NOTE 6 – STOCK-BASED COMPENSATION:

The Amended and Restated 2000 Graham Corporation Incentive Plan to Increase Shareholder Value, as approved by the Company’s stockholders at the Annual Meeting on July 28, 2016, provides for the issuance of up to 1,375 shares of common stock in connection with grants of incentive stock options, non-qualified stock options, stock awards and performance awards to officers, key employees and outside directors.  As of September 30, 2016, 309 shares remain available for future awards under the plan, 225 of which may be used for awards other than stock options.  Stock options may be granted at prices not less than the fair market value at the date of grant and expire no later than ten years after the date of grant.

No restricted stock awards were granted in the three-month periods ended September 30, 2016 and 2015.  Restricted stock awards granted in the six-month periods ended September 30, 2016 and 2015 were 82 and 34, respectively.  Restricted shares of 43 and 15 granted to officers in fiscal 2017 and fiscal 2016, respectively, vest 100% on the third anniversary of the grant date subject to the satisfaction of the performance metrics for the applicable three-year period.  Restricted shares of 31 and 12 granted to officers and key employees in fiscal 2017 and fiscal 2016, respectively, vest 33⅓% per year over a three-year term.  Restricted shares of 8 and 7 granted to directors in fiscal 2017 and fiscal 2016, respectively, vest 100% on the first year anniversary of the grant date.  No stock option awards were granted in the three-month or six-month periods ended September 30, 2016 and 2015.

During the three months ended September 30, 2016 and 2015, the Company recognized stock-based compensation costs related to stock option and restricted stock awards of $199 and $151, respectively.  The income tax benefit recognized related to stock-based compensation was $71 and $53 for the three months ended September 30, 2016 and 2015, respectively.  During the six months ended September 30, 2016 and 2015, the Company recognized stock-based compensation costs related to stock option and restricted stock awards of $228 and $357, respectively.  The income tax benefit recognized related to stock-based compensation was $81 and $126 for the six months ended September 30, 2016 and 2015, respectively.

The Company has an Employee Stock Purchase Plan (the "ESPP"), which allows eligible employees to purchase shares of the Company's common stock at a discount of up to 15% of its fair market value on the (1) last, (2) first or (3) lower of the last or first day of the six-month offering period.  A total of 200 shares of common stock may be purchased under the ESPP.  During the three months ended September 30, 2016 and 2015, the Company recognized stock-based compensation (income) costs of $(7) and $8, respectively, related to the ESPP and $(3) and $3, respectively, of related tax (expense) benefits.  During the six months ended September 30, 2016 and 2015, the Company recognized stock-based compensation costs of $6 and $22, respectively, related to the ESPP and $2 and $8, respectively, of related tax benefits.