of the
Audit Committee consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Audit
Committee. Members of the Audit Committee may participate in a
Audit Committee meeting by conference telephone or similar
communications equipment whereby all persons participating in
the meeting can hear each other, and participation in a meeting
by these means shall constitute presence in person at the
meeting.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Minutes shall be prepared for all meetings of the Audit
Committee to document the Audit Committee&#146;s discharge of
its responsibilities. The minutes shall be circulated in draft
form to all Audit Committee members, and shall be approved as
presented or as modified at a subsequent Audit Committee meeting.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Purpose</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Audit Committee shall work closely with the Board of
Directors, the Company&#146;s management and the independent
auditor in order to assist the Board of Directors in overseeing:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    1.&nbsp;the integrity of the Company&#146;s financial statements
    and internal controls;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    2.&nbsp;the Company&#146;s compliance with legal and regulatory
    requirements;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    3.&nbsp;the independent auditor&#146;s qualifications and
    independence;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    4.&nbsp;the performance of the Company&#146;s independent
    auditor;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    5.&nbsp;the planning for and performance of the Company&#146;s
    internal audit function.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Audit Committee is also responsible for producing the report
required by the Securities and Exchange Commission to be
included in the Company&#146;s annual proxy statement. In
addition, the Audit Committee is
</DIV>

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<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
responsible for recommending to the Board the inclusion of the
Company&#146;s financial statements in its Annual Report on
Form&nbsp;<FONT style="white-space: nowrap">10-K</FONT> and
performing such other tasks as are consistent with this Charter.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Authority and Responsibilities</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Audit Committee shall:
</DIV>

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    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD align="left">
    1.&nbsp;Have authority to select, evaluate and, where
    appropriate, replace the independent auditor and to nominate the
    independent auditor for stockholder approval at the
    Company&#146;s annual meeting of stockholders. The independent
    auditor will report directly to the Audit Committee.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    2.&nbsp;Have authority and direct responsibility to resolve any
    disagreements between Company management and the independent
    auditor regarding financial reporting.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    3.&nbsp;Receive such funding from the Company as the Audit
    Committee deems appropriate for: (a)&nbsp;the compensation of
    the independent auditor; and (b)&nbsp;the payment of any
    expenses that the Audit Committee determines are necessary or
    appropriate to carry out its duties.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    4.&nbsp;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.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    5.&nbsp;Obtain and review, at least annually, written periodic
    reports from the independent auditor describing such firm&#146;s
    internal quality-control procedures.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    6.&nbsp;At least annually, consider the independence of the
    independent auditor and, for this purpose, (a)&nbsp;obtain from
    the Company&#146;s independent auditor a formal written
    statement delineating all relationships between such auditor and
    the Company, consistent with Independence Standards Board
    Standard 1; (b)&nbsp;discuss with the independent auditor any
    disclosed relationships or services that, in the Audit
    Committee&#146;s judgment, may affect the objectivity or
    independence of the independent auditor; and (c)&nbsp;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&#146;s independence.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    7.&nbsp;Review with the independent auditor: (a)&nbsp;the scope
    and results of the audit; (b)&nbsp;any problems or difficulties
    that the independent auditor encountered in the course of the
    audit work, and management&#146;s response thereto; and
    (c)&nbsp;any questions, comments or suggestions the independent
    auditor may have relating to the Company&#146;s internal
    controls, accounting practices or procedures.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    8.&nbsp;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.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    9.&nbsp;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.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    10.&nbsp;Review at least annually with the independent auditor,
    the Company&#146;s principal internal audit staff, and
    management: (a)&nbsp;the adequacy and effectiveness of the
    Company&#146;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&#146;s principal internal audit staff or
    management), accounting practices, and disclosure controls and
    procedures (and any management reports thereon); and
    (b)&nbsp;current accounting trends and developments, and take
    such action with respect thereto as it may deem appropriate.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    11.&nbsp;Review with management and the independent auditor the
    annual and quarterly financial statements of the Company,
    including: (a)&nbsp;the Company&#146;s disclosures under
    &#147;Management&#146;s Discussion and Analysis of Financial
    Condition and Results of Operations&#148;; (b)&nbsp;any material
    changes in accounting principles or practices used by management
    in preparing the Company&#146;s financial statements prior to
    their filing on
    Forms&nbsp;<FONT style="white-space: nowrap">10-K</FONT>
    or&nbsp;<FONT style="white-space: nowrap">10-Q,</FONT> as
    applicable; and (c)&nbsp;the items required by Statement of
    Auditing Standards 61 as amended by Statements&nbsp;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.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    12.&nbsp;Recommend to the Board of Directors, whether the
    Company&#146;s financial statements should be included in its
    Annual Report on
    Form&nbsp;<FONT style="white-space: nowrap">10-K.</FONT></TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff;">B-2

