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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the fiscal year ended March 31, 1998.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _____________ to ___________.
COMMISSION FILE NUMBER 1-8462
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GRAHAM CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 16-1194720
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20 FLORENCE AVENUE, Batavia, NEW YORK 14020
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including Area Code - 716-343-2216
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Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK (Par Value $.10) American Stock Exchange
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Title of Class Name of each exchange on which
registered
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK PURCHASE RIGHTS
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Title of Class
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Act") during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best or registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of June 15, 1998 was $26,565,416.
As of June 15, 1998, there were outstanding 1,585,995 shares of common stock,
$.10 par value. As of June 15, 1998, there were outstanding 1,585,995 common
stock purchase rights.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Notice of Meeting and Proxy Statement for the 1998 Annual
Meeting of Stockholders is incorporated by reference into Part
III of this filing.
An Exhibit Index is located at page 62 of this filing under the sequential
numbering system prescribed by Rule 0-3(b) of the Act.
A cross reference sheet appears as the final page of this filing setting forth
item numbers and captions of Form 10-K and the pages of the Registrant's Proxy
Statement for 1998 Annual Meeting of Stockholders where the corresponding
information appears.
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PART I
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ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Registrant was organized in 1983 as a Delaware holding company
and is the successor to Graham Manufacturing Co., Inc., now a wholly owned
subsidiary of the Registrant. Graham Manufacturing Co., Inc. was organized in
1936 under the laws of the State of New York. The Registrant manages the
activities of various subsidiaries that are located in the United States and the
United Kingdom. It employs 11 people, which includes the Research and
Development Group that serves each of the Registrant's subsidiaries.
UNITED STATES OPERATIONS:
During the Fiscal Year ended March 31, 1998 ("FY 1997-98") the
Registrant's U.S. operations consisted of one independent subsidiary, namely,
Graham Manufacturing Co., Inc. (GMC).
GRAHAM MANUFACTURING CO., INC. -- Batavia, New York
Graham Manufacturing Co., Inc. ("GMC") in Batavia, New York is
a well recognized supplier of steam jet ejector vacuum systems, surface
condensers for steam turbines, liquid ring vacuum pumps and compressors, and
various types of heat exchangers such as Heliflow, plate and frame, and special
types of nuclear shell and tube heat exchangers. GMC possesses expertise in
combining these various products into packaged systems for sale to its customers
in a variety of industrial markets, including oil refining, chemical,
petrochemical, power, pulp and paper, and shipbuilding.
FY 1997-98 sales for GMC were $51.8 million, the highest in
the Company's history.
New orders in FY 1997-98 were $59.7 million, up 19% from the
last full fiscal year, with a strong fourth quarter contributing to a year end
backlog of $27.3 million, comparing to $24.5 million in backlog on December 31,
1996 and $21.0 million on March 31, 1997. This increase was due mainly to growth
in the condenser business. These gains were augmented by marginally higher
orders in FY 1997-98 for ejectors and significantly higher sales of plate heat
exchangers. Sales of water heaters also showed significant growth. The chemical
and refinery markets continued to be important, accounting for slightly less
than half of the revenue for FY 1997-98. U.S. domestic power industry sales
increased and smaller markets such as HVAC and fibers demonstrated an aggregate
modest increase, with significant increase seen in the fertilizer market.
Margins were uniformly favorable across all products lines.
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GMC export sales reached 49% in FY 1997-98, off about 1% from
the previous full fiscal year. More than half of these export sales went to
Asia. Most of the growth in GMC's exports in recent years has been attributable
to a significant increase in shipments to South America and Asia; in FY 1997-98
sales to South America declined, while sales to Asia were 61% higher than for
the fiscal year 1996, the last previous full fiscal year. The Company expects
exports to remain a significant part of its business in FY 1998-99, although
export sales, and sales to Asia particularly, are expected to be affected by
Asian financial uncertainties.
Employment at GMC as of March 31, 1998 was 341.
UNITED KINGDOM OPERATIONS:
During FY 1997-98, Graham Corporation owned one manufacturing
subsidiary in the United Kingdom, Graham Precision Pumps Limited (GPPL) in
Congleton, Cheshire. Ownership was through its U.K. holding company, Graham
Vacuum & Heat Transfer Limited. Graham Vacuum and Heat Transfer Limited (GPPL)
has no employees.
GRAHAM PRECISION PUMPS LIMITED - Congleton, Cheshire
GPPL manufactures liquid ring vacuum pumps, rotary piston
pumps, oil sealed rotary vane pumps, atmospheric air operated ejectors and
complete vacuum pump systems that are factory assembled with self-supporting
structure.
Sales for FY 1997-98 stood at $5,929,000. While it resulted in
a profit, this figure was marginally down from the last full fiscal year.
Sluggish bookings in the domestic U.K. and export markets reflect the high value
of the pound sterling in relation to other currencies.
The contribution remained healthy and this, together with
further cost reductions in addition to those imposed in 1996, yielded
profitability in excess of the budget for the year.
The Company will continue its marketing effort to further
improve its position and increase its market share, primarily in the U.K. and
the U.S. markets.
As of March 31, 1998 employment stood at 63.
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CAPITAL EXPENDITURES
The Registrant's capital expenditures for FY 1997-98 amounted
to $1,400,000. Of this amount, $1,334,000 was for GMC and $66,000 was for GPPL.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
(1) INDUSTRY SEGMENTS AND (2) INFORMATION AS TO LINES OF BUSINESS
Graham Corporation operates in only one industry segment which
is the design and manufacture of vacuum and heat transfer equipment. The
information required under this item regarding this industry segment is set
forth in statements contained in Notes 1 and 3 to the Consolidated Financial
Statements on pages 23-26 and 28 of the Annual Report on Form 10-K.
(c) NARRATIVE DESCRIPTION OF BUSINESS
(1) BUSINESS DONE AND INTENDED TO BE DONE
(i) PRINCIPAL PRODUCTS AND MARKETS
The Registrant designs and manufactures vacuum
and heat transfer equipment, primarily custom built. Its products include steam
jet ejector vacuum systems, surface condensers for steam turbines, liquid ring
vacuum pumps and compressors and various types of heat exchangers including
helical coil exchangers marketed under the registered name "Heliflow" and plate
and frame exchangers. These products function to produce a vacuum or to condense
steam or otherwise transfer heat, or any combination of these tasks. They
accomplish this without involving any moving parts and are available in all
metals and in many non-metallic and corrosion resistant materials as well.
This equipment is used in a wide range of
industrial process applications: power generation facilities, including fossil
fuel plants and nuclear plants as well as cogeneration plants and geothermal
power plants that harness naturally occurring thermal energy; petroleum
refineries; chemical plants; pharmaceutical plants; plastics plants; fertilizer
plants; breweries and titanium plants; liquefied natural gas production and soap
manufacturing; air conditioning systems; food processing plants and other
process industries. Among these the principal markets for the Registrant's
products are the chemical, petrochemical, petroleum refining, and electric power
generating industries. The Registrant's equipment is sold by a combination of
direct company sales engineers and independent sales representatives located in
over 40 major cities in the United States and abroad.
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(ii) STATUS OF PUBLICLY ANNOUNCED NEW PRODUCTS OR
SEGMENTS
The Registrant has no plans for new products or
for entry into new industry segments that would require the investment of a
material amount of the Registrant's assets or that otherwise is material.
(iii) SOURCES AND AVAILABILITY OF RAW MATERIALS
Registrant experienced no serious material
shortages in FY 1997-98.
(iv) MATERIAL PATENTS, TRADEMARKS
Registrant holds no material patents,
trademarks, licenses, franchises or concessions the loss of which would have a
materially adverse effect upon the business of the Registrant.
(v) SEASONAL VARIATIONS
No material part of the Registrant's business
is seasonal.
(vi) WORKING CAPITAL PRACTICES (Not Applicable)
(vii) PRINCIPAL CUSTOMERS
Registrant's principal customers include the
large chemical, petroleum and power companies, which are end users of
Registrant's equipment in their manufacturing and refining processes, as well as
large engineering contractors who build installations for such companies and
others.
No material part of Registrant's business is
dependent upon a single customer or on a few customers, the loss of any one or
more of whom would have a materially adverse effect on Registrant's business.
No customer of Registrant or group of related
customers regularly accounts for as much as 10% of Registrant's consolidated
annual revenue.
(viii) ORDER BACKLOG
Backlog of unfilled orders at March 31, 1998
was $28,199,000 compared to $22,348,000 at March 31, 1997, $25,578,000 at
December 31, 1996 and $21,837,000 at December 31, 1995.
(ix) GOVERNMENT CONTRACTS (Not Applicable)
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(x) COMPETITION
Registrant's business is highly competitive and
a substantial number of companies having greater financial resources are engaged
in manufacturing similar products. Registrant is a relatively small factor in
the product areas in which it is engaged with the exception of steam jet
ejectors. Registrant believes it is one of the leading manufacturers of steam
jet ejectors.
(xi) RESEARCH ACTIVITIES
During the fiscal years ended December 31, 1995
and 1996, the three month transition period ending March 31, 1997 and in the
fiscal year ended March 31, 1998, Registrant spent approximately $277,000,
$375,000, $91,000 and $404,000 respectively on research activities relating to
the development of new products or the improvement of existing products.
(xii) ENVIRONMENTAL MATTERS
Registrant does not anticipate that compliance
with federal, state and local provisions, which have been enacted or adopted
regulating the discharge of material in the environment or otherwise pertaining
to the protection of the environment, will have a material effect upon the
capital expenditures, earnings and competitive position of the Registrant and
its subsidiaries.
(xiii) NUMBER OF PERSONS EMPLOYED
On March 31, 1998, Registrant and its
subsidiaries employed 404 persons.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
(The information called for under this Item is set forth in
Note 3 to Consolidated Financial Statements, on page 28 of this Annual Report on
Form 10-K.)
ITEM 2. PROPERTIES
United States: Registrant's corporate headquarters is located
at 20 Florence Avenue, Batavia, New York.
Registrant's subsidiary, Graham Manufacturing Co., Inc., owns
and operates a plant on approximately thirty-three acres in Batavia consisting
of about 204,000 square feet in several connected buildings built over a period
of time to meet increased space requirements, including 162,000 square feet in
manufacturing facilities, 48,000 square feet for warehousing and a 6,000
square-foot building for product research and development. A 14,000 square foot
extension to the Heavy Fabrication Building was completed in 1991.
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Graham Manufacturing Co., Inc.'s principal offices are in a
45,000 square-foot building located in Batavia adjacent to its manufacturing
facilities which is owned by the Company.
The plant and office building have been pledged to secure
certain domestic long-term borrowings.
Graham Manufacturing Co., Inc. leases U.S. sales offices in
Clifton, New Jersey, Los Angeles and Houston.
United Kingdom: Registrant's subsidiary, Graham Precision
Pumps Limited, has a 41,000 square-foot manufacturing facility located on 15
acres owned by that company in Congleton, Cheshire, England.
Assets of the Registrant with a book value of $29,604,000 have
been pledged to secure certain domestic long-term borrowings. Short and
long-term borrowings of Registrant's United Kingdom subsidiary are secured by
assets of the subsidiary, which have a book value of $3,908,000.
ITEM 3. LEGAL PROCEEDINGS
The United States Environmental Protection Agency has notified
the Company's wholly-owned subsidiary, Graham Manufacturing Co., Inc. ("GMC"),
that it is a Potentially Responsible Party pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, in
connection with the Batavia Landfill Site in the Town of Batavia, New York.
Total remediation expenses for the site are currently estimated at $10.4
million. Based on facts and circumstances currently known to GMC and the
Company, GMC's contribution to the site of material deemed hazardous was minor.
In 1996, the Company recorded a $260,000 provision for the estimated costs,
including legal costs, in connection with this matter based on the currently
available information and assuming a reasonable pro-rata allocation. The related
liability at March 31, 1998 was $250,000 and is included in the caption "Other
Long-Term Liabilities" in the Consolidated Balance Sheet.
ITEM 4. Submission of Matters to a Vote of Security Holders
(Not applicable)
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
(a) The information called for under this Item is set forth under Item 8,
"Financial Statements and Supplementary Data," in the Statement of Quarterly
Financial Data appearing on page 48 of this Annual Report on Form 10-K.
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(b) On June 15, 1998, there were approximately 345 holders of the Registrant's
common stock. This figure includes stockholders of record and individual
participants in security position listings who have not objected to the
disclosure of their names; it does not, however, include individual participants
in security position listings who have objected to disclosure of their names. On
June 15, 1998, the closing price of the Registrant's common stock on the
American Stock Exchange was $16.75 per share.
(c) The Registrant has not paid a dividend since January 4, 1993, when it paid a
dividend of $.07 per share. Currently it does not have plans to resume paying a
dividend in the foreseeable future. Restrictions on dividends are described in
Note 7 to the Consolidated Financial Statements, to be found on pages 32 to 33
of this Report.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
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GRAHAM CORPORATION - TEN YEAR REVIEW
Operations: 1998 1997 1996 1995 (1) 1994 (1)
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<S> <C> <C> <C> <C> <C>
Net Sales $56,206,000 $14,257,000 $51,487,000 $50,501,000 $46,467,000
Gross Profit 18,083,000 4,080,000 15,463,000 13,257,000 12,153,000
Income (Loss) From
Continuing Operations 3,766,000 621,000 3,102,000 1,361,000 9,000
Dividends
Common Stock:
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Basic Earnings (Loss)
From Continuing
Operations Per Share 2.27 .39 1.96 .86 .01
Diluted Earnings (Loss)
From Continuing
Operations Per Share 2.21 .38 1.93 .86 .01
Dividends Per Share
Financial Data:
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Working Capital 12,459,000 10,300,000 8,239,000 7,093,000 6,819,000
Capital Expenditures 1,400,000 237,000 1,291,000 204,000 412,000
Depreciation 905,000 249,000 892,000 927,000 1,027,000
Total Assets 37,030,000 31,224,000 30,494,000 29,499,000 29,927,000
Long-Term Debt 859,000 2,764,000 1,442,000 3,303,000 5,161,000
Shareholders' Equity 17,775,000 12,538,000 11,915,000 8,426,000 7,045,000
</TABLE>
The financial data presented for 1998 is for the fiscal year ended March 31,
1998. The financial data presented for 1997 is for the three month transition
period ended March 31, 1997. The financial data presented for 1996-1988 is for
the respective calendar year ending December 31.
(1) Per share data has been adjusted to reflect a three-for-two stock split on
July 25,1996.
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<TABLE>
<CAPTION>
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GRAHAM CORPORATION - TEN YEAR REVIEW
1993 1992 1991 1990 1989 1988
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<S> <C> <C> <C> <C> <C>
$44,592,000 $47,514,000 $70,368,000 $68,042,000 $62,226,000 $62,360,000
11,661,000 9,234,000 18,825,000 16,739,000 16,661,000 16,768,000
481,000 (2,153,000) 2,421,000 1,195,000 3,980,000 1,843,000
293,000 289,000 283,000 97,000
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.31 (1.37) 1.56 .79 2.70 1.25
.31 (1.37) 1.55 .77 2.65 1.25
.28 .28 .28 .10
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7,075,000 9,601,000 12,220,000 9,531,000 8,493,000 5,880,000
513,000 9,213,000 2,553,000 2,702,000 2,622,000 1,749,000
1,349,000 1,385,000 1,317,000 1,175,000 1,003,000 982,000
41,388,000 45,573,000 42,023,000 41,731,000 37,545,000 35,537,000
6,102,000 9,491,000 7,560,000 4,708,000 3,620,000 4,749,000
14,793,000 14,564,000 14,905,000 14,317,000 12,936,000 9,355,000
</TABLE>
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's discussion and analysis reviews the Company's
financial operating results for the years ended March 31, 1998, December 31,
1996 and 1995 and the three-month period ended March 31, 1997 and its financial
condition at March 31, 1998. The focus of this review is on the underlying
business reasons for significant changes and trends affecting sales, net
earnings, and financial condition. This review should be read in conjunction
with the consolidated financial statements, the related Notes to Consolidated
Financial Statements, and the Ten-Year Review.
Except for the historical information contained herein, the
matters discussed in this annual report are forward-looking statements as
defined in the Private Securities Litigation Reform Act (PSLRA) of 1995. The
Company wishes to take advantage of the "safe harbor" provisions of the PSLRA by
cautioning that numerous important factors which involve risks and
uncertainties, including but not limited to economic, competitive, governmental
and technological factors affecting the Company's operations, markets, products,
services and prices, and other factors discussed in the Company's filings with
the Securities and Exchange Commission, in the future, could affect the
Company's actual results and could cause its actual consolidated results to
differ materially from those expressed in any forward-looking statement made by,
or on behalf of, the Company.
ANALYSIS OF CONSOLIDATED OPERATIONS
1998 COMPARED TO 1996
Consolidated sales were $56,206,000 for the fiscal year ended
March 31, 1998 compared to $51,487,000 for the twelve months ended December 31,
1996. Sales from U.S. operations were 11% greater for the current period as a
result in increased surface condenser and ejector sales. Sales in 1998 were the
highest in Graham Manufacturing Company's history and were particularly
benefited by a few large condenser orders. Sales from U. K. operations were down
about 2% for 1998. The strong Pound Sterling compared to other world currencies
gave Graham Precision Pumps great difficulty. The Pound, compared to the
Deutsche Mark and French Franc, reached a nine year high.
Consolidated gross profit margins were 32% in 1998 and 30% in
1996. Domestically, margins rose as a result of strong demand for the Company's
products in general and, in particular, a few excellent large orders, among them
a geothermal condenser order. Despite currency disadvantages, U.K. operations
were able to maintain their gross profit margin percentages from 1996 to 1998.
Sales per employee in the U.K. rose from $84,000 to $97,000.
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Selling, general and administrative expenses remained steady
from 1996 at 22% of sales.
Interest expense declined to about 0.4% of consolidated sales
from 0.7% in 1996. Since 1994, when bank debt was equal to 77% of equity, the
Company has managed to reduce this ratio to 9% in 1996 and 4% currently.
The effective income tax rate for 1998 was 31%, up from 22%
but still below the statutory rate as a result of utilization of U.K.
carryforward tax losses.
Net income for the current year was $3,766,000 or $2.21
diluted earnings per share. This compares to 1996 of $3,102,000 and $1.93 per
share.
