NOTE 6 – STOCK-BASED COMPENSATION:

The Amended and Restated 2000 Graham Corporation Incentive Plan to Increase Shareholder Value 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; provided, however, that no more than 250 shares of common stock 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.

Restricted stock awards granted in the three-month periods ended September 30, 2014 and 2013 were 2 and 0, respectively. The restricted shares were granted to directors and vest 100% on the first anniversary of the grant date.

Restricted stock awards granted in the six-month periods ended September 30, 2014 and 2013 were 30 and 32, respectively. Restricted shares of 12 and 14 granted to officers in fiscal 2015 and fiscal 2014, 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 11 and 12 granted to officers and key employees in fiscal 2015 and fiscal 2014, respectively, vest 33 ¹⁄₃% per year over a three-year term. Restricted shares of 7 and 6 granted to directors in fiscal 2015 and fiscal 2014, respectively, vest 100% on the first year anniversary of the grant date. There were no stock option awards granted in the three-month or six-month periods ended September 30, 2014 and 2013.

During the three months ended September 30, 2014 and 2013, the Company recognized stock-based compensation costs related to stock option and restricted stock awards of $163 and $134, respectively. The income tax benefit recognized related to stock-based compensation was $57 and $47 for the three months ended September 30, 2014 and 2013, respectively. During the six months ended September 30, 2014 and 2013, the Company recognized stock-based compensation costs related to stock option and restricted stock awards of $269 and $314, respectively. The income tax benefit recognized related to stock-based compensation was $94 and $110 for the six months ended September 30, 2014 and 2013, respectively.

The Company has an Employee Stock Purchase Plan (the “ESPP”), which allows eligible employees to purchase shares of the Company’s common stock on the last day of a six-month offering period at a purchase price equal to the lesser of 85% of the fair market value of the common stock on either the first day or the last day of the offering period. A total of 200 shares of common stock may be purchased under the ESPP. During each of the three months ended September 30, 2014 and 2013, the Company recognized stock-based compensation costs of $13 related to the ESPP and $4 of related tax benefits. During the six months ended September 30, 2014 and 2013, the Company recognized stock-based compensation costs of $30 and $28, respectively, related to the ESPP and $10 and $9, respectively, of related tax benefits.