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    13.&nbsp;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.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    14.&nbsp;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&#146;s
    contingent liabilities and risks.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    15.&nbsp;Review: (a)&nbsp;the status of the Company&#146;s
    compliance with applicable laws, regulations, and internal
    procedures, including the Company&#146;s Code of Business
    Conduct and Ethics; and (b)&nbsp;the scope and status of systems
    designed to promote&nbsp;Company&#146;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.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    16.&nbsp;Discuss with the independent auditor the required
    communications with audit committees as prescribed by the
    Auditing Standards Board.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    17.&nbsp;Discuss with the independent auditor whether it has
    identified the existence of any issues concerning detection of
    illegal acts, as described in Section&nbsp;10A of the Exchange
    Act.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    18.&nbsp;Establish procedures for: (a)&nbsp;the receipt,
    retention, and treatment of complaints received by the Company
    regarding accounting, internal accounting controls, or auditing
    matters; and (b)&nbsp;the confidential, anonymous submission by
    employees of the Company of concerns regarding questionable
    accounting or auditing matters.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    19.&nbsp;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.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    20.&nbsp;Have free and confidential access at any time to
    Company&#146;s management, the Company&#146;s controller, staff
    members involved in any internal auditing process the Company
    may adopt and the Company&#146;s legal counsel; and all such
    individuals shall have free and confidential access to the Audit
    Committee.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    21.&nbsp;Review disclosures made by the chief executive officer
    and chief financial officer in
    Forms&nbsp;<FONT style="white-space: nowrap">10-K</FONT>
    and&nbsp;<FONT style="white-space: nowrap">10-Q</FONT>
    certifications regarding, among other things, any deficiencies
    in the design or operation of the Company&#146;s internal
    controls or any fraud that involves management or other
    employees who have a significant role in the Company&#146;s
    internal controls.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    22.&nbsp;Review and oversee any transactions between the Company
    and any related party.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    23.&nbsp;Prepare the report required by the rules of the
    Securities and Exchange Commission to be included in the
    Company&#146;s annual proxy statement.</TD>
</TR>

<TR>
    <TD style="font-size: 3.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    24.&nbsp;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.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>Matters Outside the Scope of the Audit Committee&#146;s
Responsibility</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Nothing contained in this Audit Committee Charter shall be
deemed to limit the independent auditor&#146;s ultimate
accountability to the Board of Directors and the Audit
Committee, as representatives of the Company&#146;s stockholders.
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, it is not intended for the Audit Committee to be
responsible for any of the following matters, and no provision
of this Charter should be so construed:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10.0pt;color: #000000; background: #ffffff;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    1.&nbsp;planning, directing or conducting audits;</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    2.&nbsp;determining whether the Company&#146;s financial
    statements are complete and accurate and in accordance with
    U.S.&nbsp;generally accepted accounting principles;&nbsp;or</TD>
</TR>

<TR>
    <TD style="font-size: 6.0pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    3.&nbsp;ensuring compliance with any laws, regulations or the
    Company&#146;s Code of Business Conduct and Ethics.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>General</B>
</DIV>

<DIV align="left" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Audit Committee is also granted such other authority and
charged with such other responsibilities as are consistent with
this Charter, the Exchange Act, the rules and regulations
promulgated by the Securities and Exchange Commission and the
American Stock Exchange Company Guide.
</DIV>