THREE MONTHS ENDED MARCH 1997
Effective April 1, 1997, the Company changed its year end from
December 31 to March 31. The Company reported a transition period for the three
months ended March 31, 1997.
Sales for the period were $14,257,000. The product lines that
attributed substantially to the stronger than usual first quarter of the
calendar year were surface condensers, ejectors and vacuum pumps. The gross
profit margin for the period was 29% and represented a continuation of the
excellent cost to price relationship the Company enjoyed going into and
following this period. Selling, general and administrative expenses were 22% of
sales for the three months. Due to low levels of borrowing on the U.S. revolving
credit facility, interest expense for the period was minimal. The income tax
provision for the three months was 34% of pre-tax income. On twenty-eight
percent higher sales, net income for the transition period rose 113% over net
income earned for the same three-month period one year earlier. This increase
resulted from continued productivity gains, and strong demand worldwide for
Graham's products.
1996 COMPARED TO 1995
As noted above, consolidated net sales in 1996 were
$51,487,000, as compared to $50,501,000 in 1995. Sales from U.S. operations rose
1%. Surface condenser 1996 sales increased significantly over 1995. This
increase was largely offset, however, by a reduction in ejector sales. Graham
Precision Pumps 1996 sales increased 10% over the prior year. Slightly more than
one-half of this increase was due to increased sales of pump packages.
Consolidated gross profit margins were 30% in 1996 and 26% in
1995. Gross profit margins from U.S. operations were 29% and 25% for 1996 and
1995, respectively. Compared to 1995, direct material and labor costs as a
percent of sales declined by 4.9%.
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In 1996 the gross profit percentage was improved 1% for out-of-period refunds in
workers compensation insurance. Precision Pumps gross profit margins increased
to 30% in 1996, up 2% over 1995. The improvement came as a result in reduced
direct costs.
Selling, general and administrative expenses increased 11% in
1996. The increase was significantly attributed to incentive wage programs which
vary subject to levels of profit. Included in SG&A expenses are Research &
Development costs. Expenditures invested for product enhancements and new
product development in 1996 increased substantially over 1995 and accounts for
11% of the overall SG&A increase over 1995.
Interest expense in 1996 decreased 42% from 1995 as a result
of lower bank debt and the lower cost of money.
The effective income tax rate for 1996 was 22%. This
exceptionally low rate was due to fuller utilization of U.K. tax benefits and a
decrease in the deferred tax benefit valuation allowance. This reduction was
attributed to the current pattern of generating taxable income on a consistent
basis. The effective tax rate for 1995 of 43% was above the statutory rate of
39% due to an increase in state deferred tax assets.
Net income for 1996 was $3,102,000 or $1.93 per diluted share,
as compared to $1,179,000, or $.75 per diluted share in 1995.
SHAREHOLDERS' EQUITY
Shareholders' Equity increased 42% in the current year. About
72% of this increase was due to net income and another 19% due to the exercise
of stock options.
The three months ended March 31, 1997 resulted in increased
equity of 5%, which was mostly due to earnings.
The year ended December 31, 1996 showed an increase in equity
of 41% over December 31, 1995. Eighty-nine percent of this increase was due to
earnings and 4% was generated from foreign currency translation adjustment.
During the three and one-quarter years ended March 31, 1998
the Company increased shareholders' equity 152%.
LIQUIDITY AND CAPITAL RESOURCES
1998 COMPARED TO 1996
As of March 31, 1998 the Company had consolidated working
capital of $12,459,000. This represents a 51% increase over December 31, 1996.
Included in current assets was cash and marketable securities of $6,495,000 or
$3.92 per share. EBITDA (earnings before interest, income taxes, depreciation
and
Page 14 of 62
<PAGE> 15
amortization) per share for the current year was $4.03 compared to $3.32 for
1996.
Net cash provided from operations in 1998 was $7,259,000
compared to $4,726,000 for 1996. The favorable position was due to improved
profits and the ability to obtain progress payments on jobs in work-in-progress.
Inventories increased over balances on hand at March 31, 1997 largely due to the
accounting change recognizing certain sales on the percentage-of-completion
method. Capital expenditures in 1998 were $1,400,000 compared to 1996 of
$1,291,000. Ninety-five percent of the capital expenditures were invested in the
U.S. facilities. Consolidated capital budgets for 1999 call for an increase in
expenditures of between 11-13%. There were no major capital expenditure
commitments at March 31, 1998.
At December 31, 1998 the U.S. operation had an unused bank
line of credit available of $10,947,000. The U.K. operation had an unused line
of credit available of $716,000.
Management expects that cash flow from operations and lines of
credit will provide sufficient resources to fund the 1999 cash requirements.
THREE MONTHS ENDED MARCH 31, 1997
There were no significant changes in the financial condition
of the Company during the period compared to the year ended December 31, 1996.
Consolidated working capital at March 31, 1997 was $10,300,000. Accounts
receivable increased due to a 2% increase in sales in the first quarter compared
to the fourth quarter of 1996. Current liabilities decreased mainly due to the
timing of payments of accrued compensation benefits.
Total long-term debt increased $1,314,000 due to additional
borrowings on the U.S. revolving credit facility for short term working capital
needs.
Capital expenditures for the three-month period were $237,000.
1996 COMPARED TO 1995
Consolidated working capital increased 16% compared to 1995.
The time taken to collect sales decreased 14% which resulted in an increase in
cash and marketable securities at December 31, 1996 of $1,597,000 over 1995.
Net cash provided from operations in 1996 was $4,726,000 as
compared to 1995 of $1,644,000. Cash generation was improved as a result of
greater profits and an even quarterly sales pattern. Capital expenditures in
1996 and 1995 were $1,291,000 and $204,000, respectively. Cash resources in 1996
were used to retire U.S. long-term debt and invest in short-term bonds and
commercial paper.
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In 1995, cash was used to finance higher amounts of inventory and to pay a legal
judgment rendered against Graham.
OTHER MATTERS
The Company is modifying its computer software to accommodate
the year 2000. Internal related computer costs are anticipated to be minor. The
Company does not anticipate incurring any external costs to be Year 2000
compliant. Where appropriate, Graham is obtaining confirmation from its
significant suppliers and customers that they, too, are actively making the
required changes. Graham is not aware of any problems at this time. Although
Graham believes it will be Year 2000 compliant, the Company cannot assure anyone
that its customers, suppliers, or governmental agencies will be ready.
Increases in material and labor costs experienced in recent
years have been offset by cost cutting measures and selling price increases.
Obtaining price increases are largely a factor of supply and demand for Graham's
products, whereas inflation factors can originate from influences outside of the
Company's direct global competition. Graham will continue to monitor the impact
of inflation in order to minimize its effects in future years through sales
growth, pricing, product mix strategies, productivity improvements, and cost
reductions.
Management's strategy for managing risks associated with
interest rate fluctuations is to hold interest bearing debt to the absolute
minimum and carefully assess the risks and rewards for incurring long term debt.
The Company enters into forward foreign exchange agreements to
hedge its exposure against unfavorable changes in foreign currency values on
significant sales contracts negotiated in foreign currencies.
Graham uses derivatives for no other reason.
The Company's U.S. operations are governed by federal
environmental laws, principally the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
the Clean Air Act, and the Clean Water Act, as well as state counterparts
("Environmental Laws"). Environmental Laws require that certain parties fund
remedial actions regardless of fault, legality or original disposal or ownership
of the site. The Company is currently participating in an environmental
assessment at one site under these laws. Future remediation expenses at this
site are subject to a number of uncertainties, including the method and extent
of remediation (dependent, in part, on existing laws and technology), the
percentage and type of material attributable to the Company, the financial
viability of site owners and the other parties, and the availability of state
and federal funds. The Company believes the costs to remediate its identified
environmental project have been
Page 16 of 62
<PAGE> 17
fully reserved for in the current financial statements (for additional
information, see Note 13).
Graham Manufacturing sales to Asia over the past three years
represented approximately 23% of the Company's consolidated sales. At present
the Company believes doing business in Asia remains riskier than any other
geographical area it sells to. It is believed Asia's economic and political
problems will be resolved timely. For this reason, the Company plans to continue
to vigorously pursue opportunities in this part of the world.
NEW ORDERS AND BACKLOG
Consolidated new orders in the current year were $63,748,000
compared to $55,041,000 and $52,319,000 for the years ended December 31, 1996
and 1995.
In 1998, Graham Manufacturing's new orders were $59,687,000,
up from $50,008,000 in 1996 and $48,358,000 in 1995. New orders for export from
the U.S. operation equaled about 37% of the total new orders. This is compared
to 46% of the orders received in 1996 and about 50% in 1995. Orders received in
the U.K. operation in 1998 were $4,061,000. This is compared to $5,033,000 in
1996 and $3,961,000 in 1995.
New orders for the three months ended March 31, 1997 were
$11,150,000. New orders in the United States were $9,739,000 and in the United
Kingdom, $1,411,000.
The consolidated backlog as of March 31, 1998 was $28,199,000,
up 10% over 1996 and 29% over 1995. The consolidated backlog as of December 31,
1996 was $25,578,000 and $21,837,000 on December 31, 1995. On March 31, 1997 the
consolidated backlog was $22,348,000. Individual subsidiary backlogs for the
four accounting periods ended March 31, 1998, and 1997 and December 31, 1996 and
1995 were: Graham Manufacturing Co., Inc. - $27,292,000, $21,011,000,
$24,514,000 and $21,136,000; Graham Precision Pumps Ltd. - $907,000, $1,337,000,
$1,064,000 and $701,000, respectively.
The backlog at March 31, 1998 will be shipped before March 31,
1999 and represents orders from traditional markets in Graham's established
product lines.
ACCOUNTING STANDARD CHANGES
The Company changed its method of recognizing sales on
contracts with a duration of three months and with revenues of $1,000,000 or
greater from the completed contract method to the percentage-of-completion
method in the fourth quarter of 1998. All years reported in the Ten-Year Review
and appearing elsewhere in this annual report reflects this change (for
additional information, see Note 1).
Page 17 of 62
<PAGE> 18
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 130
establishes standards for reporting and disclosure of comprehensive income and
its components in financial statement format. Comprehensive income is defined as
the change in equity of a business enterprise during a period from transactions
and other events and circumstances from nonowner sources. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997 and is not expected
to have a material effect on the Company's financial statements. SFAS No. 131
establishes standards for reporting information about operating segments by
public companies in their financial statements. It also establishes related
disclosures about products and services, geographic areas and major customers.
SFAS No. 131 is effective for fiscal years beginning after December 15, 1997.
In February 1998, the Financial Accounting Standards Board
issued SFAS No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits. The Statement standardizes the disclosure requirements,
requires additional information on changes in the benefit obligations and fair
values of plan assets and eliminates certain disclosures. It does not change the
measurement or recognition of the plans. The Company is currently studying the
pronouncement. The Statement is effective for fiscal years beginning after
December 15, 1997.
FORWARD LOOKING
Graham Corporation is anticipating revenue growth in 1999 in
spite of less robust Asian markets, the strengthening of the Pound Sterling and
greater competitive pricing pressures. The Asian fallout will influence the
macro economic tone in 1998-1999 causing lower contributions per sales dollar.
Management expects to continue to increase shareholder value, but expects net
income from operations to decline for the year ending March 31, 1999. Graham
Corporation is in the first part of its long term strategic plan. The initial
phase of the plan requires spending above recent historical levels in order to
better protect its present markets and to penetrate auxiliary ones. The plan
acknowledges that being a low cost producer alone in a competitive business
environment will not deliver the winning solution. Graham's focus going forward
puts a concentrated emphasis on value and responding to the constantly changing
market opportunities.
Page 18 of 62
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(Financial Statements, Notes to Financial Statements, Quarterly
Financial Data)
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Three Months
Year Ended Ended Year Ended Year Ended
3/31/98 3/31/97 12/31/96 12/31/95
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales....................................... $56,206,000 $14,257,000 $51,487,000 $50,501,000
----------- ----------- ----------- -----------
Costs and expenses:
Cost of products sold........................ 38,123,000 10,177,000 36,024,000 37,244,000
Selling, general and
administrative............................. 12,367,000 3,071,000 11,122,000 9,993,000
Interest expense............................. 242,000 65,000 355,000 616,000
Litigation provision......................... 276,000
----------- ----------- ----------- -----------
50,732,000 13,313,000 47,501,000 48,129,000
----------- ----------- ----------- -----------
Income from continuing operations
before income taxes.......................... 5,474,000 944,000 3,986,000 2,372,000
Provision for income taxes...................... 1,708,000 323,000 884,000 1,011,000
----------- ----------- ----------- -----------
Income from continuing
operations................................... 3,766,000 621,000 3,102,000 1,361,000
Loss from disposal of
discontinued operations...................... (182,000)
----------- ----------- ----------- -----------
Net income $ 3,766,000 $ 621,000 $ 3,102,000 $ 1,179,000
=========== =========== =========== ===========
Per Share Data
Basic:
Income from continuing operations.......... $2.27 $.39 $1.96 $.86
Loss from disposal of discontinued
operations............................... (.11)
----------- ----------- ----------- -----------
Net income $2.27 $.39 $1.96 $.75
=========== =========== =========== ===========
Diluted:
Income from continuing operations.......... $2.21 $.38 $1.93 $.86
Loss from disposal of discontinued
operations (.11)
----------- ----------- ----------- -----------
Net income $2.21 $.38 $1.93 $.75
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
Page 19 of 62
<PAGE> 20
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
March 31, December 31,
1998 1996
---- ----
Assets
Current assets:
<S> <C> <C>
Cash and equivalents............................................... $ 1,694,000 $ 1,263,000
Marketable securities.............................................. 4,801,000 745,000
Trade accounts receivable.......................................... 6,791,000 9,235,000
Inventories........................................................ 10,278,000 6,436,000
Deferred tax asset................................................. 881,000 787,000
Prepaid expenses and other current assets.......................... 468,000 530,000
----------- -----------
24,913,000 18,996,000
Property, plant and equipment, net................................... 10,026,000 9,572,000
Deferred tax asset................................................... 2,067,000 1,852,000
Other assets......................................................... 24,000 74,000
----------- -----------
$37,030,000 $30,494,000
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt due banks.......................................... $ 40,000
Current portion of long-term debt.................................. 505,000 $ 487,000
Accounts payable................................................... 4,195,000 3,923,000
Accrued compensation............................................... 4,940,000 4,081,000
Accrued expenses and other liabilities............................. 1,039,000 1,416,000
Customer deposits.................................................. 779,000 382,000
Domestic and foreign income taxes payable.......................... 956,000 468,000
----------- -----------
12,454,000 10,757,000
Long-term debt....................................................... 859,000 1,442,000
Deferred compensation................................................ 1,007,000 1,067,000
Deferred tax liability............................................... 33,000
Other long-term liabilities.......................................... 264,000 339,000
Deferred pension liability........................................... 1,464,000 1,729,000
Accrued postretirement benefits...................................... 3,207,000 3,212,000
----------- -----------
Total liabilities.................................................. 19,255,000 18,579,000
----------- -----------
Shareholders' equity:
Preferred stock, $1 par value -
Authorized, 500,000 shares
Common stock, $.10 par value -
Authorized, 6,000,000 shares
Issued, 1,690,595 shares in 1998 and
1,586,155 shares in 1996...................................... 169,000 159,000
Capital in excess of par value..................................... 4,521,000 3,210,000
Cumulative foreign currency translation
adjustment...................................................... (1,781,000) (1,748,000)
Retained earnings.................................................. 15,362,000 10,975,000
----------- -----------
18,271,000 12,596,000
Less:
Treasury stock..................................................... (71,000) (6,000)
Employee Stock Ownership Plan loan payable......................... (425,000) (675,000)
----------- -----------
Total shareholders' equity........................................... 17,775,000 11,915,000
----------- -----------
$37,030,000 $30,494,000
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
Page 20 of 62
<PAGE> 21
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Three Months
Year Ended Ended Year Ended Year Ended
3/31/98 3/31/97 12/31/96 12/31/95
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating activities:
Net income............................................. $ 3,766,000 $ 621,000 $ 3,102,000 $ 1,179,000
----------- ----------- ----------- -----------
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation and amortization........................ 957,000 253,000 913,000 946,000
(Gain) loss on sale of property, plant and equipment 44,000 (7,000) (43,000) (24,000)
(Increase) Decrease in operating assets:
Accounts receivable................................ 3,616,000 (1,197,000) 1,476,000 1,260,000
Inventories, net of customer deposits.............. (3,335,000) (151,000) (235,000) (1,673,000)
Prepaid expenses and other current and
non-current assets............................... 48,000 18,000 9,000 (140,000)
Increase (Decrease) in operating liabilities:
Accounts payable, accrued compensation,
accrued expenses and other liabilities........... 1,882,000 (1,086,000) (544,000) 530,000
Litigation reserve................................. (1,247,000)
Deferred compensation, deferred pension
liability and accrued postretirement
benefits......................................... (438,000) 118,000 294,000 134,000
Domestic and foreign income taxes.................. 1,021,000 (251,000) 230,000 (17,000)
Other long-term liabilities........................ (38,000) (35,000) (45,000) (119,000)
Deferred income taxes.............................. (264,000) (79,000) (431,000) 815,000
----------- ----------- ----------- -----------
Total adjustments................................ 3,493,000 (2,417,000) 1,624,000 465,000
----------- ----------- ----------- -----------
Net cash provided (used) by operating
activities........................................... 7,259,000 (1,796,000) 4,726,000 1,644,000
----------- ----------- ----------- -----------
Investing activities:
Purchase of property, plant and equipment.............. (1,400,000) (237,000) (1,291,000) (204,000)
Proceeds from sale of property, plant and
equipment............................................ 11,000 8,000 74,000 33,000
Purchase of marketable securities...................... (13,699,000) (1,171,000) (2,177,000)
Proceeds from maturity of marketable securities........ 9,429,000 1,372,000 1,432,000
----------- ----------- ----------- -----------
Net cash used by investing activities (5,659,000) (28,000) (1,962,000) (171,000)
----------- ----------- ----------- -----------
Financing activities:
Increase (Decrease) in short-term debt................. 40,000 (209,000) 14,000
Proceeds from issuance of long-term debt............... 5,441,000 2,730,000 2,971,000 11,888,000
Principal repayments on long-term debt................. (7,203,000) (1,321,000) (4,729,000) (13,418,000)
Issuance of common stock............................... 1,020,000 12,000 38,000 11,000
Purchase of treasury stock............................. (71,000) (6,000)
Sale of treasury stock................................. 13,000
----------- ----------- ----------- -----------
Net cash provided (used) by financing activities (760,000) 1,421,000 (1,929,000) (1,511,000)
----------- ----------- ----------- -----------
Effect of exchange rate on cash........................ (6,000) 17,000 (5,000)
----------- ----------- ----------- -----------
Net increase (decrease) in cash and equivalents 840,000 (409,000) 852,000 (43,000)
Cash and equivalents at beginning of year.............. 854,000 1,263,000 411,000 454,000
----------- ----------- ----------- -----------
Cash and equivalents at end of year.................... $ 1,694,000 $ 854,000 $ 1,263,000 $ 411,000
=========== =========== =========== ===========
</TABLE>
See Notes of Consolidated Financial Statements.
