EX-10.3 EMPLOYMENT AGREEMENT

Exhibit 10.3

EMPLOYMENT AGREEMENT

     THIS AGREEMENT, is made and entered into as of December 1, 1993 by and among Graham Manufacturing Co., Inc., a New York corporation with offices at 20 Florence Avenue, Batavia, New York 14020 (“GMC”), Graham Corporation, a Delaware corporation with offices at 20 Florence Avenue, Batavia, New York 14020 (“Holding Company”) and James R. Lines, currently residing at 11 Hillside Parkway, Lancaster, New York 14086 (the “Executive”).

     The parties hereto, intending to be legally bound hereby, and in consideration of the mutual covenants herein contained, agree as follows:

     1.  Employment .

     GMC hereby employs the Executive and the Executive hereby accepts employment (such employment, hereafter, the “Employment”) as Vice President of Marketing in charge of the Application and Computer Engineering Departments of GMC upon the terms and conditions hereinafter set forth. Failure in any year of the Board of Directors of GMC (“GMC Board”) at its Annual Meeting to elect the Executive to the office of Vice President of Marketing shall constitute termination of the Executive’s employment without cause for purposes of this Agreement.

     2.  Duties . The Executive is engaged as Vice President of Marketing of GMC. The Executive shall have authority and responsibility for the operation and management, on a day to day basis, of the Application and Computer Engineering Departments of GMC, and shall perform such duties consistent with Executive’s title as may from time to time be required of Executive by the GMC Board or by either the Chairman and Chief Executive Officer or the President of GMC, to whom Executive shall be directly responsible. The Executive’s office shall be at GMC’s headquarters office in Batavia, New York, or within a reasonable commuting distance thereof. The Executive agrees to travel to the extent reasonably necessary for the performance of his duties hereunder. The Executive shall devote his full business time to the business and affairs of GMC and shall use his best efforts, skill and ability in performing his duties on behalf of GMC.

     3.  Term .

          (a) Except as otherwise provided in this Agreement to the contrary, the terms and conditions of this Agreement shall be and remain in effect during the period of employment (“Term”) established under this Section 3. The Term shall be for a term of one (1) year commencing on December I, 1993, plus such extensions, if any, as are provided pursuant to Section 3(b).

          (b) Except as provided in Section 3(c), beginning on the date of this Agreement, the Term shall be automatically extended for one (1) additional day each day, unless either GMC or the Executive elects not to extend the Term further by giving written notice to the other party, in which case the Term shall end on the first anniversary of the date on which such written notice is given; provided, however, that in any event, the Term shall end on the last day of the month in which the Executive attains age sixty-five (65). Upon termination of the Executive’s employment with GMC for any reason whatsoever, any daily extensions provided pursuant to this Section 3, if not theretofore discontinued, shall cease and the remaining unexpired Term under this Agreement shall

be a fixed period ending on the first anniversary of the date on which the daily extensions were discontinued.

          (c) Notwithstanding anything herein contained to the contrary: (i) the Executive’s employment with GMC may be terminated during the Term, subject to the terms and conditions of this Agreement; and (ii) nothing in this Agreement shall mandate or prohibit a continuation of the Executive’s employment following the expiration of the Term upon such terms and conditions as GMC and the Executive may mutually agree upon. A

     4.  Base Compensation . As the base compensation for all services to be rendered by the Executive in any capacity to GMC and its affiliates, GMC agrees to pay to the Executive, and the Executive shall accept, a salary at a rate of $85,000 per annum, payable in arrears in equal monthly installments, subject to such deductions and withholdings as may be required by law. Upon cessation by GMC of the five percent wage reduction in effect as of the date hereof, the Executive’s salary shall be increased by five percent (5%). During the fourth quarter of each year commencing in calendar year 1994, GMC will review the salary rate of the Executive, taking into consideration such factors as the Executive’s performance during the preceding year and such other matters as it deems relevant and, in its sole discretion, may increase the salary of the Executive for the following calendar year, to be effective from January 1 of such following year, to such rate and for such period of time as GMC deems proper, provided that GMC shall in no event be required to grant or to continue any such increase. However, in the event that any person or entity acquires twenty percent (20%) or more of the outstanding equity stock of GMC’s parent, the Holding Company, or GMC, who was not an owner of twenty percent of the equity stock of either the Holding Company (in the case of an acquisition of Holding Company stock) or GMC (in the case of an acquisition of GMC stock) prior to December 1, 1993, or in the event that any person or entity acquires twenty percent (20%) or more of the assets of either the Holding Company or GMC who was not an owner of twenty percent of the assets of either the Company (in the case of an acquisition of Holding Company assets) or of GMC (in the case of an acquisition of GMC assets) prior to December 1, 1993, and provided that in such event, such person or entity (i) initiated a tender offer for the capital stock of the Company or GMC other than at the invitation of either the Holding Company Board or the GMC Board; or (ii) caused its nominee or nominees to be elected to the Holding Company Board or the GMC Board as a result of a proxy contest in which election of its nominees, or any of them, was not endorsed by management of the Holding Company or GMC in any proxy statement prepared for the purpose; or (iii) acquired its twenty percent or greater interest in either the Holding Company or GMC subsequent to and within two years of any other party or entity’s initiation of a tender offer, initiation of a proxy contest, or offer to acquire all, or more than 20% of the outstanding capital stock of the Holding Company or GMC for a stated price or in exchange for any non-cash form of consideration then, subsequent to such acquisition of twenty percent stock or twenty percent asset ownership of either the Holding Company or GMC by any such person or entity: (1) if for any calendar year a salary increase at least equal to the increase in the U.S. City All-Items Consumer Price Index for Urban Wage Earners and Clerical Workers during the previous twelve months, is not granted; or if (2) the Executive’s base salary is decreased at any time, then in either event the Executive may in his sole discretion terminate this Agreement upon thirty days’ written notice given at any time during the calendar year for which no such increase was granted, or during the twelve month period following any such decrease in salary, and thereupon GMC shall be obligated to pay the Executive the amounts, and provide the benefits, specified in Section 9.3 of this Agreement.