<P align="right" style="font-size: 10.0pt;color: #000000; background: #ffffff;">B-3

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff; margin-top: 27pt; margin-left: 0; margin-right: 0; margin-bottom: 0; ">
<B>GRAHAM CORPORATION</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>20 Florence Avenue</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>Batavia, New York 14020</B>
</DIV>

<DIV align="center" style="font-size: 10.0pt;color: #000000; background: #ffffff;">
<B>www.graham-mfg.com</B>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<P><DIV style="position: relative; float: left; width: 72%">
<DIV align="left" style="font-size: 9pt; margin-top: 6pt"><B>THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE TWO DIRECTOR NOMINEES, 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 &#038;
TOUCHE LLP AS THE COMPANY&#146;S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING MARCH 31, 2007.</B>
</DIV>

</DIV>
<DIV style="position: relative; float: right; width: 25%">
<DIV align="center">
<TABLE style="font-size: 9pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Please<BR>
Mark Here<BR>
for Address<BR>
Change or<BR>
Comments
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><FONT face="Wingdings">&#111;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><B>SEE REVERSE SIDE</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

</DIV>
<BR clear="all"><BR>
<P><DIV style="position: relative; float: left; width: 45%">
<DIV align="center">
<TABLE style="font-size: 9pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="46%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">1.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Election of Directors
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" valign="top"><B>FOR </B>nominee(s)<br> listed
except<br>as marked to<br>
the contrary
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>WITHHOLD<BR>
AUTHORITY</B><BR>
for all nominees</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">01<BR>
02
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">Helen H. Berkeley to serve until 2009<br>
James R. Lines to serve until 2009</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings">&#111;</FONT></TD>

    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings">&#111;</FONT></TD>

</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="7" valign="top" align="left"><B>Withheld for the nominee you list below: (Write that nominee&#146;s name in the
space provided below.)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" valign="top" align="left"><DIV style="border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV>
&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">FOR</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">AGAINST</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">ABSTAIN</TD></TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Approval of the Amended and
Restated Graham Corporation
2000 Incentive Plan to Increase
Shareholder Value.
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings">&#111;</FONT></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">FOR</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">AGAINST
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">ABSTAIN</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Ratification of the
selection of
Deloitte &#038; Touche LLP as the
company&#146;s independent
registered public accounting firm for
the fiscal year ending March
31, 2007.
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT face="Wingdings">&#111;</FONT></TD>
</tr>
<!-- End Table Body -->
</TABLE>
</DIV>

</DIV>
<DIV style="position: relative; float: right; width: 45%">
<DIV align="center">
<TABLE style="font-size: 9pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="11%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="84%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">In their discretion, to vote upon all other matters as may
be properly brought before the meeting.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><B>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 <u>FOR</u> the two director nominees and <U>FOR</U> proposals 2 and 3.</B></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><FONT face="Wingdings">&#111;</FONT>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">To help our preparation for the meeting, please check here if you plan to attend.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left">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.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

</DIV>
<BR clear="all"><BR>
<DIV align="center">
<TABLE style="font-size: 9pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="29%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="25%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="22%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><b>Signature</b>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><b>Signature</b>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><b>Date</b></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 9pt; margin-top: 18pt"><DIV style="border-bottom: 1px dotted #000000; font-size: 1px">&nbsp;</DIV>
</DIV>


<DIV align="center" style="font-size: 9pt"><FONT style="font-family: Wingdings 3">&#112;</FONT> <B>FOLD AND DETACH HERE </B><FONT style="font-family: Wingdings 3">&#112;</FONT>
</DIV>




<P align="center" style="font-size: 9pt">
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="margin-left:5%; margin-right:5%; font-size: 10pt"><B>PROXY 2006</B>


<P align="center" style="font-size: 10pt"><B>GRAHAM CORPORATION<BR>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS</B>