Page 21 of 62
<PAGE> 22
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Cumulative
Foreign
Capital in Currency
Common Stock Excess of Translation Retained
Shares Par Value Par Value Adjustment Earnings
------ --------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 1,051,499 $105,000 $3,197,000 $(1,876,000) $ 6,694,000
Issuance of shares.................. 2,500 1,000 22,000
Foreign currency translation
adjustment....................... (15,000)
Net income.......................... 1,179,000
Acquisition of treasury stock
Payments on Employee Stock
Ownership Plan loan payable
--------- -------- ---------- ----------- -----------
Balance at December 31, 1995 1,053,999 106,000 3,219,000 (1,891,000) 7,873,000
Issuance of shares.................. 3,473 38,000
Stock option tax benefit............ 6,000
Stock split......................... 528,683 53,000 (53,000)
Foreign currency translation
adjustment....................... 143,000
Net income.......................... 3,102,000
Payments on Employee Stock
Ownership Plan loan payable
--------- -------- ---------- ----------- -----------
Balance at December 31, 1996 1,586,155 159,000 3,210,000 (1,748,000) 10,975,000
Issuance of shares.................. 1,500 12,000
Stock option tax benefit............ 4,000
Foreign currency translation
adjustment....................... (64,000)
Net income.......................... 621,000
Payments on Employee Stock
Ownership Plan loan payable
--------- -------- ---------- ----------- -----------
Balance at March 31, 1997 1,587,655 159,000 3,226,000 (1,812,000) 11,596,000
Issuance of shares.................. 102,940 10,000 1,010,000
Stock option tax benefit............ 278,000
Sale of treasury stock.............. 7,000
Foreign currency translation
adjustment....................... 31,000
Net income.......................... 3,766,000
Acquisition of treasury stock
Payments on Employee Stock
Ownership Plan loan payable
--------- -------- ---------- ----------- -----------
Balance at March 31, 1998 1,690,595 $169,000 $4,521,000 $(1,781,000) $15,362,000
========= ======== ========== =========== ===========
<CAPTION>
- ------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------
Employee Stock
Treasury Ownership Plan Shareholders'
Stock Loan Payable Equity
----- ------------ ------
<S> <C> <C> <C>
Balance at December 31, 1994 $(1,075,000) $ 7,045,000
Issuance of shares.................. 23,000
Foreign currency translation
adjustment....................... (15,000)
Net income.......................... 1,179,000
Acquisition of treasury stock $ (6,000) (6,000)
Payments on Employee Stock
Ownership Plan loan payable 200,000 200,000
-------- ----------- -----------
Balance at December 31, 1995 (6,000) (875,000) 8,426,000
Issuance of shares.................. 38,000
Stock option tax benefit............ 6,000
Stock split.........................
Foreign currency translation
adjustment....................... 143,000
Net income.......................... 3,102,000
Payments on Employee Stock
Ownership Plan loan payable 200,000 200,000
-------- ----------- -----------
Balance at December 31, 1996 (6,000) (675,000) 11,915,000
Issuance of shares.................. 12,000
Stock option tax benefit............ 4,000
Foreign currency translation
adjustment....................... (64,000)
Net income.......................... 621,000
Payments on Employee Stock
Ownership Plan loan payable 50,000 50,000
-------- ----------- -----------
Balance at March 31, 1997 (6,000) (625,000) 12,538,000
Issuance of shares.................. 1,020,000
Stock option tax benefit............ 278,000
Sale of treasury stock.............. 6,000 13,000
Foreign currency translation
adjustment....................... 31,000
Net income.......................... 3,766,000
Acquisition of treasury stock (71,000) (71,000)
Payments on Employee Stock
Ownership Plan loan payable 200,000 200,000
-------- ----------- -----------
Balance at March 31, 1998 $(71,000) $ (425,000) $17,775,000
======== =========== ===========
</TABLE>
See Notes of Consolidated Financial Statements.
Page 22 of 62
<PAGE> 23
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements Note 1 - The Company and Its
Accounting Policies:
- --------------------------------------------------------------------------------
Graham Corporation and its subsidiaries are primarily engaged in the
design and manufacture of vacuum and heat transfer equipment used in the
chemical, petrochemical, petroleum refining, and electric power generating
industries and sells to customers throughout the world. The Company's
significant accounting policies follow.
PRINCIPLES OF CONSOLIDATION AND USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL
STATEMENTS
The consolidated financial statements include the accounts of the
Company and its majority-owned domestic and foreign subsidiaries. All
significant intercompany balances, transactions and profits are eliminated in
consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the related revenues and expenses during the reporting
period. Actual amounts could differ from those estimated.
Certain amounts in prior periods have been reclassified to conform to
the current presentation.
TRANSLATION OF FOREIGN CURRENCIES
Assets and liabilities of foreign subsidiaries are translated into U.S.
dollars at currency exchange rates in effect at year end and revenues and
expenses are translated at average exchange rates in effect for the year. Gains
and losses resulting from foreign currency transactions are included in results
of operations. Gains and losses resulting from translation of foreign subsidiary
balance sheets are reflected as a separate component of shareholders' equity.
REVENUE RECOGNITION
During the year ended March 31, 1998, the Company changed its method of
accounting for revenue recognition and all related costs on contracts with a
duration in excess of three months and with revenues of $1,000,000 and greater
from the completed contract method to the percentage-of-completion method. Since
the Company has recently experienced a trend of obtaining more significant
contracts with longer durations, it was determined that a change to the
preferable method of percentage-of-completion was necessary to better match
revenue and expense on these contracts in an
Page 23 of 62
<PAGE> 24
accounting period. The Company has established the systems and procedures
essential to developing the estimates required to account for a contract using
the percentage-of-completion method. The percentage-of-completion is determined
by relating actual labor incurred to-date to management's estimate of total
labor to be incurred on each contract. Contracts in progress are reviewed
monthly, and sales and earnings are adjusted in current accounting periods based
on revisions in contract value and estimated costs at completion. All contracts
with values less than $1,000,000 continue to be accounted for on the completed
contract method and included in income upon substantial completion or shipment
to the customer. This change has been applied to prior periods by retroactively
restating the financial statements.
The effect of the restatement is as follows:
<TABLE>
<CAPTION>
Three months
ended Year ended December 31,
March 31, 1997 1996 1995
-------------- ---- ----
<S> <C> <C> <C>
As reported - Net income................................. $653,000 $3,061,000 $1,134,000
Effect of restatement.................................... (32,000) 41,000 45,000
-------- ---------- ----------
Restated - Net income.................................... $621,000 $3,102,000 $1,179,000
======== ========== ==========
As reported - Basic earnings per share $.41 $1.93 $.72
Effect of restatement.................................... (.02) .03 .03
---- ----- ----
Restated - Basic earnings per share...................... $.39 $1.96 $.75
==== ===== ====
As reported - Diluted earnings per
share $.40 $1.90 $.72
Effect of restatement.................................... (.02) .03 .03
---- ----- ----
Restated - Diluted earnings per share.................... $.38 $1.93 $.75
==== ===== ====
</TABLE>
MARKETABLE SECURITIES
Marketable securities consist primarily of fixed-income debt securities
with maturities of beyond three months and less than twelve months. All
marketable securities are classified as held-to-maturity under the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS 115) as the Company has the
positive intent and ability to hold the securities to maturity. In accordance
with SFAS 115, the securities are stated at amortized cost which approximates
fair value.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out method. Progress payments for orders are
netted against inventory to the extent the payment is less than the inventory
balance relating to the applicable contract. Progress payments that are in
excess of the corresponding inventory balance are presented as customer deposits
in the Consolidated Balance Sheets.
Page 24 of 62
<PAGE> 25
PROPERTY AND DEPRECIATION
Property, plant and equipment are stated at cost. Major additions and
improvements are capitalized, while maintenance and repairs are charged to
expense as incurred. Depreciation and amortization are provided based upon the
estimated useful lives under the straight line method. Upon sale or retirement
of assets, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is included in the results of
operations. Impairment losses are recognized when the carrying value of an asset
exceeds its fair value. The Company regularly assesses all of its long-lived
assets for impairment and determined that no impairment loss need be recognized
in the periods reported.
INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using currently enacted tax
rates.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," (SFAS 123) encourages, but does not require companies
to record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
(APB 25) and related Interpretations. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted market price of the
Company's stock at the date of grant over the amount an employee must pay to
acquire the stock. Compensation cost for share equivalent units is recorded
based on the quoted market price of the Company's stock at the end of the
period.
PER SHARE DATA
In the third quarter of fiscal year 1998, the Company adopted Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). In
accordance with this new standard, basic earnings per share is computed by
dividing net income by the weighted average number of common shares outstanding
for the period. Diluted earnings per share is calculated by dividing net income
by the weighted average number of common and, when applicable, potential common
shares outstanding during the period. All prior period earnings per share
amounts have been restated to reflect this change. A reconciliation of the
numerators and denominators of basic and diluted earnings per share is presented
below.
Page 25 of 62
<PAGE> 26
<TABLE>
<CAPTION>
Three Months
Year Ended Ended Year Ended Year Ended
3/31/98 3/31/97 12/31/96 12/31/95
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic earnings per share
Numerator:
Income from continuing operations.......... $3,766,000 $ 621,000 $3,102,000 $1,361,000
---------- ---------- ---------- ----------
Denominator:
Weighted common shares outstanding......... 1,653,000 1,586,000 1,584,000 1,578,000
Share equivalent units (SEU)
outstanding.............................. 3,000
---------- ---------- ---------- ----------
Weighted average shares and SEU's
outstanding.............................. 1,656,000 1,586,000 1,584,000 1,578,000
---------- ---------- ---------- ----------
Basic earnings per share from continuing
operations................................... $2.27 $.39 $1.96 $.86
===== ==== ===== ====
Diluted earnings per share
Numerator:
Income from continuing operations.......... $3,766,000 $ 621,000 $3,102,000 $1,361,000
---------- ---------- ---------- ----------
Denominator:
Weighted average shares and SEU's
outstanding.............................. 1,656,000 1,586,000 1,584,000 1,578,000
Stock options outstanding.................. 42,000 33,000 24,000 1,000
Contingently issuable SEU's................ 2,000 4,000 3,000
---------- ---------- ---------- ----------
Weighted average common and potential
common shares outstanding................ 1,700,000 1,623,000 1,611,000 1,579,000
---------- ---------- ---------- ----------
Diluted earnings per share from
continuing operations........................ $2.21 $.38 $1.93 $.86
===== ==== ===== ====
</TABLE>
Options to purchase 55,200 shares of common stock at $21.44
per share and 11,250 shares at $21.25 were not included in the computation of
diluted earnings per share because the options' exercise price was greater than
the average market price of the common shares.
STOCK SPLIT
On July 25, 1996, the Board of Directors authorized a three-for-two
stock split distributed on August 23, 1996 to shareholders of record at the
close of business on August 9, 1996. The Company distributed cash in lieu of
fractional shares resulting from the stock split. The Company's par value of
$.10 per share remained unchanged and as a result $53,000 was transferred from
capital in excess of par value to common stock. All per share amounts have been
restated to reflect the stock split.
CASH FLOW STATEMENT
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Actual interest paid was $254,000 in 1998, $65,000 for the three months
ended March 31, 1997, $384,000 in 1996, and $631,000 in 1995. In addition,
actual income taxes paid were $951,000 in 1998, $627,000 for the three months
ended March 31, 1997, $1,084,000 in 1996, and $246,000 in 1995.
During 1998 and 1996, the Company recorded a liability for new capital
lease agreements of $68,000 and $134,000, respectively. Bonus amounts payable to
officers of Graham Corporation and its U.S. subsidiary were paid in Graham
common stock valued at $12,000 in 1995.
Page 26 of 62
<PAGE> 27
- --------------------------------------------------------------------------------
Note 2 - Discontinued Operations:
- --------------------------------------------------------------------------------
In September 1994, the Company approved a formal plan to dispose of its
subsidiary, Graham Manufacturing Limited (GML), located in Gloucester, England,
and subsequently sold the operation on January 24, 1995. GML manufactured shell
and tube heat exchangers. The disposal of GML was presented in the Consolidated
Statement of Operations as a discontinued operation. During 1995, the Company
incurred a loss of $182,000 for additional expenses related to the disposal of
GML. There were no tax attributes associated with this loss.
Page 27 of 62
<PAGE> 28
- --------------------------------------------------------------------------------
Note 3 - Operations by Geographic Area:
- --------------------------------------------------------------------------------
The Company has operations in the United States and the United Kingdom.
Inter-geographic sales represent intercompany sales made based upon a
competitive pricing structure. All intercompany profits in inventory are
eliminated in the consolidated accounts and are included in the eliminations
caption below. In computing operating profit, corporate and interest expense
have been excluded. Included in corporate expense are research and development
costs of $404,000, $91,000, $375,000 and $277,000 in 1998, 1997, 1996 and 1995,
respectively.
<TABLE>
<CAPTION>
Three Months
Year Ended Ended Year Ended December 31,
March 31, 1998 March 31, 1997 1996 1995
-------------- -------------- ---- ----
<S> <C> <C> <C> <C>
Net sales including inter-
geographic sales:
United States
Customers........................ $51,696,000 $13,164,000 $46,721,000 $46,379,000
Inter-geographic................. 95,000 10,000 41,000 24,000
United Kingdom
Customers........................ 4,510,000 1,093,000 4,766,000 4,122,000
Inter-geographic................. 1,419,000 426,000 1,293,000 1,372,000
Inter-geographic sales.............. (1,514,000) (436,000) (1,334,000) (1,396,000)
----------- ----------- ----------- -----------
Net sales........................... $56,206,000 $14,257,000 $51,487,000 $50,501,000
========== =========== =========== ===========
Operating profit:
United States.................... $ 7,801,000 $ 1,569,000 $6,296,000 $ 4,384,000
United Kingdom................... 676,000 59,000 500,000 370,000
Eliminations..................... 13,000 68,000 (95,000) 65,000
----------- ----------- ----------- -----------
Total operating profit.............. 8,490,000 1,696,000 6,701,000 4,819,000
Corporate expense................... (2,774,000) (687,000) (2,360,000) (1,831,000)
Interest expense.................... (242,000) (65,000) (355,000) (616,000)
----------- ----------- ----------- -----------
Income from continuing
operations before income
taxes............................ $ 5,474,000 $944,000 $ 3,986,000 $ 2,372,000
=========== =========== =========== ===========
Identifiable assets
United States.................... $32,834,000 $27,048,000 $25,942,000 $25,433,000
United Kingdom................... 4,085,000 4,510,000 4,916,000 3,870,000
Eliminations..................... (854,000) (719,000) (1,028,000) (391,000)
----------- ----------- ----------- -----------
36,065,000 30,839,000 29,830,000 28,912,000
Corporate assets.................... 965,000 385,000 664,000 587,000
----------- ----------- ----------- -----------
Total assets........................ $37,030,000 $31,224,000 $30,494,000 $29,499,000
=========== =========== =========== ===========
</TABLE>
The breakdown of total United States export sales by geographic area
was:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended Year Ended December 31,
March 31, 1998 March 31, 1997 1996 1995
-------------- -------------- ---- ----
<S> <C> <C> <C> <C>
Asia................................ $17,073,000 $ 2,932,000 $10,585,000 $ 9,054,000
Australia & New Zealand............. 46,000 949,000 259,000
Canada.............................. 889,000 709,000 2,628,000 2,404,000
Middle East......................... 2,230,000 1,299,000 3,757,000 3,742,000
South America....................... 3,122,000 89,000 3,974,000 1,836,000
Mexico.............................. 495,000 52,000 371,000 1,578,000
Western Europe...................... 1,006,000 148,000 770,000 568,000
Other............................... 547,000 52,000 266,000 208,000
----------- ----------- ----------- -----------
Total domestic export
sales............................ $25,408,000 $ 5,281,000 $23,300,000 $19,649,000
=========== =========== =========== ===========
</TABLE>
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<PAGE> 29
- --------------------------------------------------------------------------------
Note 4 - Inventories:
- --------------------------------------------------------------------------------
Major classifications of inventories are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1996
---- ----
<S> <C> <C>
Raw materials and supplies...................................... $ 2,707,000 $ 2,411,000
Work in process................................................. 12,081,000 4,631,000
Finished products............................................... 1,131,000 1,168,000
----------- -----------
15,919,000 8,210,000
Less - progress payments........................................ 5,641,000 1,774,000
----------- -----------
$10,278,000 $ 6,436,000
=========== ===========
</TABLE>
29 of 62
<PAGE> 30
- --------------------------------------------------------------------------------
Note 5 - Property, Plant and Equipment:
- --------------------------------------------------------------------------------
Major classifications of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1996
---- ----
<S> <C> <C>
Land............................................................ $ 250,000 $ 252,000
Leasehold improvements.......................................... 177,000 177,000
Buildings and improvements...................................... 10,528,000 10,430,000
Machinery and equipment......................................... 13,584,000 13,982,000
Construction in progress........................................ 705,000 25,000
----------- -----------
25,244,000 24,866,000
Less - accumulated depreciation and
amortization................................................. 15,218,000 15,294,000
----------- -----------
$10,026,000 $ 9,572,000
=========== ===========
</TABLE>
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<PAGE> 31
- --------------------------------------------------------------------------------
Note 6 - Leases:
- --------------------------------------------------------------------------------
The Company leases equipment and office space under various operating
leases. Rent expense applicable to operating leases was $191,000, $38,000,
$148,000 and $184,000 in 1998, 1997, 1996 and 1995, respectively.
