ANNUAL STOCK-BASED LONG-TERM INCENTIVE AWARD PLAN FOR SENIOR EXECUTIVES

Purpose

The purpose of this Annual Stock-Based Long-Term Incentive Award Plan for Senior Executives (the “Plan”) is to motivate the senior executive officers of Graham Corporation (the “Company”) to increase shareholder value by providing them long-term stock-based awards for above-average Company performance.

Administration

The Plan will be administered by the Compensation Committee of the Board of Directors of the Company (the “Committee”), which shall have final and conclusive authority to administer and interpret the Plan.

Eligibility

Eligible employees will include the President and Chief Executive Officer and such officer’s direct reports, subject to the approval by the Committee of such participation.

Award Periods

Annual awards under the Plan will be based on the fiscal year of the Company, beginning with its April 1, 2009 through March 31, 2010 fiscal year (each, a “Fiscal Year”).

Awards

Unless the Committee determines otherwise, annual awards under the Plan for the Fiscal Year that commences in 2009 will consist of nonqualified stock options (“Options”) and shares of time-vesting restricted stock (“Time-Vested Restricted Stock”), which awards will be issued under the Amended and Restated 2000 Graham Corporation Incentive Plan to Increase Shareholder Value, or a successor plan thereto (the “Incentive Plan”), and will be subject to the terms thereof.

Unless the Committee determines otherwise, annual awards under the Plan for Fiscal Years that commence in even years (e.g., 2010, 2012, 2014, etc.) (each, an “Even Fiscal Year”) will consist of Options and shares of performance-vesting restricted stock (“Performance-Vested Restricted Stock,” and together with Time-Vested Restricted Stock, “Restricted Stock”), which awards will be issued under the Incentive Plan, and will be subject to the terms thereof.

Unless the Committee determines otherwise, annual awards under the Plan for Fiscal Years that commence in odd years other than 2009 (e.g., 2011, 2013, 2015, etc.) (each, an “Odd Fiscal Year”) will consist of Time-Vested Restricted Stock and Performance-Vested Restricted Stock, which awards will be issued under the Amended and Restated 2000 Graham Corporation Incentive Plan to Increase Shareholder Value, or a successor plan thereto (the “Incentive Plan”), and will be subject to the terms thereof.

Options .

Unless the Committee determines otherwise, Options will be issued with an exercise price equal to the Fair Market Value (as such term is defined by the Incentive Plan) of a share of Company common stock on the date of grant, with a term of ten years, and

will vest over three years, 33.33% percent per year, beginning with the first anniversary of the date of grant.

The number of Options to be issued to an eligible employee for a Fiscal Year will be determined by multiplying 50 percent (or such other percentage as may be determined by the Committee) of the eligible employee’s base salary in effect for the Fiscal Year by such employee’s Target L-T Incentive Percentage, and then dividing by the Black Scholes value of such a stock option on the date of determination, rounded to the nearest whole number.

Each employee’s Target L-T Incentive Percentage is set forth on Exhibit A hereto, and for a given Fiscal Year is subject to amendment by the Committee prior to the commencement of such Fiscal Year.

Time-Vested Restricted Stock .

Unless the Committee determines otherwise, Time-Vested Restricted Stock will vest as follows: 50 percent of the shares on the second anniversary of the date of grant and the remaining 50 percent on the fourth anniversary of the date of grant.