<P align="left" style="margin-left:5%; margin-right:5%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 2<sup>nd</sup>
Floor Conference Room at 1 Bausch &#038; Lomb Place, Rochester, New York 14604
on Thursday, July&nbsp;27, 2006 at 11:00&nbsp;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:

<P align="center" style="font-size: 14pt">&nbsp;
<P align="center" style="font-size: 14pt">&nbsp;

<P>
<DIV style="width: 100%; margin-left:5%; margin-right:5%; border: 1px solid black; padding: 0px;">
<DIV align="center">
<TABLE style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="21%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="21%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" nowrap><B>Address Change/Comments (Mark the corresponding box on the reverse side)</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR>
    <TD colspan="6"><HR size="1" noshade width="100%" align="center" color="#000000"></TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>
</DIV>

<P align="center" style="font-size: 10pt"><HR size="1" noshade width="100%" align="center" color="#000000">



<div align="center" style="font-size: 10pt"><FONT face="Webdings">&#053;&nbsp;</FONT><B>FOLD AND DETACH HERE
</B>&nbsp;<FONT face="Webdings">&#053;&nbsp;</FONT></div>



<P align="center" style="font-size: 14pt"><B><I>You can now access your Graham Corporation account online.</I></B>



<P align="left" style="font-size: 10pt">Access your Graham Corporation stockholder account online via Investor ServiceDirect<SUP style="font-size: 85%; vertical-align: text-top">&#174;
</SUP>(ISD).


<P align="left" style="font-size: 10pt">Mellon Investor Services LLC, Transfer Agent for Graham Corporation, now makes it easy and
convenient to get current information on your stockholder account.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="29%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&#149;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">View account status
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&#149;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Make address changes
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&#149;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">View certificate history
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&#149;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Obtain a duplicate 1099 tax form</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&#149;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">View payment history for dividends
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&#149;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Establish/change your PIN</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><B><I>Visit us on the web at <u>http://www.melloninvestor.com</u></I></B>



<div align="center" style="font-size: 12pt"><B><I>Call 1-877-978-7778 between 9am-7pm<BR>
Monday-Friday Eastern Time</I></B></div>




<P align="center" style="font-size: 10pt">
</DIV>



<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center">
<TABLE style="font-size: 12pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%"></TD>
    <TD width="5%"></TD>
    <TD width="47%"></TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="left" valign="top"><B>GRAHAM CORPORATION</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"><B>CONFIDENTIAL VOTING INSTRUCTION</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>This Instruction is solicited by the Employee Benefits Committee<BR>
of Graham Corporation<BR>
as a named fiduciary for the<BR>
EMPLOYEE STOCK OWNERSHIP PLAN OF GRAHAM CORPORATION (&#147;Plan&#148;)<BR>
For the Annual Meeting of Stockholders to be held on July&nbsp;27, 2006</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned Participant, Former Participant or Beneficiary
of a deceased Former Participant in the Plan (the &#147;Instructor&#148;)
hereby provides the voting instructions hereinafter specified to
the Employee Benefits Committee of Graham Corporation (the
&#147;Committee&#148;), which instructions shall be taken into account in
directing the Trustee of the Plan to vote, in person, by limited or
general power of attorney, or by proxy, the shares and fractional shares of common stock (the &#147;Shares&#148;) of Graham Corporation (the
&#147;Corporation&#148;) which are held by the Trustee of the Plan, in its
capacity as Trustee, as of June&nbsp;1, 2006 (the &#147;Record Date&#148;) at the
Annual Meeting of Stockholders of the Corporation (the &#147;Annual
Meeting&#148;) to be held in the 2<SUP style="font-size: 85%; vertical-align: text-top">nd</SUP> Floor Conference Room at
1 Bausch &#038; Lomb Place, Rochester, New York 14604, on July&nbsp;27, 2006
at 11:00&nbsp;a.m., Eastern Time, or at any adjournment thereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As to the nominees and proposals listed on the reverse side hereof
and as more particularly described in the Corporation&#146;s Proxy
Statement dated June&nbsp;23, 2006, the Committee will give voting
directions to the Trustee of the Plan. Such directions will
reflect the voting instructions filed by the Instructor on this
Confidential Voting Instruction, in the manner described in the
accompanying letter from the Committee dated June&nbsp;23, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As to other matters which may properly come before the Annual
Meeting, the Trustee will be instructed to vote upon such matters
in its discretion, or cause such matters to be voted upon in the
discretion of the individuals named in any proxies executed by it.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The instructions set forth on the reverse side hereof will be taken
into account as described above in directing the Trustee of the
Plan how to vote the Shares of the Corporation held by it as of the
Record Date in its capacity as Trustee, provided this card is
received by the Burke Group by July&nbsp;20, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Please mark, sign and date this voting instruction card on the
reverse side and return it in the enclosed envelope.</B>
</DIV>