Property, plant and equipment include the following amounts for leases
which have been capitalized.
<TABLE>
<CAPTION>
March 31, December 31,
1998 1996
---- ----
<S> <C> <C>
Machinery and equipment......................................... $ 1,668,000 $ 1,644,000
Less accumulated amortization................................... 784,000 605,000
----------- -----------
$ 884,000 $ 1,039,000
=========== ===========
</TABLE>
Amortization of property, plant and equipment under capital lease
amounted to $158,000, $39,000, $59,000 and $98,000 in 1998, 1997, 1996 and 1995,
respectively, and is included in depreciation expense.
As of March 31, 1998, future minimum payments required under
non-cancelable leases are:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
------ ------
<S> <C> <C>
1999............................................................ $ 132,000 $ 239,000
2000............................................................ 99,000 225,000
2001............................................................ 53,000 202,000
2002............................................................ 26,000 88,000
2003............................................................ 8,000 5,000
Thereafter...................................................... 12,000
----------- -----------
Total minimum lease payments.................................... $ 330,000 $ 759,000
===========
Less - amount representing interest............................. 106,000
-----------
Present value of net minimum lease
payments..................................................... $ 653,000
===========
</TABLE>
31 of 62
<PAGE> 32
- --------------------------------------------------------------------------------
Note 7 - Debt:
- --------------------------------------------------------------------------------
Short-term Debt Due Banks
- -------------------------
The Company and its subsidiaries had short-term borrowings outstanding
as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1996
---- ----
<S> <C> <C>
Borrowings of United Kingdom
Subsidiary under line of credit
at bank's rate plus 1 1/2% in
1998 and 1996 $ 40,000 $
----------- ----------
</TABLE>
The United Kingdom subsidiary has a revolving credit facility agreement
which provides a line of credit of 659,000 pounds sterling ($1,100,000 at the
March 31,1998 exchange rate) including letters of credit and long-term
borrowings. The interest rate is the bank's rate plus 1 1/2%. The bank's base
rate was 7 1/4% and 6% at March 31, 1998 and December 31, 1996, respectively.
The United Kingdom operations had available unused lines of credit of $716,000
at March 31, 1998. The weighted average interest rate on short-term borrowings
at March 31, 1998 was 10.8%.
Long-Term Debt
- --------------
The Company and its subsidiaries had long-term borrowings outstanding
as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1996
---- ----
<S> <C> <C>
Employee Stock Ownership Plan
Loan Payable................................................. $ 425,000 $ 675,000
United Kingdom term loan due in 2000 286,000 412,000
Capital lease obligations (Note 6) 653,000 842,000
----------- -----------
1,364,000 1,929,000
Less: current amounts, including
amounts for capital leases of
$201,000 in 1998 and $192,000 in 1996 505,000 487,000
----------- -----------
$ 859,000 $ 1,442,000
=========== ===========
</TABLE>
The United States revolving credit facility agreement provides a line
of credit of up to $13,000,000 including letters of credit, through October 31,
1999. The agreement allows the Company to borrow at prime minus a variable
percentage based upon certain financial ratios. The Company was able to borrow
at a rate of prime minus 100 basis points at March 31, 1998 and prime minus 75
basis points at December 31, 1996.
32 of 62
<PAGE> 33
The agreement allows the Company at any time to convert balances
outstanding not less than $2,000,000 and up to $9,000,000 into a two-year term
loan. This conversion feature is available through October 1999, at which time
the Company may convert the principal outstanding on the revolving line of
credit to a two-year term loan. The Company had no amounts outstanding on its
revolving credit facility, excluding letters of credit, at March 31, 1998 and
December 31, 1996. The bank's prime rate was 8.5% at March 31, 1998 and December
31, 1996. The United States subsidiary had available unused lines of credit of
$10,947,000 at year end.
The Employee Stock Ownership Plan Loan Payable requires quarterly
payments of $50,000 through 2000. (See Note 10 for a description of the Plan.)
The United Kingdom term loan has a fixed rate of 9%. This term loan is
due in 2000 and is repayable in equal monthly installments.
Long-term debt requirements over the next five years, excluding capital
leases, are: 1999 - $304,000, 2000 - $312,000, 2001 - $95,000, 2002 - $0 and
2003 - $0.
The Company is required to pay commitment fees of 1/4% on the unused
portion of the domestic revolving credit facility. No other financing
arrangements require compensating balances or commitment fees. Assets with a
book value of $29,604,000 have been pledged to secure certain domestic long-term
borrowings.
The United Kingdom short-term and long-term bank borrowings are secured
by assets of the United Kingdom subsidiary which have a book value of
$3,908,000.
Several of the loan agreements contain provisions pertaining to the
maintenance of minimum working capital balances, tangible net worth, capital
expenditures and financial ratios as well as restrictions on the payment of cash
dividends to the parent company and shareholders and incurrence of additional
long-term debt. The most restrictive dividend provision limits the payment of
dividends to shareholders to the greater of $400,000 or 25% of consolidated net
income. In addition, the United States subsidiary cannot make any loans or
advances exceeding $500,000 to any affiliates without prior consent of the bank.
The United States subsidiary may pay dividends to the parent company as long as
the subsidiary remains in compliance with all financial covenants after payment
of the dividends. Under the agreement, restricted net assets of the subsidiary
may not be reduced below $5,000,000 at March 31, 1998.
33 of 62
<PAGE> 34
- --------------------------------------------------------------------------------
Note 8 - Financial Instruments and Derivative Financial Instruments
- --------------------------------------------------------------------------------
CONCENTRATIONS OF CREDIT RISK:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments,
marketable securities and trade receivables. The Company places its temporary
cash investments and marketable securities with high credit quality financial
institutions and actively evaluates the credit worthiness of these financial
institutions. Concentrations of credit risk with respect to trade receivables
are limited due to the large number of customers comprising the Company's
customer base and their geographic dispersion. At March 31, 1998 and December
31, 1996, the Company had no significant concentrations of credit risk.
LETTERS OF CREDIT:
The Company has entered into standby letter of credit agreements with
financial institutions relating to the guarantee of future performance on
certain contracts. At March 31, 1998 and December 31, 1996, the Company was
contingently liable on outstanding standby letters of credit aggregating
$2,111,000 and $2,076,000, respectively.
FOREIGN EXCHANGE RISK MANAGEMENT:
The Company, as a result of its global operating and financial
activities, is exposed to market risks from changes in foreign exchange rates.
In seeking to minimize the risks and/or costs associated with such activities,
the Company utilizes foreign exchange forward contracts with fixed dates of
maturity and exchange rates. The Company does not hold or issue financial
instruments for trading or other speculative purposes and only contracts with
high quality financial institutions. If the counterparties to the exchange
contracts do not fulfill their obligations to deliver the contracted foreign
currencies, the Company could be at risk for fluctuations, if any, required to
settle the obligation. At March 31, 1998 and December 31, 1996, there were no
foreign exchange forward contracts held by the Company.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The differences between the carrying amounts and estimated fair values
of the Company's marketable securities and short- and long-term debt are
insignificant.
The methods and assumptions used to estimate the fair value of
financial instruments are summarized as follows:
34 of 62
<PAGE> 35
MARKETABLE SECURITIES - The fair value of investments in marketable
securities is based on quoted market prices.
SHORT-TERM DEBT DUE BANKS - The carrying value of short-term debt
approximates fair value due to the short-term maturity of this instrument.
LONG-TERM DEBT - The carrying values of credit facilities with variable
rates of interest approximates fair values. The fair value of fixed rate debt,
which approximates the carrying value, was estimated by discounting cash flows
using rates currently available for debt of similar terms and remaining
maturities.
35 of 62
<PAGE> 36
- --------------------------------------------------------------------------------
Note 9 - Income Taxes:
- --------------------------------------------------------------------------------
An analysis of the components of pre-tax income from continuing
operations is presented below:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended Year Ended December 31,
March 31, 1998 March 31, 1997 1996 1995
-------------- -------------- ---- ----
<S> <C> <C> <C> <C>
United States....................... $ 5,112,000 $ 954,000 $ 3,808,000 $ 2,168,000
United Kingdom...................... 362,000 (10,000) 178,000 204,000
----------- ----------- ------------- -----------
$ 5,474,000 $ 944,000 $ 3,986,000 $ 2,372,000
=========== =========== ============= ===========
The provision for income
taxes on continuing opera-
tions consists of:
Current:
Federal.......................... $ 1,839,000 $ 376,000 $ 1,279,000 $ 97,000
State............................ 113,000 26,000 77,000 16,000
United Kingdom................... 20,000 (41,000) 84,000
----------- ----------- ----------- -----------
1,972,000 402,000 1,315,000 197,000
----------- ----------- ----------- -----------
Deferred:
Federal.......................... (130,000) (88,000) (4,000) 645,000
State............................ 57,000 9,000 64,000 313,000
United Kingdom................... (80,000) (210,000) (1,000)
Change in valuation
allowance...................... (111,000) (281,000) (143,000)
----------- ----------- ----------- -----------
(264,000) (79,000) (431,000) 814,000
----------- ----------- ----------- -----------
Total provision for income
taxes............................ $ 1,708,000 $ 323,000 $ 884,000 $ 1,011,000
=========== =========== =========== ===========
</TABLE>
The reconciliation of the provision calculated using the United States
Federal tax rate with the provision for income taxes presented in the financial
statements, excluding discontinued operations, is as follows:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended Year Ended December 31,
March 31, 1998 March 31, 1997 1996 1995
-------------- -------------- ---- ----
<S> <C> <C> <C> <C>
Provision for income taxes
at Federal rate................... $ 1,861,000 $ 321,000 $ 1,355,000 $ 806,000
Recognition of tax benefit
of prior year losses.............. (247,000) (102,000)
Difference between foreign
and U.S. tax rates................ (15,000) (9,000) (2,000)
State taxes......................... 131,000 26,000 114,000 324,000
Charges not deductible for
income tax purposes............... 24,000 14,000 59,000 61,000
Recognition of tax benefit
generated by foreign
sales corporation................. (215,000) (14,000) (70,000) (67,000)
Tax credits......................... (26,000) (6,000) (8,000) (18,000)
Foreign losses for which
no tax benefit was
provided.......................... 117,000
Adjustments to prior years'
tax liabilities................... 200,000 (169,000) 62,000
Change in valuation allowance (111,000) (281,000) (143,000)
Other............................... (11,000) (18,000) (5,000) (12,000)
----------- ----------- ----------- -----------
Provision for income taxes.......... $ 1,708,000 $ 323,000 $ 884,000 $ 1,011,000
=========== =========== =========== ===========
</TABLE>
The deferred income tax asset recorded in the Consolidated Balance
Sheets results from differences between financial statement
36 of 62
<PAGE> 37
and tax reporting of income and deductions. A summary of the composition of the
deferred income tax asset follows:
<TABLE>
<CAPTION>
1998 1996
United United United United
States Kingdom States Kingdom
------ ------- ------ -------
<S> <C> <C> <C> <C>
Depreciation........................ $ (415,000) $ (84,000) $ (428,000) $ (127,000)
Deferred compensation............... 522,000 446,000
Deferred pension liability.......... 462,000 88,000 454,000 94,000
Accrued postretirement
benefits.......................... 1,298,000 1,299,000
Compensated absences................ 571,000 527,000
Inventories......................... 152,000 117,000
Warranty liability.................. 58,000 78,000
Accrued medical benefits............ 105,000 59,000
Contingent liabilities.............. 98,000 100,000
Foreign loss
carryforwards..................... 696,000 662,000
New York State investment
tax credit........................ 60,000 154,000
Other............................... 26,000 4,000 (21,000) 9,000
---------- ---------- ---------- ----------
2,937,000 704,000 2,785,000 638,000
Less: Valuation allowance........... 693,000 200,000 617,000
---------- ---------- ---------- ----------
Deferred tax asset.................. $2,937,000 $ 11,000 $2,585,000 $ 21,000
========== ========== ========== ==========
</TABLE>
Deferred income taxes include the impact of foreign net operating loss
carryforwards which may be carried forward indefinitely and investment tax
credits which expire from 2000 to 2004. In accordance with the provisions of
SFAS 109, a valuation allowance of $693,000 at March 31, 1998 is deemed adequate
to reserve for the foreign net loss carryforwards which are not considered
probable of realization.
The Company does not provide for additional U.S. income taxes on
undistributed earnings considered permanently invested in its United Kingdom
subsidiary. At March 31, 1998, such undistributed earnings totaled $1,624,000.
It is not practicable to determine the amount of income taxes that would be
payable upon the remittance of assets that represent those earnings.
37 of 62
<PAGE> 38
- --------------------------------------------------------------------------------
Note 10 - Employee Benefit Plans:
- --------------------------------------------------------------------------------
Retirement Plans
- ----------------
The Company has defined benefit plans covering substantially all
employees. The Company's plan covering employees in the United States is
non-contributory. Benefits are based on the employee's years of service and
average earnings for the five highest consecutive calendar years of compensation
for the ten year period preceding retirement. The plan for employees in the
United Kingdom is contributory with the employer's share being actuarially
determined. Benefits are based on the employee's years of service and average
earnings for the three highest years for the ten year period preceding
retirement. The Company's funding policy for the United States plan is to
contribute the amount required by the Employee Retirement Income Security Act of
1974. The pension obligations to employees covered by the Company's former
domestic plan, terminated in 1986, were settled through the purchase of annuity
contracts for each participant which guaranteed these future benefit payments.
The components of pension cost are:
<TABLE>
<CAPTION>
1998 1996 1995
U.S. PLAN U.K. PLAN U.S. PLAN U.K. PLAN U.S. PLAN U.K. PLAN
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service cost-benefits
earned during the
period................. $ 362,000 $ 156,000 $ 307,000 $ 104,000 $ 261,000 $ 175,000
Interest cost on
projected benefit
obligation............. 585,000 294,000 459,000 315,000 475,000 295,000
Actual return on
assets................. (1,210,000) (118,000) (477,000) 146,000 (1,600,000) (501,000)
Net amortization and
deferral............... 564,000 (326,000) (135,000) (474,000) 1,168,000 109,000
---------- --------- --------- --------- ---------- ---------
Net pension cost......... $ 301,000 $ 6,000 $ 154,000 $ 91,000 $ 304,000 $ 78,000
========== ========= ========= ========= ========== =========
</TABLE>
The actuarial assumptions are:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Discount rate used to
determine projected
benefit obligation............ 7% 7% 7% 9% 7% 9%
Rate of increase in
compensation levels........... 3% 4 1/2% 3% 5 1/2% 3% 5 1/2%
Expected rate of return
on plan assets................ 8% 8% 8% 10% 8% 10%
</TABLE>
Pension expense for the U.S. Plan and the U.K. Plan for the three month
period ending March 31, 1997 was $38,000 and $2,000, respectively. The service
cost for 1998, 1997, 1996 and 1995 is net of employee contributions to the
United Kingdom plan of $42,000, $11,000, $93,000, and $49,000, respectively.
38 of 62
<PAGE> 39
The funded status of the pension plan is presented below:
<TABLE>
<CAPTION>
1998 1996
U.S. PLAN U.K. PLAN U.S. PLAN U.K. PLAN
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Vested benefit obligation.................. $ 5,775,000 $ 4,997,000 $ 4,776,000 $ 3,377,000
=========== =========== =========== ===========
Accumulated benefit obligation............. $ 5,857,000 $ 5,013,000 $ 5,196,000 $ 3,389,000
=========== =========== =========== ===========
Plan assets at fair value.................. $ 8,635,000 $ 4,008,000 $ 7,499,000 $ 3,933,000
Projected benefit obligation for
services rendered to date................ 9,212,000 5,169,000 7,275,000 3,389,000
----------- ----------- ----------- -----------
Projected benefit obligation less than
or (in excess of) plan assets............ (577,000) (1,161,000) 224,000 544,000
Unrecognized net loss from past
experience different from that
assumed and effect of changes in
assumptions.............................. (883,000) 969,000 (1,290,000) (1,057,000)
Unrecognized prior service cost............ (3,000) 225,000 (3,000) 265,000
Unrecognized net asset at
transition............................... (280,000) (30,000) (335,000) (38,000)
----------- ----------- ----------- -----------
Pension (liability) asset.................. $(1,743,000) $ 3,000 $(1,404,000) $ (286,000)
=========== =========== =========== ===========
</TABLE>
The current portion of the pension liability as of March 31, 1998 is
included in the caption "Accrued Compensation" and the long-term portion is
separately presented in the Consolidated Balance Sheets. As of December 31,
1996, the entire liability was long-term.
Assets of the United States plan consist primarily of equity securities
at March 31, 1998 and December 31, 1996. Assets of the United Kingdom plan
consist of an investment contract with an insurance company which is primarily
invested in equity securities. The vested benefit obligation of the United
Kingdom plan is the actuarial present value of the vested benefits to which the
employee is currently entitled but based on the employee's expected date of
separation or retirement. The unrecognized net asset at transition is being
amortized over the remaining service lives of the participants which
approximates 19 years for the domestic plan and 13 years for the United Kingdom
plan.
In 1996, the Company adopted a Supplemental Executive Retirement Plan
for certain key executives. This unfunded plan provides retirement benefits
associated with wages in excess of the legislated qualified plan maximums.
Pension expense recorded in 1998, 1997 and 1996 related to this plan was $6,000,
$10,000 and $39,000, respectively. At March 31, 1998 and December 31, 1996, the
related liability was $55,000 and $39,000, respectively, and is included in the
caption "Deferred Pension Liability" in the Consolidated Balance Sheet.
The Company has a defined contribution plan covering substantially all
domestic employees. Company contributions to this plan are based on the
profitability of the Company and amounted to $647,000, $215,000, $651,000, and
$320,000 in 1998, 1997, 1996 and 1995, respectively.