     5.  Bonuses . GMC shall pay Executive bonuses subject to The Executive Bonus Plan of Graham Corporation, as it may be amended from time to time, or such other bonus plans or arrangements of GMC, or made available to GMC by the Holding Company, as may be in effect from time to time, as determined by GMC’s Board of Directors or a committee thereof.

     6.  Benefits . During the term of this Agreement, GMC shall provide the following benefits to the Executive:

          6.1 Medical . GMC will provide the Executive health coverage for himself and his family in accordance with the Graham Manufacturing Co., Inc. Self Insured Medical/Dental Plan, as the same may be amended from time to time, or in accordance with such other health coverage plan as GMC may adopt.

          6.2 Vacation . The Executive shall be entitled to paid vacation in accordance with GMC’s vacation policy, as the same may be in effect from time to time.

          6.3 Relocation . GMC will pay the executive $5,000 for relocation costs in connection with the sale of the Executive’s residence at 11 Hillside Parkway, Lancaster, New York.

          6.4 General Benefits . The Executive shall be entitled to participate in all employee benefit plans and arrangements of the Holding Company and GMC that may from time to time be in effect and may from time to time be made available to the executive officers of GMC, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. Nothing in this Section 6.4 shall be construed to limit or restrict the complete discretion of the Board of Directors of the Holding Company or, as the case may be, the Board of Directors of GMC, to amend, modify or terminate employee benefit or bonus plan or plans of the Holding Company or GMC where such action generally affects plan participants or employees, including the Executive.

          6.5 Life Insurance . (a) GMC will provide life insurance for the executive providing coverage in an amount equal to three times base salary. (b) The Executive agrees that GMC, in its discretion, may apply for and procure in its own name and for its own benefit, life insurance on his life in any amount or amounts considered advisable, and that he shall have no right, title or interest therein. The employee further agrees to submit to any medical or other examination and to execute and deliver any application or other instrument in writing, reasonably necessary to effectuate such insurance, provided such actions do not harm the Executive’s ability to otherwise obtain or retain life insurance(s). (c) As soon as practical following the termination of employment for any reason except for cause, GMC will cause to be transferred, assigned or otherwise conveyed to the Executive any right, title and interest that either may have in and to any life insurance contract (other than any group-term life insurance contract) under which the Executive’s life is insured, including full rights of ownership in and to the cash surrender value thereof (net of any loans obtained against such cash surrender value), and the Executive shall assume all obligations for the payment of any premiums which may become due with respect to such insurance contract after the termination of employment.

     7.  Use of Automobile .

          7.1 GMC shall, at its expense, provide the Executive with an automobile of the Executive’s choice for use by the Executive in performance of his duties under this Agreement, provided that the annual lease payments made by GMC on such automobile shall not exceed in any year seven percent (7%) of the Executive’s annual base salary for such year. GMC shall pay or reimburse the Executive for all reasonable and necessary expenses of maintenance and operation of such automobile incurred or paid for by the Executive, and shall obtain, and include the name of the Executive as one of the assureds under, a liability insurance policy for injuries to persons and property caused by the operation of such automobile. At the end of the term of any automobile lease entered into by GMC pursuant to this Section 7.1, GMC may, in its discretion, either (a) lease a new automobile for the Executive’s use; or (b) provide the Executive with the continued use of the same automobile, at GMC’s expense. In the event GMC elects to do neither, GMC shall permit the Executive to purchase the automobile from the lessor.

          7.2 Notwithstanding the provisions of Section 7.1 above, the Executive represents that he now carries automobile liability insurance, with respect to any automobile owned by him, for injuries to persons and property.

     8.  Expenses . GMC shall pay or reimburse the Executive for all reasonable and necessary traveling and other expenses incurred or paid by the Executive in connection with the performance of his duties under this Agreement upon presentation of expense statements or vouchers and such other supporting information as it may from time to time request. However, the amount available for such traveling and other expenses may be fixed in advance by the Chairman, the President or the Board of Directors of GMC.

     9.  Termination . This Agreement shall terminate prior to the Term expiration date, hereinabove set forth, in the event that the Executive shall die or GMC shall determine that the Executive has become disabled, or if the Executive shall be dismissed for cause or without cause, as hereinafter provided.

          9.1 Disability . GMC may determine that the Executive has become di