<P align="center" style="font-size: 10pt">
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">






<P align="left" style="font-size: 10pt"><B>IF THIS VOTING INSTRUCTION IS SIGNED BUT NO DIRECTION IS GIVEN, THIS VOTING INSTRUCTION CARD WILL BE DEEMED TO INSTRUCT VOTES &#147;FOR&#148; THE ELECTION OF THE NOMINEES AND &#147;FOR&#148;
PROPOSALS 2 AND 3.</B>
<P align="left" style="font-size: 6pt">&nbsp;
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="33%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="62%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="right" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">ESOP COMMON (as of 6/01/06)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">PLEASE MARK YOUR CHOICE LIKE THIS <FONT style="font-family: Wingdings">&#111;</FONT>
IN BLUE OR BLACK INK.&nbsp;&nbsp;&nbsp;&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P>
<DIV style="width: 100%; border: 1px solid black; padding: 1px;">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" BORDER="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="29%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD><!-- VRule -->
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD><!-- VRule -->
    <TD width="1%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD><!-- VRule -->
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD colspan="19" valign="top" align="left"><B>The Board of
Directors Recommends a Vote &#147;For&#148; the election of nominees
and &#147;For&#148; proposals 2 and 3.</B></TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="20" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;
          </TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">1.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Election of Directors</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">FOR</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">WITHHOLD</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2.</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="5" valign="top" align="left">Approval of the Amended and Restated Graham Corporation 2000 Incentive Plan to Increase Shareholder Value.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>For a three-year term</B></TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Helen H. Berkeley
</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="font-family: Wingdings">&#111;</FONT>
</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="font-family: Wingdings">&#111;</FONT>
</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">FOR
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">AGAINST
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">ABSTAIN*</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">James R. Lines
</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="font-family: Wingdings">&#111;</FONT>
</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="font-family: Wingdings">&#111;</FONT>
</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="font-family: Wingdings">&#111;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="font-family: Wingdings">&#111;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="font-family: Wingdings">&#111;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="20" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;
          </TD>
</TR>
<TR valign="bottom">
    <TD valign="top">3.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" valign="top" align="left">Ratification of the selection of Deloitte &amp; Touche LLP as the independent registered public accounting firm for the period April 1, 2006 through March 31, 2007.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD ALIGN="CENTER">FOR</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD ALIGN="CENTER">AGAINST</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD ALIGN="CENTER">ABSTAIN*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="font-family: Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="font-family: Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT style="font-family: Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="20" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;
          </TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="18" align="left" valign="top">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.</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" BORDER="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="35%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="78%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD COLSPAN="2" align="left" valign="top">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&nbsp;23, 2006, a
Notice of Annual Meeting of Stockholders of Graham
Corporation and a Proxy Statement for the Annual Meeting.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>Date</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>Signature</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>Signature</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD  COLSPAN="2" align="left" valign="top">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.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" align="left" valign="top">*&nbsp;&nbsp;For purposes of the unallocated Shares held by the Employee Stock Ownership Plan, abstention is
equivalent to not voting.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>