The Company has a deferred compensation plan that allows certain key
employees to defer a portion of their compensation. The principal and interest
earned on the deferred balances are
39 of 62
<PAGE> 40
payable upon retirement. The deferred compensation liability under this plan was
$1,231,000 and $1,104,000 at March 31, 1998 and December 31, 1996, respectively.
Employee Stock Ownership Plan
- -----------------------------
The Company has a noncontributory Employee Stock Ownership Plan (ESOP)
that covers substantially all employees in the United States. The Company
borrowed $2,000,000 under loan and pledge agreements. The proceeds of the loans
were used to purchase 87,454 shares of the Company's common stock. The purchased
shares are pledged as security for the payment of principal and interest as
provided in the loan and pledge agreements. It is anticipated that funds for
servicing the debt payments will essentially be provided from contributions paid
by the Company to the ESOP, from earnings attributable to such contributions,
and from cash dividends paid to the ESOP on shares of the Company stock which it
owns. During 1998, 1997, 1996 and 1995 the Company recognized expense associated
with the ESOP using the shares allocated method. This method recognizes interest
expense as incurred on all outstanding debt of the ESOP and compensation expense
related to principal reductions based on shares allocated for the period.
Dividends received on unallocated shares that are used to service the ESOP debt
reduce the amount of expense recognized each period. The compensation expense
associated with the ESOP was $200,000, $50,000, $200,000 and $200,000 in 1998,
1997, 1996 and 1995, respectively. The ESOP received no dividends on unallocated
shares in 1998, 1997, 1996, and 1995. Interest expense in the amount of $42,000,
$13,000, $72,000 and $97,000 was incurred in 1998, 1997, 1996 and 1995,
respectively. Dividends paid on allocated shares accumulate for the benefit of
the employees.
Other Postretirement Benefits
- -----------------------------
In addition to providing pension benefits, the Company has a United
States plan which provides health care benefits for eligible retirees and
eligible survivors of retirees. The Company recognizes the cost of these
benefits on the accrual basis as employees render service to earn the benefits.
Early retirees who are eligible to receive benefits under the plan are required
to share in twenty percent of the medical premium cost. In addition, the
Company's share of the premium costs has been capped.
The components of postretirement benefit cost are:
<TABLE>
<CAPTION>
1998 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits earned during the period................... $ 64,000 $ 62,000 $ 45,000
Interest cost on accumulated benefit obligation.................... 166,000 173,000 156,000
Net amortization................................................... (87,000) (79,000) (87,000)
-------- -------- --------
Net postretirement benefit cost.................................... $143,000 $156,000 $114,000
======== ======== ========
</TABLE>
40 of 62
<PAGE> 41
Postretirement benefit cost for the three month period ending March 31,
1997 was $40,000.
The assumptions used to develop the accrued postretirement benefit
obligation were:
<TABLE>
<CAPTION>
1998 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate...................................................... 7% 7% 7%
Medical care cost trend rate....................................... 8 1/2% 9% 9 1/2%
</TABLE>
The medical care cost trend rate used in the actuarial computation
ultimately reduces to 5% in 2005 and subsequent years. This was accomplished
using 1/2% decrements for the years 1999 through 2005.
The table of actuarially computed benefit obligations is presented
below:
<TABLE>
<CAPTION>
1998 1996
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................................. $ 908,000 $ 958,000
Fully eligible active plan participants.................................. 420,000 532,000
Other active plan participants........................................... 1,221,000 1,151,000
---------- ----------
Unfunded accumulated postretirement benefit
obligation............................................................... 2,549,000 2,641,000
Unrecognized net loss from past experience
different from that assumed and effects of changes
in assumptions........................................................... (178,000) (374,000)
Unrecognized prior service cost............................................. 956,000 1,064,000
---------- ----------
Accrued postretirement benefit obligation................................... $3,327,000 $3,331,000
========== ==========
</TABLE>
The effect of a one percentage point increase in each future year's
assumed medical care cost trend rate, holding all other assumptions constant,
would not have a material effect on the net postretirement benefit cost or the
accrued postretirement benefit obligation.
The current portion of the postretirement benefit obligation is
included in the caption "Accrued Compensation" and the long-term portion is
separately presented in the Consolidated Balance Sheets.
41 of 62
<PAGE> 42
- --------------------------------------------------------------------------------
Note 11 - Stock Compensation Plans:
- --------------------------------------------------------------------------------
The 1995 Graham Corporation Incentive Plan to Increase Shareholder
Value provides for the issuance of up to 192,000 shares of common stock in
connection with grants of incentive stock options and non-qualified stock
options to officers, key employees and outside directors. The 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.
The 1989 Stock Option and Appreciation Rights Plan provides for the
issuance of up to 188,700 shares of common stock in connection with grants of
non-qualified stock options and tandem stock appreciation rights to officers,
key employees and certain outside directors. The 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.
In 1996 the Company adopted a Long-Term Incentive Plan which provides
for awards of share equivalent units for outside directors based upon the
Company's performance. Each unit is equivalent to one share of the Company's
common stock. Share equivalent units are payable in cash or stock upon
retirement. The cost of performance units earned and charged to pre-tax income
under this Plan in 1998, 1997 and 1996 was $50,000, $10,000 and $40,000,
respectively.
The Company applies APB 25 and related Interpretations in accounting
for its plans. Accordingly, no compensation expense has been recognized for its
stock option plans. Had compensation cost for the Company's two stock option
plans been determined based on the fair value at the grant date for awards under
those plans in accordance with the optional methodology prescribed under SFAS
123, the Company's net income and earnings per share would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended Year Ended Year Ended
3/31/98 3/31/97 12/31/96 12/31/95
------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net income................. As reported $3,766,000 $621,000 $3,102,000 $1,179,000
Pro forma 3,381,000 620,000 3,060,000 1,065,000
Basic earnings
per share............... As reported $2.27 $.39 $1.96 $.75
Pro forma $2.04 $.39 $1.93 $.67
Diluted earnings
per share............... As reported $2.21 $.38 $1.93 $.75
Pro forma $1.99 $.38 $1.90 $.67
</TABLE>
The weighted average fair value of the options granted during 1998,
1996 and 1995 is estimated as $8.30, $4.62, and $3.59, respectively, using the
Black Scholes option pricing model with the following weighted average
assumptions:
42 of 62
<PAGE> 43
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
3/31/98 12/31/96 12/31/95
---------- ---------- ----------
<S> <C> <C> <C>
Expected life........................................... 5 years 5 years 5 years
Volatility.............................................. 31.40% 34.74% 44.28%
Risk-free interest rate................................. 5.95% 6.35% 6.21%
Dividend yield.......................................... 0% 0% 0%
</TABLE>
Information on options and rights under the Company's plans is as
follows:
<TABLE>
<CAPTION>
Weighted
Option Shares Average
Price Under Exercise
Range Option Price
----- ------ -----
<S> <C> <C> <C>
Outstanding at December 31, 1994.............................. $5.00-13.17 146,550 $11.49
Exercised..................................................... $5.00 (2,250) 5.00
Granted....................................................... $6.58-$8.00 50,550 7.59
Cancelled..................................................... $7.67-13.17 (7,200) 12.25
-------
Outstanding at December 31, 1995.............................. $6.58-13.17 187,650 10.49
Exercised..................................................... $6.58-8.00 (5,210) 7.28
Granted....................................................... $10.42-11.33 21,600 11.07
Cancelled..................................................... $7.67-13.17 (14,700) 12.72
-------
Outstanding at December 31, 1996.............................. $6.58-13.17 189,340 10.47
Exercised..................................................... $8.08 (1,500) 8.08
-------
Outstanding at March 31, 1997................................. $6.58-13.17 187,840 10.49
Exercised..................................................... $6.58-13.17 (102,940) 9.92
Granted....................................................... $21.25-21.44 66,450 21.41
Cancelled..................................................... $13.17 (5,250) 13.17
-------
Outstanding at March 31, 1998................................. $6.58-21.44 146,100 $15.77
=======
</TABLE>
At March 31, 1998, the options outstanding had a weighted average
remaining contractual life of 7.07 years. There were 134,700 options exercisable
at March 31, 1998 which had a weighted average exercise price of $16.30. The
remaining options are exercisable at a rate of 20 percent per year from the date
of grant. The outstanding options expire December 1999 to October 2007. The
number of options available for future grants were 116,850 at March 31, 1998 and
178,050 at December 31, 1996.
43 of 62
<PAGE> 44
- --------------------------------------------------------------------------------
Note 12 - Shareholder Rights Plan:
- --------------------------------------------------------------------------------
On February 23, 1990 the Company adopted a Shareholder Rights Plan.
Under the Plan, as of March 7, 1990, one share Purchase Right ("Right") is
attached to each outstanding share of Common Stock. When and if the Rights
become exercisable, each Right would entitle the holder of a share of Common
Stock to purchase from the Company an additional share of Common Stock for
$46.67 per share, subject to adjustment. The Rights become exercisable upon
certain events: (i) if a person or group of persons acquires 20% or more of the
Company's outstanding Common Stock; or (ii) if a person or group commences a
tender offer for 30% or more of the Company's outstanding Common Stock.
The Company may redeem the Rights for $.01 per Right at any time prior
to the close of business on the date when the Rights become exercisable.
After the Rights become exercisable, if the Company is acquired in a
business combination transaction, or if at least half of the Company's assets or
earning power are sold, then each Right would entitle its holder to purchase
stock of the acquirer (or Graham, if it were the surviving company) at a
discount of 50%. The number of shares that each Right would entitle its holder
to acquire at discount would be the number of shares having a market value equal
to twice the exercise price of the Right.
44 of 62
<PAGE> 45
- --------------------------------------------------------------------------------
Note 13 - Contingencies:
- --------------------------------------------------------------------------------
The United States Environmental Protection Agency has notified the
Company's wholly-owned subsidiary, Graham Manufacturing Co., Inc. ("GMC"), that
it is a Potentially Responsible Party pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, in
connection with the Batavia Landfill Site in the Town of Batavia, New York.
Total remediation expenses for the site are currently estimated at $10.4
million. Based on facts and circumstances currently known to GMC and the
Company, GMC's contribution to the site of material deemed hazardous was minor.
In 1996, the Company recorded a $260,000 provision for the estimated costs,
including legal costs, in connection with this matter based on the currently
available information and assuming a reasonable pro-rata allocation. The related
liability at March 31, 1998 was $250,000 and is included in the caption "Other
Long-Term Liabilities" in the Consolidated Balance Sheet.
The Company expensed $276,000 in 1995 for settlement of a litigation
matter.
45 of 62
<PAGE> 46
- --------------------------------------------------------------------------------
Note 14 - Subsequent Event:
- --------------------------------------------------------------------------------
In May 1998, the Company acquired 100,000 shares of its common stock at
market price for $1,700,000 from the estate of the Company's former Chairman of
the Board. The Company will hold these shares as treasury stock.
46 of 62
<PAGE> 47
- --------------------------------------------------------------------------------
Note 15 - Fiscal Year End Change:
- --------------------------------------------------------------------------------
In 1997, the Company changed its fiscal year end to March 31. Fiscal
1997 is a three month transition period ended March 31, 1997. The unaudited
Statement of Operations for the comparable three month period in 1996 was as
follows:
<TABLE>
<CAPTION>
Unaudited
---------
<S> <C>
Net sales.................................................................... $11,164,000
-----------
Costs and expenses:
Cost of products sold................................................... 8,031,000
Selling, general and administrative..................................... 2,550,000
Interest expense........................................................ 126,000
-----------
10,707,000
-----------
Income before income taxes................................................... 457,000
Provision for income taxes................................................... 165,000
-----------
Net income................................................................... $ 292,000
===========
Basic earnings per share..................................................... $.19
====
Diluted earnings per share................................................... $.18
====
</TABLE>
47 of 62
<PAGE> 48
- --------------------------------------------------------------------------------
Quarterly Financial Data:
- --------------------------------------------------------------------------------
A capsule summary of the Company's unaudited quarterly sales and
earnings per share data for 1998 and 1996 is presented below:
<TABLE>
<CAPTION>
First Second Third Fourth Total
1998 (1) Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
Net sales..................... $11,855,000 $14,618,000 $11,914,000 $17,819,000 $56,206,000
Gross profit.................. 3,683,000 4,962,000 3,638,000 5,800,000 18,083,000
Net income.................... 433,000 945,000 309,000 2,079,000 3,766,000
Per share:
Net income: Basic........ .27 .58 .19 1.23 2.27
Diluted...... .26 .56 .18 1.21 2.21
Market price range............ 13.63-18 16.88-19.75 13-22.88 13.38-18.50 13-22.88
1996 (1)
Net sales..................... $11,164,000 $14,060,000 $12,275,000 $13,988,000 $51,487,000
Gross profit.................. 3,133,000 4,009,000 3,729,000 4,592,000 15,463,000
Net income.................... 292,000 577,000 481,000 1,752,000 3,102,000
Per share:
Net income: Basic........ .19 .36 .30 1.11 1.96
Diluted...... .18 .36 .30 1.09 1.93
Market price range............ 9.42-12.17 9.17-12.25 9.25-12.58 9-11.38 9-12.58
</TABLE>
Quarterly Financial Data Notes:
- -------------------------------
(1) The first three quarters of 1998 and the four quarters of 1996 were
restated in the financial data presented to reflect the change in method
in accounting for revenue recognition for certain long-term contracts.
48 of 62
<PAGE> 49
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders of
Graham Corporation
Batavia, New York
We have audited the accompanying consolidated balance sheets of Graham
Corporation and subsidiaries as of March 31, 1998 and December 31, 1996, and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows for the year ended March 31, 1998, the three month period ended
March 31, 1997, and for the years ended December 31, 1996 and 1995. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Graham Corporation and subsidiaries
as of March 31, 1998 and December 31, 1996, and the results of their operations
and their cash flows for the year ended March 31, 1998, for the three month
period ended March 31, 1997, and for the years ended December 31, 1996 and 1995
in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, for the year
ended March 31, 1998 the Corporation changed its method of accounting for
revenue recognition from the completed contract to the percentage-of-completion
method for certain long-term contracts and, retroactively, restated all prior
year financial statements for the change.
s\Deloitte & Touche LLP
Deloitte & Touche LLP
Rochester, New York
May 22, 1998
49 of 62
<PAGE> 50
Item 9. Changes in and Disagreements with Accountants on Accounting
- ------- -----------------------------------------------------------
and Financial Disclosure
------------------------
(Not Applicable)
PART III
--------
Item 10. Directors and Executive Officers
- -------- --------------------------------
(The information called for under this Item pursuant to Item
401 of the Commission's Regulation S-K is set forth in statements under
"Election of Directors" on pages 3 and 7 of the Registrant's Proxy Statement for
its 1998 Annual Meeting of Stockholders, which statements are hereby
incorporated herein by reference.
Item 11. Executive Compensation
- -------- ----------------------
(The information called for under this Item is set forth in
statements under "Directors' Fees" on pages 5 and 6 of Registrant's Proxy
Statement for its 1998 Annual Meeting of Stockholders and also under
"Compensation of Executive Officers" on pages 8 to 12 of such proxy statement,
which statements are hereby incorporated herein by reference.)
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -------- --------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
-----------------------------------------------
(The information called for under this Item is set forth in
statements under "Principal Stockholders" on page 2 of Registrant's Proxy
Statement for its 1998 Annual Meeting of Stockholders, which statements are
hereby incorporated herein by reference.)
(b) Security Ownership of Management
--------------------------------
(The information called for under this Item is set forth in
statements under "Principal Stockholders" on page 2, "Election of Directors" on
pages 3 to 6 and "Executive Officers" on page 7 of Registrant's Proxy Statement
for its 1998 Annual Meeting of Stockholders, which statements are hereby
incorporated herein by reference.)
(c) Changes in Control
------------------
(Not applicable.)
50 of 62
<PAGE> 51
Item 13. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
(The information called for under this Item is set forth in
statements under "Principal Stockholders" on page 2 and "Election of Directors"
on pages 3 to 6 of Registrant's Proxy Statement for its 1998 Annual Meeting of
Stockholders, which statements are hereby incorporated herein by reference.)
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
- -------- -----------------------------------------------------------
8-K
---
(a) (1) The following are Financial Statements and related information filed as
part of this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Sequential
Page Number
-----------
<S> <C> <C>
(A) Consolidated Statements of Operations for the Year ended March 31,
1998, the period January 1, 1997-March 31, 1997 and the Years ended
December 31, 1996 and 1995;......................................................... 19
(B) Consolidated Balance Sheets as of March 31, 1998
and December 31, 1996;.............................................................. 20
(C) Consolidated Statements of Cash Flows for the
Year ended March 31, 1998, the period January 1, 1997-March 31, 1997
and the Years ended
December 31, 1996 and 1995;......................................................... 21
(D) Consolidated Statements of Changes In
Shareholders' Equity for the Year ended March 31, 1998, the period
January 1, 1997-March 31, 1997 and
the Years ended December 31, 1996 and 1995;......................................... 22
(E) Notes to Consolidated Financial Statements; and..................................... 23-47
(F) Report of Independent Auditors...................................................... 49
</TABLE>
(a) (2) The following are Financial Statement Schedules and related information
required to be filed as part of this Annual Report on Form 10-K by Items 8 and
14(d) of Form 10-K:
<TABLE>
<CAPTION>
Sequential
Page Number
-----------
<S> <C> <C>
(A) The items set forth in Items 14(a)(1)(A) through
(E) above; and...................................................................... 19-47
-----
(B) Independent Auditors' Report on Financial
Statement Schedules................................................................. 53
Financial Statement Schedules for the Year ended March 31, 1998, the
period January 1, 1997- March 31, 1997 and the Years ended December
31, 1996 and 1995 as follows:
(i) Condensed Financial Information of Registrant (Schedule I).................
54-56
(ii) Valuation and Qualifying Accounts (Schedule II)............................
57
</TABLE>
51 of 62
<PAGE> 52
Other financial statement schedules not included in this
Annual Report on Form 10-K have been omitted because they are not applicable or
because the required information is shown in the financial statements or notes
thereto.
52 of 62
<PAGE> 53
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Graham Corporation
Batavia, New York
We have audited the consolidated financial statements of Graham Corporation and
subsidiaries as of March 31, 1998 and December 31, 1996, for the year ended
March 31, 1998, for the three month period ended March 31, 1997, and for the
years ended December 31, 1996 and 1995 and have issued our report thereon dated
May 22, 1998 (which expresses an unqualified opinion and includes an explanatory
paragraph relating to a change in accounting for revenue recognition from the
completed contract to the percentage-of-completion method for certain long-term
contracts); such report is included elsewhere in this Annual Report on Form
10-K. Our audits also included the consolidated financial statement schedules of
Graham Corporation and subsidiaries, listed in Item 14(a)2. These financial
statement schedules are the responsibility of the Corporation's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Rochester, New York
May 22, 1998
53 of 62
<PAGE> 54
GRAHAM CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months
Year Ended Ended Year Ended Year Ended
3/31/98 3/31/97 12/31/96 12/31/95
------- ------- -------- --------
<S> <C> <C> <C> <C>
Costs and expenses:
General and administrative...................... $2,104,000 $ 542,000 $1,703,000 $1,423,000
Interest expense................................ 42,000 13,000 72,000 98,000
---------- ---------- ---------- ----------
Parent company operating loss before
income tax benefit............................ 2,146,000 555,000 1,775,000 1,521,000
Benefit for income taxes........................ (705,000) (188,000) (491,000) (580,000)
---------- ---------- ---------- ----------
Net parent company operating loss............... 1,441,000 367,000 1,284,000 941,000
---------- ---------- ---------- ----------
Equity in earnings of continuing
subsidiaries.................................. 8,024,000 1,590,000 6,135,000 4,169,000
Less expenses directly allocable to
continuing subsidiaries:
Research and development.................... 404,000 91,000 375,000 276,000
Provision for income taxes.................. 2,413,000 511,000 1,374,000 1,591,000
---------- ---------- ---------- ----------
Equity in net earnings of subsidiaries.......... 5,207,000 988,000 4,386,000 2,302,000
---------- ---------- ---------- ----------
Income from continuing operations............... 3,766,000 621,000 3,102,000 1,361,000
Equity in net losses of discontinued
subsidiaries.................................. (182,000)
---------- ---------- ---------- ----------
Net income $3,766,000 $ 621,000 $3,102,000 $1,179,000
========== ========== ========== ==========
</TABLE>
The Notes to Consolidated Financial Statements in Part II are an integral part
of this schedule.
* Information is presented for the parent company only.
** Cash dividends paid to the parent company by consolidated subsidiaries
were $2,729,000, $829,000, $3,650,000, and $1,750,000 in 1998, 1997, 1996
and 1995, respectively.
54 of 62
<PAGE> 55
GRAHAM CORPORATION AND SUBSIDIARIES*
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
3/31/98 12/31/96
------- --------
ASSETS
<S> <C> <C>
Prepaid expenses......................................................... $ 95,000 $ 86,000
Due from subsidiaries.................................................... 501,000 353,000
----------- -----------
Total current assets.................................................. 596,000 439,000
Property, plant & equipment, net......................................... 400,000 339,000
Investment in subsidiaries............................................... 18,475,000 12,457,000
Other assets............................................................. 5,000 21,000
----------- -----------
$19,476,000 $13,256,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current portion of long-term debt........................................ $ 206,000 $ 200,000
Accounts payable......................................................... 180,000 148,000
Other current liabilities................................................ 969,000 478,000
----------- -----------
Total current liabilities............................................. 1,355,000 826,000
Long-term debt........................................................... 238,000 475,000
Deferred compensation.................................................... 108,000 40,000
----------- -----------
1,701,000 1,341,000
----------- -----------
Shareholders' equity:
Preferred stock, $1 par value -
authorized, 500,000 shares
Common stock, $.10 par value -
authorized, 6,000,000 shares
issued, 1,690,595 shares in 1998 and
1,586,155 shares in 1996............................................ 169,000 159,000
Capital in excess of par value........................................... 4,521,000 3,210,000
Cumulative foreign currency translation
adjustment............................................................ (1,781,000) (1,748,000)
Retained earnings........................................................ 15,362,000 10,975,000
----------- -----------
18,271,000 12,596,000
Less:
Treasury stock........................................................... (71,000) (6,000)
Employee Stock Ownership Plan loan payable............................... (425,000) (675,000)
----------- -----------
Total shareholders' equity 17,775,000 11,915,000
----------- -----------
$19,476,000 $13,256,000
=========== ===========
</TABLE>
The Notes to Consolidated Financial Statements in Part II are an integral part
of this Schedule.
* Information is presented for the parent company only.
55 of 62
<PAGE> 56
GRAHAM CORPORATION AND SUBSIDIARIES*
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months
Year Ended Ended Year Ended Year Ended
31/31/98 3/31/97 12/31/96 12/31/95
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Net cash provided (used) by operating
activities................................... $ (860,000) $ (5,000) $ 76,000 $ 3,000
---------- ---------- ---------- ----------
Investing activities:
Purchase of property, plant and
equipment.................................. (102,000) (8,000) (112,000)
Proceeds from sale of property, plant
and equipment.............................. 1,000 6,000
---------- ---------- ---------- ----------
Net cash used by investing activities (102,000) (7,000) (106,000)
---------- ---------- ---------- ----------
Financing Activities:
Principal repayments of long-term debt (8,000) (8,000)
Issuance of common stock..................... 1,020,000 12,000 38,000 11,000
Purchase of treasury stock................... (71,000) (6,000)
Sale of treasury stock....................... 13,000
---------- ---------- ---------- ----------
Net cash provided (used) by
financing activities....................... 962,000 12,000 30,000 (3,000)
---------- ---------- ---------- ----------
Net increase in cash and equivalents............ 0 0 0 0
Cash and equivalents at beginning of
year......................................... 0 0 0 0
---------- ---------- ---------- ----------
Cash and equivalents at end of year $ 0 $ 0 $ 0 $ 0
========== ========== ========== ==========
</TABLE>
The Notes to Consolidated Financial Statements in Part II are an integral part
of this schedule.
* Information is presented for the parent company only.
56 of 62
<PAGE> 57
GRAHAM CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Balance at
beginning costs and Charged to end of
Description of Period Expenses other Accounts Deductions Period
--------- -------- -------------- ---------- ------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1998
Reserves deducted from the asset
to which they apply:
Reserve for doubtful accounts $ 31,000 $ 4,000 $ 2,000 (d) $ (14,000) $ 23,000
Reserve for inventory
obsolescence 108,000 39,000 1,000 (b) (106,000) 42,000
Reserves included in the
balance sheet caption Other
Long-term liabilities:
Reserve for contingencies 248,000 104,000 (102,000) 250,000
Reserve for discontinued
operations 271,000 (6,000)(c) (265,000)(a) 0
---------- ---------- -------- ----------- ----------
$ 658,000 $ 147,000 $ (3,000) $ (487,000) $ 315,000
========== ========== ======== =========== ==========
Three months ended March 31, 1997
Reserves deducted from the asset
to which they apply:
Reserve for doubtful accounts $ 40,000 $ 9,000 $ (1,000)(b) $ (17,000) $ 31,000
Reserve for inventory
obsolescence 103,000 9,000 (4,000)(b) 108,000
Reserves included in the
balance sheet caption Other
Long-term liabilities:
Reserve for contingencies 257,000 (9,000) 248,000
Reserve for discontinued
operations 392,000 (16,000)(b) (105,000)(a) 271,000
---------- ---------- -------- ----------- ----------
$ 792,000 $ 18,000 $(21,000) $ (131,000) $ 658,000
========== ========== ======== =========== ==========
Year ended December 31, 1996
Reserves deducted from the asset
to which they apply:
Reserve for doubtful accounts $ 81,000 $ 26,000 $ 11,000 (b) $ (78,000) $ 40,000
Reserve for inventory
obsolescence 222,000 91,000 11,000 (b) (221,000) 103,000
Reserves included in the
balance sheet caption Other
Long-term liabilities:
Reserve for contingencies 260,000 (3,000) 257,000
Reserve for discontinued
operations 711,000 64,000 41,000 (b) (424,000)(a) 392,000
---------- ---------- -------- ----------- ----------
$1,014,000 $ 441,000 $ 63,000 $ (726,000) $ 792,000
========== ========== ======== =========== ==========
Year ended December 31, 1995
Reserves deducted from the asset
to which they apply:
Reserve for doubtful accounts $ 119,000 $ 42,000 $ (80,000) $ 81,000
Reserve for inventory
obsolescence 236,000 1,000 $ (3,000)(b) (12,000) 222,000
Reserves included in the
balance sheet caption Other
Long-term liabilities:
Reserve for contingencies 1,247,000 101,000 (1,348,000)
Reserve for discontinued
operations 883,000 182,000 (9,000)(b) (345,000)(a) 711,000
---------- ---------- -------- ----------- ----------
$2,485,000 $ 326,000 $(12,000) $(1,785,000) $1,014,000
========== ========== ======== =========== ==========
</TABLE>
Notes:
(a) Represents costs charged against the reserve associated with the
discontinued operation.
(b) Represents foreign currency translation adjustment.
(c) Represents a reversal of the reserve and a foreign currency translation
adjustment.
(d) Represents a bad debt recovery and a foreign currency translation
adjustment.
57 of 62
<PAGE> 58
(a) (3) The following exhibits are required to be filed by Item 14(c) of Form
10-K:
Exhibit No.
- -----------
*3.1 (i) Articles of Incorporation of Graham Corporation
3.2 (ii) By-laws of Graham Corporation
*4.1 (a) Certificate of Incorporation of Graham Corporation
(included as Exhibit 3.1)
**4.2 (b) Shareholder Rights Plan of Graham Corporation
***10.1 1989 Stock Option and Appreciation Rights Plan of Graham
Corporation
****10.2 1995 Graham Corporation Incentive Plan to Increase
Shareholder Value
10.3 Graham Corporation Outside Directors' Long-Term
Incentive Plan
10.4 Employment Contracts between Graham Corporation and
Named Executive Officers
10.5 Senior Executive Severance Agreements with Named
Executive Officers
11 Statement regarding computation of per share earnings
Computation of per share earnings is included
in Note 1 of the Notes to Consolidated
Financial Statements
18 Letter regarding change in accounting principles
21 Subsidiaries of the registrant
23 Consent of Experts and Counsel
27 Financial Data Schedule
- -------------------
* Incorporated herein by reference from the Annual Report of
Registrant on Form 10-K for the year ended December 31, 1989.
** Incorporated herein by reference from the Registrant's Current
Report on Form 8-K dated February 26, 1991, as amended by
Registrant's Amendment No. 1 Form 8 dated June 8, 1991.
*** Incorporated herein by reference from the Registrant's Proxy
Statement for its 1991 Annual Meeting of Shareholders.
**** Incorporated herein by reference from the Registrant's Proxy
Statement for its 1996 Annual Meeting of Shareholders.
(b) The Registrant filed no reports on Form 8-K during the last quarter of the
fiscal year covered by this Annual Report on Form 10-K.
58 of 62
<PAGE> 59
Cross Reference Sheet for Annual Report on Form 10-K for the year ended
March 31, 1998, setting forth item numbers and captions of Form 10-K (and
related Items of Regulation S-K referred to therein) under which information is
incorporated by reference and the pages in the Registrant's Proxy Statement for
the 1998 Annual Meeting of Stockholders where that information appears.
<TABLE>
<CAPTION>
FORM 10-K: PART NO Regulation S-K Proxy Statement for 1998
Item No. and Caption Item No. and Caption Annual Meeting of Stockholders
- -------------------- -------------------- ------------------------------
Caption: Page:
<S> <C> <C> <C>
Item 10. Directors and Item 401. Directors and Election of Directors 3-7
Executive Officers of Executive Officers
Registrant
Item 405. Directors and Disclosure Pursuant to 7
Executive Officers Item 405 of SEC
Regulation S-K
Item 11. Executive Item 401. Executive Directors' Fees 5-6
Compensation Compensation Compensation of 8-12
Executive Officers
Item 12. Security Item 403(a). Security Principal Stockholders 2
Ownership of Certain Ownership of Certain
Beneficial Owners and Beneficial Owners
Management
Item 403(b). Security Principal Stockholders 2
Ownership of Management Election of Directors 3-6
Executive Officers 7
Item 13. Certain Item 404(a). Transactions Principal Stockholders 2
Relationships and with Management and Election of Directors 3-6
Related Transactions Others
Item 404(b). Certain Principal Stockholders 2
Business Relations Election of Directors 3 -6
</TABLE>
59 of 62
<PAGE> 60
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized.
GRAHAM CORPORATION
------------------------------------
DATE: June 15, 1998 By /s/ J. Ronald Hansen
------------------------------------
J. Ronald Hansen
Vice President-Finance & Administration
and Chief Financial Officer (Principal
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signature
President and Chief
/s/ Alvaro Cadena Executive Officer; June 15, 1998
- -------------------------------------------- Director
Alvaro Cadena
Vice President-Finance &
Administration and Chief
/s/ J. Ronald Hansen Financial Officer (Principal June 15, 1998
- -------------------------------------------- Accounting Officer)
J. Ronald Hansen
/s/ Philip S. Hill Director June 15, 1998
- --------------------------------------------
Philip S. Hill
/s/ Cornelius S. Van Rees Director June 15, 1998
- --------------------------------------------
Cornelius S. Van Rees
/s/ Jerald D. Bidlack Director; Chairman of June 15, 1998
- -------------------------------------------- the Board
Jerald D. Bidlack
/s/ Helen H. Berkeley Director June 15, 1998
- --------------------------------------------
Helen H. Berkeley
/s/ H. Russel Lemcke Director June 15, 1998
- --------------------------------------------
H. Russel Lemcke
</TABLE>
60 of 62
<PAGE> 61
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
EXHIBITS
filed with
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
of
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED March 31, 1998
--------------------
GRAHAM CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
61 of 62
<PAGE> 62
GRAHAM CORPORATION
FORM 10-K
March 31, 1998
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
3.2 By-laws of Graham Corporation
10.3 Graham Corporation Outside Directors' Long-Term Incentive
Plan
10.4 Employment Contracts between Graham Corporation and Named
Executive Officers
10.5 Senior Executive Severance Agreements with Named Executive
Officers
18 Letter regarding change in accounting principles
21 Subsidiaries of the Registrant
23 Consent of Deloitte & Touche LLP
27 Financial Data Schedule
62 of 62
<PAGE> 1
Exhibit 3.2
BY-LAWS
OF
GRAHAM CORPORATION
(a Delaware Corporation)
ARTICLE 1
DEFINITIONS
As used in these By-Laws, unless the context otherwise requires, the term:
1.1 "Board" means the board of directors of the Corporation.
1.2 "By-laws" means these by-laws of the Corporation, as amended from time
to time.
1.3 "Certificate of Incorporation" means the original certificate of
incorporation of the Corporation filed on March 7, 1983 to form the Corporation,
as amended, supplemented or restated by certificates of amendment, merger or
consolidation or other certificates or instruments filed or issued under any
statute from time to time after the aforesaid date of filing of such original
certificate.
1.4 "Corporation" means GRAHAM CORPORATION.
1.5 "Directors" means the directors of the Corporation.
1.6 "Principal Office of the Corporation" means the principal office of the
Corporation located at 20 Florence Avenue, Batavia, New York 14020.
1.7 "Plurality Vote" means the greater number of votes cast for one nominee
for an office than the votes cast for any other nominee for the same office.
1.8 "Shareholders" means the shareholders of the Corporation.
ARTICLE 2
OFFICES
2.1 Principal Office. In addition to the principal office, the Corporation
may have offices and places of business at such other places, within or without
the State of Delaware, as the Board may from time to time determine.
<PAGE> 2
ARTICLE 3
SHAREHOLDERS
3.1 Place of Meetings. Every meeting of the shareholders shall be held at
the principal office of the Corporation or at such other place within or without
the State of Delaware as may be fixed from time to time, by the Board, which
place shall be specified in the notice or waiver of notice thereof.
3.2 Annual Meeting for Election of Directors. The annual meeting of
shareholders for the election of directors and the transaction of other business
shall be held on the first Wednesday in May of each year at 12 o'clock noon (or
at such other hour as may be designated in the notice of meeting), or, if the
foregoing date falls on a legal holiday, on the first business day thereafter
which is not a Saturday, Sunday or legal holiday, unless a different date and
time be fixed, from time to time, by the Board.
3.3 Special Meetings. A special meeting of shareholders unless otherwise
prescribed by statute, may be called at any time by the Chairman of the Board or
the President or in the absence or disability of the Chairman of the Board and
the President a meeting of shareholders may be called by the Secretary, and
shall be called by the Secretary on the written request of at least seventy-five
percent (75%) of the Directors, which written request shall state the purpose or
purposes of such meeting. At a special meeting of shareholders, no business
shall be transacted and no corporate action shall be taken other than that
stated in the notice of meeting.
3.4 Fixing Record Date. For the purpose of determining the shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividend or the allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board may fix, in advance, a
date as the record date for any such determination of shareholders. Such date
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting nor more than sixty (60) days prior to any other action. If no
record date is fixed: (i) the record date for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held; (ii) the record date for determining
stockholders entitled to express consent to corporate action in writing without
a meeting, when no prior action by the board of directors is necessary, shall be
the day on which the first written consent is expressed; and (iii) the record
date for determining shareholders for any purpose, other than those specified in
clauses (i) and (ii) hereof, shall be at the close of business on the day on
which the resolution of the Board relating thereto is adopted. When a
determination has been made of shareholders entitled to notice of or to vote at
a meeting of shareholders as herein provided, such determination shall apply to
any adjournment of such meeting, unless the Board fixes a new record date for
the adjourned meeting.