<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><I>Graham Corporation</I></FONT><BR>
<FONT style="font-variant: SMALL-CAPS"><I>Employee Benefits Committee</I></FONT>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">June&nbsp;23, 2006
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Dear Plan Accountholder:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Employee Stock Ownership Plan of Graham Corporation (&#147;ESOP&#148;) has a related trust (the &#147;ESOP
Trust&#148;) which owns common stock of Graham Corporation (&#147;Graham&#148;). GreatBanc Trust Company as
trustee of the ESOP is a stockholder of Graham and may vote on matters presented for stockholder
action at Graham&#146;s 2006 Annual Meeting of Stockholders scheduled to be held on July&nbsp;27, 2006, or at
any adjournment of the meeting (&#147;Annual Meeting&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The ESOP Trust provides that in casting its vote at the 2006 Annual Meeting, the ESOP trustee is to
follow directions given by Graham&#146;s Employee Benefits Committee (&#147;Committee&#148;). The Committee in
turn follows instructions provided by participants, former participants and beneficiaries of
deceased former participants with respect to the Graham common stock allocated to their accounts in
the ESOP as of June&nbsp;1, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The records for the ESOP indicate that you are among the individuals who may give voting
instructions. You may give your instructions by completing and signing the enclosed Confidential
Voting Instruction Card (&#147;Instruction Card&#148;) and returning it in the envelope provided to the Burke
Group, which maintains the records for this plan. The Instruction Card lets you give instructions
for each matter expected to be presented for stockholder action at the Annual Meeting. The
Committee expects the Burke Group to tabulate the instructions given on a confidential basis and to
provide the Committee with only the final results of the tabulation. The final results will be
used in directing the ESOP trustee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The voting of the common stock held by the ESOP Trust is subject to legal requirements under the
Employee Retirement Income Security Act of 1974, as amended. The Committee, in consultation with
its legal advisors, considers these requirements in establishing voting instruction procedures and
directing the ESOP trustee how to vote. The remainder of this letter describes the voting
procedures which the Committee expects to follow for the 2006 Annual Meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">How your voting instructions count depends on whether it was anticipated that the matter being
voted upon would be presented for stockholder action at the Annual Meeting; if you had an interest
in the ESOP Trust on the proper date; and how large your interest was, as follows:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Anticipated Proposals</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>If Graham Common Stock Was Allocated to Your Account Under the ESOP Trust as of June&nbsp;1, 2006</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In general, the ESOP trustee will be directed to vote the number of shares of Graham common stock
(if any) held by the ESOP Trust and allocated as of June&nbsp;1, 2006 to your individual account under
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt">-2-
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">the ESOP according to the instructions specified on the reverse side of the Instruction Card. The
Instruction Card shows the number of shares of Graham common stock allocated to your individual
account under the ESOP Trust as of June&nbsp;1, 2006. If you do not file the Instruction Card by July
20, 2006, you will be deemed to have instructed the ESOP Trustee to ABSTAIN as to all proposals.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Unanticipated Proposals</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">It is possible, although unlikely, that proposals other than those specified on the Instruction
Card will be presented for stockholder action at the 2006 Annual Meeting. If this should happen,
the ESOP trustee will be instructed to vote upon such matters in their discretion, or to cause such
matters to be voted upon in the discretion of the individuals named in any proxies executed by
them.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Your interest in the ESOP Trust offers you the opportunity to participate, as do Graham&#146;s
stockholders, in decisions that affect Graham&#146;s future, and we encourage you to take advantage of
such opportunity. To help you decide how to complete the Instruction Card, enclosed is a copy of
the Proxy Statement that is being furnished to all holders of Graham common stock in connection
with the 2006 Annual Meeting. Please complete, sign and return your Instruction Card today. Your
instructions are important regardless of the size of your interest in the ESOP Trust.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If you have questions regarding the terms of the ESOP, or how to complete the Instruction Card,
please call J. Ronald Hansen, Vice President-Finance &#038; Administration at (585)&nbsp;343-2216.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Sincerely,

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">EMPLOYEE BENEFITS COMMITTEE<BR>&nbsp;OF
GRAHAM CORPORATION

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Enclosures

</DIV>


<P align="center" style="font-size: 10pt">&nbsp;

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`
end
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