<PAGE> 3
3.5 Notice of Meetings of Shareholders. Whenever under any provision of law
or the Certificate of Incorporation or these By-Laws, shareholders are required
or permitted to take any action at a meeting, the notice of that meeting shall
state the place, date and hour of the meeting and unless it is the annual
meeting, indicate that it is being issued by or at the direction of the person
or persons calling the meeting. Notice of a special meeting shall also state the
purpose or purposes for which the meeting is called. Notice of any annual or
special meeting of shareholders shall be given, personally or by mail, not less
than ten (10) nor more than sixty (60) days before the date of such meeting to
each shareholder entitled to vote thereat. If mailed, such notices shall be
deemed to be given when deposited in the United States Mail, with postage
thereon prepaid, directed to the shareholder at his address as it appears on the
record of shareholders, or, if he shall have filed with the Secretary of the
Corporation a written request that notice to him be mailed to some other
address, then directed to him at such other address. An affidavit of the
Secretary or of the transfer agent of the Corporation that the notice required
by this section has been given shall, in the absence of fraud, be prima facie
evidence of the facts therein stated. When a meeting is adjourned to another
time or place, it shall not be necessary to give any notice of the adjourned
meeting if the time and place to which the meeting is adjourned is announced at
the meeting at which the adjournment is taken, and at the adjourned meeting any
business may be transacted that might have been transacted on the original date
of the meeting. However, if the adjournment is for more than thirty (30) days or
if, after the adjournment, the Board fixes a new record date for the adjourned
meeting, a notice of the adjourned meeting shall be given to each shareholder of
record who is entitled to vote at the meeting.
3.6 Waiver of Notice. Notice of meeting need not be given to any
shareholder who signs a waiver of notice, whether before or after the meeting.
The attendance of any shareholder at a meeting, in person or by proxy, shall
constitute a waiver of notice by him, except when the person attends the meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
3.7 List of Shareholders at Meetings. The officer who has charge of the
stock ledger of the corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
3.8 Quorum of Shareholders. Except as otherwise provided in these By-Laws
or in the Certificate of Incorporation, the holders of record of a majority of
the shares entitled to vote thereat shall constitute a quorum at a meeting of
shareholders for the transaction of any business, provided that when a specified
item of business is required to be voted on by a class or series, voting as a
class, the holders of a majority of the shares of such class or series shall
constitute a quorum for the transaction of such specified item of business. When
a quorum is once present to
<PAGE> 4
organize a meeting, it is not broken by the subsequent withdrawal of any
shareholder. The shareholders present may adjourn the meeting despite the
absence of a quorum.
3.9 Organization. At every meeting of the shareholders, the Chairman of the
Board, or an individual appointed by him, who may be, but does not have to be,
an officer of the Corporation, shall act as Chairman of the meeting. The
Secretary of the Corporation, or in his absence one of the Assistant Secretaries
of the Corporation, shall act as Secretary of the meeting.
3.10 Order of Business. The Chairman of the meeting shall conduct all
meetings of the shareholders in accordance with the best interests of the
Corporation. The order of business at all such meetings shall be as determined
by the Chairman of the meeting. The Chairman of the meeting shall have the
authority and discretion to establish reasonable procedural rules for the
conduct of the meeting, including regulation of the manner of voting and the
conduct of discussion as he or she shall deem appropriate. The Chairman of the
meeting shall also have the authority to adjourn the meeting from time to time
and place to place as he or she may deem necessary and in the best interests of
the Corporation.
3.11 Inspectors of Election. The Board, in advance of any shareholders'
meeting, may appoint one or more inspectors to act at the meeting or any
adjournment thereof. If inspectors are not so appointed, the person presiding at
a shareholders' meeting may, and on the request of any shareholder entitled to
vote thereat shall, appoint inspectors. If appointed on the request of one or
more shareholders, the holders of a majority of shares present and entitled to
vote thereat shall determine the number of inspectors to be appointed. In case
any person appointed fails to appear or act, the vacancy may be filled by
appointment made by the Board in advance of the meeting or at the meeting by the
person presiding thereat. Each inspector, before entering upon the discharge of
his duties shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability. The inspectors shall determine the number of shares outstanding,
the number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all shareholders. On request of the person presiding at the meeting
or any shareholder entitled to vote thereat, the inspectors shall make a report
in writing of any challenge, question or matter determined by them and execute a
certificate of any fact found by them. Any report or certificate made by them
shall be prima facie evidence of the facts stated and of the vote as certified
by them.
3.12 Voting; Proxies. Each shareholder entitled to vote at any meeting may
vote either in person or by proxy. Unless otherwise specified in the Certificate
of Incorporation or in a resolution, or resolutions, of the Board providing for
the issuance of preferred stock, each shareholder entitled to vote shall be
entitled to one vote for each share of capital stock registered in his or her
name on the transfer books or records of the Corporation. Each shareholder
entitled to vote may authorize another person or persons to act for him or her
by proxy. All proxies shall be in writing, signed by the shareholder or by his
or her duly authorized attorney-in-fact, and shall be filed with the Secretary
before being voted. No proxy shall be valid after three (3) years
<PAGE> 5
from the date of its execution unless otherwise provided in the proxy. The
attendance at any meeting by a shareholder who shall have previously given a
proxy applicable thereto shall not, as such, have the effect of revoking the
proxy. The Corporation may treat any duly executed proxy as not revoked and in
full force and effect until it receives a duly executed instrument revoking it,
or a duly executed proxy bearing a later date. If ownership of a share of voting
stock of the Corporation stands in the name of two or more persons, in the
absence of written directions to the Corporation to the contrary, any one or
more of such shareholders may cast all votes to which such ownership is
entitled. If an attempt is made to cast conflicting votes by the several persons
in whose names shares of stock stand, the vote or votes to which those persons
are entitled shall be cast as directed by a majority of those holding such stock
and present at such meeting. If such conflicting votes are evenly split on any
particular matter, each faction may vote the securities in question
proportionally, or any person voting the shares, or a beneficiary, if any, may
apply to the Court of Chancery or such other court as may have jurisdiction to
appoint an additional person to act with the persons so voting the shares, which
shall then be voted as determined by a majority of such persons and the person
appointed by the Court. Except for the election of directors or as otherwise
provided by law, the Certificate of Incorporation or these Bylaws, at all
meetings of shareholders, all matters shall be determined by a vote of the
holders of a majority of the number of votes eligible to be cast by the holders
of the outstanding shares of capital stock of the Corporation present and
entitled to vote thereat. Directors shall, except as otherwise required by law,
these Bylaws or the Certificate of Incorporation, be elected by a plurality of
the votes cas by each class of shares entitled to vote at a meeting of
shareholders, present and entitled to vote in the election.
3.13 Written Consent of Shareholders. Any action required to be taken at
any annual or special meeting of shareholders of the corporation, or any action
which may be taken at any annual or special meeting of such shareholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those shareholders who have not consented in writing.
3.14 Procedure for Nominations. Subject to the provisions hereof, the
Nominating Committee of the Board shall select nominees for election as
directors. Except in the case of a nominee substituted as a result of the death,
incapacity, withdrawal or other inability to serve of a nominee, the Nominating
Committee shall deliver written nominations to the Secretary at least sixty (60)
days prior to the date of the annual meeting. Provided the Nominating Committee
makes such nominations, no nominations for directors except those made by the
Nominating Committee shall be voted upon at the annual meeting of shareholders
unless other nominations by shareholders are made in accordance with the
provisions of this Section 3.14. Nominations of individuals for election to the
Board at an annual meeting of shareholders may be made by any shareholder of
record of the Corporation entitled to vote for the election of directors at such
meeting who provides timely notice in writing to the Secretary as set forth in
this Section 3.14. To be timely, a shareholder's notice must be delivered to or
received by the Secretary not later
<PAGE> 6
than the following dates: (i) with respect to an election of directors to be
held at an annual meeting of shareholders, sixty (60) days in advance of such
meeting if such meeting is to be held on a day which is within thirty (30) days
preceding the anniversary of the previous year's annual meeting, or ninety (90)
days in advance of such meeting if such meeting is to be held on or after the
anniversary of the previous year's annual meeting; and (ii) with respect to an
election to be held at an annual meeting of shareholders held at a time other
than within the time periods set forth in the immediately preceding clause (i),
or at a special meeting of shareholders for the election of directors, the close
of business on the tenth (10th) day following the date on which notice of such
meeting is first given to shareholders. For purposes of this Section 3.14,
notice shall be deemed to first be given to shareholders when disclosure of such
date of the meeting of shareholders is first made in a press release reported to
Dow Jones News Services, Associated Press or comparable national news service,
or in a document publicly filed by the Corporation with the Securities and
Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities
Exchange Act of 1934, as amended. Such shareholder's notice shall set forth (a)
as to each person whom the shareholder proposes to nominate for election or
re-election as a director, (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) such person's written consent to serve as a director, if elected,
and (iv) such other information regarding each nominee proposed by such
shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission (whether
or not the Corporation is then subject to such rules); and (b) as to the
shareholder giving the notice (i) the name and address of such shareholder as
they appear on the books and records of the Corporation, (ii) the class and
number of shares of the Corporation which are owned of record by such
shareholder and the dates upon which he or she acquired such shares, (iii) a
description of all arrangements or understandings between the shareholder and
nominee and any other person or persons (naming such person or persons) pursuant
to which the nominations are to be made by the shareholder, and (iv) the
identification of any person employed, retained, or to be compensated by the
shareholder submitting the nomination or by the person nominated, or any person
acting on his or her behalf to make solicitations or recommendations to
shareholders for the purpose of assisting in the election of such director, and
a brief description of the terms of such employment, retainer or arrangement for
compensation. At the request of the Board, any person nominated by the
Nominating Committee for election as a director shall furnish to the Secretary
that information required to be set forth in a shareholder's notice of
nomination which pertains to the nominee together with the required written
consent. No person shall be elected as a director of the Corporation unless
nominated in accordance with the procedures set forth in this Section 3.14.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not properly brought before the
meeting in accordance with the provisions hereof and, if he should so determine,
he shall declare to the meeting that such nomination was not properly brought
before the meeting and shall not be considered.
3.15 Substitution of Nominees. In the event that a person is validly
designated as a nominee in accordance with Section 3.14 of this Article III and
shall thereafter become unwilling or unable to stand for election to the Board,
the Nominating Committee may designate a substitute nominee upon delivery, not
fewer than five (5) days prior to the date of the meeting for
<PAGE> 7
the election of such nominee, of a written notice to the Secretary setting forth
such information regarding such substitute nominee as would have been required
to be delivered to the Secretary pursuant to Section 3.14 of this Article III
had such substitute nominee been initially proposed as a nominee. Such notice
shall include a signed consent to serve as a director of the Corporation, if
elected, of each such substituted nominee.
3.16 New Business. Any new business to be taken up at the annual meeting at
the request of the Chairman of the Board, the President or by resolution of at
least three-fourths of the entire Board shall be stated in writing and filed
with the Secretary at least fifteen (15) days before the date of the annual
meeting, and all business so stated, proposed and filed shall be considered at
the annual meeting, but, except as provided in this Section 3.16, no other
proposal shall be acted upon at the annual meeting. Any proposal offered by any
shareholder may be made at the annual meeting and the same may be discussed and
considered, but unless properly brought before the meeting such proposal shall
not be acted upon at the meeting. For a proposal to be properly brought before
an annual meeting by a shareholder, the shareholder must be a shareholder of
record and have given timely notice thereof in writing to the Secretary. To be
timely, a shareholder's notice must be delivered to or received by the Secretary
not later than the following dates: (i) with respect to an annual meeting of
shareholders, sixty (60) days in advance of such meeting if such meeting is to
be held on a day which is within thirty (30) days preceding the anniversary of
the previous year's annual meeting, or ninety (90) days in advance of such
meeting if such meeting is to be held on or after the anniversary of the
previous year's annual meeting; and (ii) with respect to an annual meeting of
shareholders held at a time other than within the time periods set forth in the
immediately preceding clause (i), the close of business on the tenth (10th) day
following the date on which notice of such meeting is first given to
shareholders. For purposes of this Section 3.16, notice shall be deemed to first
be given to shareholders when disclosure of such date of the meeting of
shareholders is first made in a press release reported to Dow Jones News
Services, Associated Press or comparable national news service, or in a document
publicly filed by the Corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as
amended. A shareholder's notice to the Secretary shall set forth as to the
matter the shareholder proposes to bring before the annual meeting (a) a brief
description of the proposal desired to be brought before the annual meeting; (b)
the name and address of the shareholder proposing such business as they appear
on the books and records of the Corporation; (c) the class and number of shares
of the Corporation which are owned of record by the shareholder and the dates
upon which he or she acquired such shares; (d) the identification of any person
employed, retained, or to be compensated by the shareholder submitting the
proposal, or any person acting on his or her behalf, to make solicitations or
recommendations to shareholders for the purpose of assisting in the passage of
such proposal, and a brief description of the terms of such employment, retainer
or arrangement for compensation; (e) any material interest of the shareholder in
the business proposed; and (f) such other information regarding such proposal as
would be required to be included in a proxy statement filed pursuant to the
proxy rules of the Securities and Exchange Commission or required to be
delivered to the Corporation pursuant to the proxy rules of the Securities and
Exchange Commission (whether or not the Corporation is then subject to such
rules). This provision shall not prevent the consideration and approval or
disapproval at an annual meeting of reports of officers, directors and
committees of the Board or the management
<PAGE> 8
of the Corporation, but in connection with such reports, no new business shall
be acted upon at such annual meeting unless stated and filed as herein provided.
This provision shall not constitute a waiver of any right of the Corporation
under the proxy rules of the Securities and Exchange Commission or any other
rule or regulation to omit a shareholder's proposal from the Corporation's proxy
materials.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that any new business was not properly brought before the
meeting in accordance with the provisions hereof and, if he should so determine,
he shall declare to the meeting that such new business was not properly brought
before the meeting and shall not be considered.
ARTICLE 4
DIRECTORS
4.1 General Powers. The business and affairs of the Corporation shall be
managed by or under the direction of its Board. The Board may adopt such rules
and regulations, not inconsistent with applicable laws or the Certificate of
Incorporation or these By-Laws as it may deem proper for the conduct of its
meetings and the management of the Corporation.
4.2 Number; Qualification; Terms of Office. The number of directors
constituting the entire Board shall not be less than three (3) nor more than
twelve (12). Within said limits the number of directors shall be fixed from time
to time by resolution adopted by a majority of the entire Board of Directors.
Each director shall be at least 21 years of age.
Except as otherwise provided by law or by these By-Laws the directors shall
be elected at the annual meeting of the shareholders in each year. The directors
shall be divided into three classes, as nearly equal in number as possible, with
the term of office of one class expiring each year; i.e., as to the
Corporation's First Board of Directors; at the 1983 annual meeting of
shareholders, for directors of the first class; at the 1984 annual meeting, for
directors of the second class; and at the 1985 annual meeting, for directors of
the third class.
At each annual meeting of the shareholders successors to the directors
whose terms shall then expire shall be elected to hold office for a term
expiring at the third succeeding annual meeting of shareholders.
The foregoing notwithstanding, each director shall serve until his
successor has been elected and qualified, or until his earlier resignation,
disqualification or removal.
4.3 Election. Directors shall, except as otherwise provided by applicable
laws, be elected at the annual meeting of shareholders by a plurality vote of
the holders of shares entitled to vote in the election.
<PAGE> 9
4.4 Organization. Meetings of the Board shall be presided over by the
Chairman of the Board or such other director or officer as the Chairman of the
Board shall designate, and in the absence or incapacity of the Chairman of the
Board, the presiding officer shall be the then senior member of the Board in
terms of length of service on the Board (which length of service shall include
length of service on the Board of Directors of Graham Manufacturing Co., Inc.
and any predecessors thereto). The Secretary or, in his absence, a person
appointed by the Chairman of the Board (or other presiding person), shall act as
secretary of the meeting. The Chairman of the Board (or other person presiding)
shall conduct all meetings of the Board in accordance with the best interests of
the Corporation and shall have the authority and discretion to establish
reasonable procedural rules for the conduct of Board meetings. At the discretion
of the Chairman of the Board, any one or more directors may participate in a
meeting of the Board or a committee of the Board by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time. Participation by such means
shall constitute presence in person at any such meeting.
4.5 Place of Meeting, etc. The Board may hold its meetings within or
without the State of Delaware at such places as the Board may from time to time
by resolution determine or (unless contrary to resolution of the Board) at such
place as shall be specified in the notice of the meeting.
4.6 Annual Meeting. After each annual election of directors, the Board may
meet, without notice of such meeting, for the purposes of election of officers,
and the transaction of other business, on the day when and at the place where
such annual election is held, and as soon as practicable after such annual
election. Such annual meeting may be held at any other time and place specified
in a notice given as hereinafter provided for special meetings of the Board or
in a consent and waiver of notice thereof.
4.7 Regular Meetings. Regular meetings of the Board may be held at such
times and places as may be fixed from time to time by the Board; and, unless
required by the Board, notice of any such meeting need not be given. If any day
fixed for a regular meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting, which would otherwise be held on that
day, shall be held at the same hour at such place on the next succeeding
business day which is not a Saturday or Sunday.
4.8 Special Meetings. Special meetings of the Board may be called for any
purpose at any time by or at the request of the Chairman of the Board or the
President. Special meetings of the Board shall also be called by the Secretary
upon the written request, stating the purpose or purposes of the meeting, of at
least seventy-five percent (75%) of the directors then in office. The persons
authorized to call special meetings of the Board shall give notice of such
meetings in the manner prescribed by these Bylaws and may fix any place, within
or without the Corporation's regular business area, as the place for holding any
special meeting of the Board called by such persons. No business shall be
conducted at a special meeting other than that specified in the notice of
meeting.
4.9 Waivers of Notice of Meetings. Except as otherwise provided in this
Article IV, at
<PAGE> 10
least twenty-four (24) hours notice of meetings shall be given to each director
if given in person or by telephone, telegraph, telex, facsimile or other
electronic transmission and at least five (5) days notice of meetings shall be
given if given in writing and delivered by courier or by postage prepaid mail.
The purpose of any special meeting shall be stated in the notice. Such notice
shall be deemed given when sent or given to any mail or courier service or
company providing electronic transmission service. Any director may waive notice
of any meeting by submitting a signed waiver of notice with the Secretary,
whether before or after the meeting. The attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened.
4.10 Telephonic Meetings. Any one or more members of the Board or any
Committee thereof may participate in a meeting of the Board or such Committee by
means of conference telephone or similar communication equipment allowing all
persons participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at such meeting.
4.11 Quorum and Manner of Acting. A majority of the members of the Board
then in office shall constitute a quorum for the transaction of business and the
vote of a majority of the directors present at the time of the vote, if a quorum
is present at such time, shall be the act of the Board in all transactions,
except those in which a greater vote is required by law, by the Certificate of
Incorporation, or by the By-laws, and in such transactions the vote of such
greater number of directors shall be the act of the Board. ln the absence of a
quorum a majority of the directors present may adjourn any meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present.
4.12 Resignations. Any directors of the Corporation may resign at any time
by written notification addressed to the President or the Secretary of the
Corporation. Such resignation shall take effect upon receipt, and, unless
otherwise specified, the acceptance of such resignation shall not be necessary
to make it effective.
4.13 Removal of Directors. Any or all of the directors may be removed at
any time but only for cause by the shareholders at any meeting of shareholders,
called for the purpose, by the affirmative vote of 75% of the shares of the
Corporation entitled to vote and, if a corporation, person or other entity owns
more than 50% of the shares of the Corporation entitled to vote, by the
affirmative vote of the holders of a majority of the shares of the Corporation
entitled to vote and not owned by the majority shareholder.
4.14 Vacancies. To the extent not inconsistent with the Certificate of
Incorporation and subject to the limitations prescribed by law and the rights of
holders of Preferred Stock, vacancies in the office of director, including
vacancies created by newly created directorships resulting from an increase in
the number of directors, shall be filled only by a vote of a majority of the
directors then holding office, whether or not a quorum, at any regular or
special meeting of the Board called for that purpose. Subject to the rights of
holders of Preferred Stock, no person shall be so elected a director unless
nominated by the Nominating Committee. Subject to the
<PAGE> 11
rights of holders of Preferred Stock, any director so elected shall serve for
the remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until his or her successor
shall be elected and qualified.
4.15 Compensation. Each director, in consideration of his serving as such,
shall be entitled to receive from the Corporation such reasonable amount per
annum or such reasonable fees for attendance at directors' meetings, or both, as
the Board shall from time to time determine, together with reimbursement for the
reasonable expenses incurred by him in connection with the performance of his
duties. Each director who shall serve as a member of the Executive Committee, if
any, or any other committee of the Board, in consideration of his serving as
such, shall be entitled to such additional amount per annum or such fees for
attendance at committee meetings, or both, as the Board shall from time to time
determine. Nothing in this section contained shall preclude any director from
serving the Corporation or its subsidiaries in any other capacity and receiving
proper compensation therefor.
4.16 Board Action Without a Meeting. Whenever any action is required or
permitted to be taken by the Board or any committee thereof, such action may be
taken without a meeting if all members of the Board or the committee consent in
writing to the adopting of a resolution authorizing the action and the
resolution and the written consents thereto by the members of the Board or
committee are filed with the minutes of the proceedings of the Board or
committee.
ARTICLE 5
COMMITTEES
5.1 How Constituted and Powers. By resolution adopted by a majority of the
entire Board, the directors may designate from their number three or more
directors to constitute an Executive Committee and other committees other than
the Nominating Committee, each of which, to the extent provided in the
resolution designating it, shall have the authority of the Board of Directors
with the exception of any authority the delegation of which is prohibited by
law.
5.2 Nominating Committee. By resolution adopted by at least seventy-five
percent (75%) of the entire Board, the directors shall designate from their
number at least three (3) but no more than four (4) directors, to constitute a
Nominating Committee. No member of the Nominating Committee shall vote on his or
her own nomination. The Nominating Committee shall review qualifications of and
interview candidates for the Board and shall make nominations for election of
board members in accordance with the provisions of these Bylaws. A quorum shall
consist of at least one-third of the members of the Committee, and in no event
less than two (2) members of the Committee. The Board may remove a member of the
Nominating Committee from the Committee, with or without cause, only by a vote
of at least seventy-five per cent (75%) of the entire Board at any regular or
special meeting of the Board called for that purpose, provided that no
ex-officio member of the Committee may be removed from the Committee as long as
such member remains a director of the Corporation.
<PAGE> 12
ARTICLE 6
OFFICERS
6.1 Officers. The Board shall, as soon as practicable after the annual
meeting of shareholders in each year elect a Chairman of the Board, a President,
a Treasurer and a Secretary, each to have such functions or duties as are
provided in these By-laws or as the Board may from time to time determine and
each to hold office for the term for which he is elected and until his successor
shall have been duly chosen and shall qualify, or until his death, or until he
shall resign or shall have been removed in the manner hereinafter provided. No
officer need be a director. The Board may, from time to time, appoint other
officers or assistant officers, each of whom shall hold office for such period,
have such authority, and perform such duties as are provided in these By-laws or
as the Board may from time to time determine. Any two or more offices may be
held by the same person, except the offices of President and Secretary.
6.2 Removal of Officers. Except for the Chairman of the Board, the Chief
Executive Officer or the President, any officer may be removed at any regular
meeting of the Board with or without cause by an affirmative vote of a majority
of the entire Board. The Board may remove the Chairman of the Board, the Chief
Executive Officer or the President at any time, with or without cause, only by a
vote of seventy-five percent (75%) of the non-officer directors then holding
office at any regular or special meeting of the Board called for that purpose.
Removal of an officer, however effected, shall be without prejudice to his
contract rights, if any. Appointment or election of an officer shall not of
itself create contract rights.
6.3 Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause may be filled for the unexpired
portion of the term by the Board at any regular or special meeting provided
notice of such intent is given.
6.4 Compensation. Salaries or other compensation of the officers may be
fixed from time to time by the Board. No officer shall be prevented from
receiving a salary or other compensation by reason of the fact that he is also a
director of the Corporation.
6.5 Chairman of the Board. The Chairman of the Board shall preside at all
meetings of the shareholders and at all meetings of the Board and shall have
such other powers and duties as may from time to time be assigned to him by the
Board.
6.6 President. The President shall have general supervision over the
business of the Corporation, subject, however, to the control of the Board and
of any duly authorized committee of directors. He may, with the Treasurer or the
Secretary or an Assistant Treasurer or an Assistant Secretary, sign certificates
for shares of the Corporation. He may sign and execute in the name of the
Corporation deeds, mortgages, bonds, contracts and other instruments, except in
cases where the signing and execution thereof shall be expressly delegated by
the Board or by any duly authorized committee of directors or by these By-laws
to some other officer or agent of the Corporation, or shall be required by law
otherwise to be signed or executed, and, in general,
<PAGE> 13
he shall perform all duties incident to the office of President and such other
duties as from time to time may be assigned to him by the Board or by any duly
authorized committee of directors. The President shall hire, appoint, discharge
and fix the compensation of all employees, agents and representatives of the
Corporation, other than the duly elected or appointed officers, subject to the
general supervision of the Board.
6.7 Vice Presidents. At the request of the President, or in his absence or
disability, at the request of the Board, the Vice Presidents in the order
determined by the Board shall perform all the duties of the President and so
acting shall have all the powers of and be subject to all the restrictions upon
the President. Any Vice President may also, with the Treasurer or the Secretary
or an Assistant Treasurer or an Assistant Secretary, sign certificates for
shares of the Corporation; may sign and execute in the name of the Corporation
deeds, mortgages, bonds, contracts or other instruments authorized by the Board
or by any duly authorized committee of directors, except in cases where the
signing and execution thereof shall be expressly delegated by the Board or by
any duly authorized committee of directors or by these By-laws to some other
officer or agent of the Corporation, or shall be required by law otherwise to be
signed or executed; and shall perform such other duties as from time to time may
be assigned to him by the Board or by any duly authorized committee of directors
or by the President.
6.8 Treasurer. The Treasurer shall, if required, by the Board, give a bond
for the faithful discharge of his duties, in such sum and with such sureties as
the Board shall determine. He shall have charge and custody of, and be
responsible for, all funds, securities and notes of the Corporation; receive and
give receipts for moneys due and payable to the Corporation from any sources
whatsoever; deposit all such moneys in the name of the Corporation in such
banks, trust companies or other depositaries as shall be selected in accordance
with these By-laws; against proper vouchers cause such funds to be disbursed by
checks or drafts on the authorized depositaries of the Corporation signed in
such manner as shall be determined in accordance with any provision of these
By-laws, and be responsible for the accuracy of the amounts of all money so
disbursed; regularly enter or cause to be entered in books to be kept by him or
under his direction full and adequate account of all moneys received or paid by
him for the account of the Corporation; have the right to require, from time to
time, reports or statements giving such information as he may desire with
respect to any and all financial transactions of the Corporation from the
officers or agents transacting the same; render to the President, the Board or
any duly authorized committee of directors, whenever the President, the Board or
any duly authorized committee of directors, respectively, shall require him so
to do, an account of the financial condition of the Corporation and of all his
transactions as Treasurer; exhibit at all reasonable times his books of account
and other records to any of the directors of the Corporation, upon application
at the office of the Corporation where such books and records are kept; and in
general, perform all the duties incident to the office of Treasurer and such
other duties as from time to time may be assigned to him by the Board or by any
duly authorized committee of directors or by the President; and he may sign with
the President or a Vice President certificates for stock of the Corporation.
6.9 The Secretary. The Secretary shall have the duty to record the
proceedings of the meetings of the shareholders and directors in a book to be
kept for that purpose; he shall see that
<PAGE> 14
all notices required to be given by the Corporation are duly given and served;
he may, with the President or any of the Vice Presidents, sign certificates for
shares of the Corporation; he shall be custodian of the seal of the Corporation
and shall affix the seal or cause it to be affixed to all certificates for
shares of the Corporation and to all documents the execution of which on behalf
of the Corporation under its corporate seal is duly authorized in accordance
with the provisions of these By-laws; he shall have charge of the stock ledger
and also of the other books, records and papers of the Corporation relating to
its organization and management as a Corporation, and shall see that the
reports, statements and other documents required by law are properly kept and
filed; and shall, in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board or by any duly authorized committee of directors or by the President.
6.10 Assistant Treasurers and Assistant Secretaries. The Assistant
Treasurers shall, respectively, if required by the Board, give bonds for the
faithful discharge of their duties in such sums and with such sureties as the
Board shall require. Assistant Treasurers and Assistant Secretaries shall
perform such duties as shall be assigned to each of them by the Treasurer and by
the Secretary, respectively, or by the Board or by any duly authorized committee
of directors or by the President. Assistant Treasurers and Assistant Secretaries
may, with the President or a Vice President, sign certificates for stock of the
Corporation.
ARTICLE 7
CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
7.1 Checks, Drafts, Etc. All checks, drafts and other orders for the
payment of money out of the funds of the Corporation and all notes or other
evidences of indebtedness of the Corporation shall be signed on behalf of the
Corporation in such manner as shall from time to time be determined by
resolution of the Board or of any duly authorized committee of directors.
7.2 Deposits. The funds of the Corporation not otherwise employed shall be
deposited from time to time to the order of the Corporation in such banks, trust
companies or other depositaries as the Board or any duly authorized committee of
directors may select or as may be selected by an officer or officers, agent or
agents, of the Corporation to whom such power may from time to time be delegated
by the Board or any duly authorized committee of directors.
ARTICLE 8
STOCK AND DIVIDENDS
8.1 Transfer Agent and Registrar. The Board shall have the power to appoint
one or more Transfer Agents and Registrars for the transfer and registration of
certificates of stock of any class, and may require that stock certificates be
countersigned and registered by one or more
<PAGE> 15
of such Transfer Agents and Registrars.
8.2 Registration and Transfer of Shares. Subject to the provisions of the
Certificate of Incorporation of the Corporation, the name of each person owning
a share of the capital stock of the Corporation shall be entered on the books of
the Corporation together with the number of shares held by him or her, the
numbers of the certificates covering such shares and the dates of issue of such
certificates. Subject to the provisions of the Certificate of Incorporation of
the Corporation, the shares of stock of the Corporation shall be transferable on
the books of the Corporation by the holders thereof in person, or by their duly
authorized attorneys or legal representatives, on surrender and cancellation of
certificates for a like number of shares, accompanied by an assignment or power
of transfer endorsed thereon or attached thereto, duly executed, with such
guarantee or proof of the authenticity of the signature as the Corporation or
its agents may reasonably require and with proper evidence of payment of any
applicable transfer taxes. Subject to the provisions of the Certificate of
Incorporation of the Corporation, a record shall be made of each transfer.
8.3 Lost, Destroyed, Stolen and Mutilated Certificates. The Board may
direct that a new certificate be issued in place of any certificate theretofore
issued claimed to have been lost or destroyed, provided it has received proof
satisfactory to it by affidavit or otherwise of the facts surrounding the loss
or destruction of the certificate and the ownership thereof at the time of such
loss or destruction. As a condition precedent to the issuance of a new
certificate, the Board may also require the alleged owner to advertise the fact
of the loss or destruction in a newspaper chosen by the Board and/or furnish to
the Corporation a surety bond in form and amount satisfactory to it indemnifying
the Corporation and its directors and officers from all claims and expenses with
respect to the certificate claimed to have been lost or destroyed and the
duplicate certificate issued in place thereof.
8.4 Dividends, Surplus, Etc. Subject to the provisions of the Certificate
of Incorporation and the law of the State of Delaware, the Board (i) may declare
dividends on the shares of the Corporation in such amounts as, in its opinion,
the condition of the affairs of the Corporation shall render advisable, (ii) may
use and apply, in its discretion, any of the surplus of the Corporation or the
net profits arising from its business in purchasing or acquiring any of the
shares of stock of the Corporation or of purchase warrants therefor in
accordance with law, or any of its bonds, debentures, notes, scrip or other
securities or evidences of indebtedness, and (iii) may set aside from time to
time out of such surplus or net profits such sum or sums as it in its absolute
discretion may think proper, as a reserve fund to meet contingencies, or
equalizing dividends, or for the purpose of maintaining or increasing the
property or business of the Corporation, or for any other purpose it may think
conducive to the best interest of the Corporation.
8.5 Holder of Record. Subject to the provisions of the Certificate of
Incorporation of the Corporation, the Corporation shall be entitled to treat the
holder of record of any share or shares of stock as the holder thereof in fact
and shall not be bound to recognize any equitable or other claim to or interest
in such shares on the part of any other person, whether or not it shall
<PAGE> 16
have express or other notice thereof, except as otherwise expressly provided by
law.
ARTICLE 9
FORM OF RECORDS
Any records maintained by the Corporation in the regular course of its
business, including its stock ledger, books of account, and minute books, may be
kept on, or be in the form of, punch cards, magnetic tape, photographs,
micro-photographs, or any other information storage device, provided that the
records so kept can be converted into clearly legible written form within a
reasonable time. The Corporation shall so convert any records so kept upon the
request of any person entitled to inspect the same.
ARTICLE 10
SEAL
The Board shall provide a corporate seal which shall be in the form of a
circle and shall bear the full name of the Corporation and the year of its
incorporation, 1983.
ARTICLE 11
FISCAL YEAR
The Fiscal Year of the Corporation shall be the calendar year unless
otherwise determined by the Board of Directors.
ARTICLE 12
VOTING OF STOCK HELD
Unless otherwise provided by resolution of the Board, the President may,
from time to time, appoint an attorney or attorneys or agent or agents of this
Corporation, including himself, in the name and on behalf of the Corporation to
cast the votes which the Corporation may be entitled to cast as a stockholder or
otherwise in any other corporation, any of whose stock or securities may be held
by the Corporation, at meetings of the holders of the stock or other securities
of such other corporation, or to consent in writing to any action by any such
other corporation, and may instruct the person or persons so appointed as to the
manner of casting such votes or giving such consent, and may execute or cause to
be executed on behalf of the Corporation and under its corporate seal, or
otherwise, such written proxies, consents, waivers or other instruments as he
may deem necessary or proper in the premises; or the President may
<PAGE> 17
himself attend any meeting of the holders of stock or other securities of any
such other corporation and thereat vote or exercise any or all other powers of
the Corporation as the holder of such stock or other securities of such other
corporation.
ARTICLE 13
AMENDMENT
Except as otherwise provided by law or under the Corporation's Certificate
of Incorporation, the By-laws of the Corporation may not be amended except (a)
by resolution adopted by vote of seventy-five percent of the entire Board of
Directors, (b) by the shareholders voting upon a proposal recommended by the
affirmative vote of 75% of the entire Board of Directors, or (c) by the
affirmative vote of (i) the holders of 75% of the shares of the Corporation
entitled to vote and (ii) if any corporation, person, or other entity owns more
than 50% of the shares of the Corporation entitled to vote, the holders of a
majority of the shares of the Corporation entitled to vote and not owned by the
majority shareholder. Any amendment made by the Board of Directors and any
proposed amendment adopted by the Board of Directors for recommendation to the
Shareholders shall be adopted at a regular meeting and may be adopted only if
(a) a notice specifying the change or amendment shall have been given at a
previous regular meeting and entered in the minutes of the Board; (b) a written
statement describing the change or amendment shall be made in a notice mailed to
the directors of the meeting at which the change or amendment shall be acted
upon. Notwithstanding the foregoing, any provision of these Bylaws that contains
a supermajority voting requirement shall only be altered, amended, rescinded, or
repealed by the Board by a vote not less than the supermajority specified in
such provision.
<PAGE> 1
Exhibit 10.3
GRAHAM CORPORATION
OUTSIDE DIRECTORS'
LONG TERM INCENTIVE PLAN
1. Share Equivalent Units ("SEUs") will be credited to each outside
director's "LTIP Account" for every fiscal year in which Graham
Corporation produces consolidated net income of at least $500,000.
2. The value of each SEU will be the market value of 1 share of Graham
Common Stock on the last day of trading on the AMEX of the first
quarter following a fiscal year for which SEUs are to be credited.
3. The number of SEUs to be credited will be determined by dividing the
value of 1 SEU as determined pursuant to Paragraph 2 above into an
amount equal to the basic annual director's fee for the fiscal year for
which the LTIP award is being calculated.
EXAMPLE: Stock at $20.00 at end of fiscal year. Director's
annual fee during that fiscal year was $10,000. Number of
SEUs = 10,000 - 20 = 500.
4. Upon termination of a Director's service on the Board, but not before,
SEUs will be redeemable for either: (a) a commensurate number of shares
of Graham Common Stock; or (b) subject to the prior written consent of
Graham Corporation acting in its sole discretion, the cash value of a
commensurate number of shares of Graham Common Stock as of the
termination of service date. A Director may elect to take shares (or
cash, if consented to by Graham Corporation) at once or to defer it
over a period not to exceed 10 years. The lump sum, or the first
installment if deferred, must be paid within 30 days of termination of
service on Board.
(Tax considerations require lump sum payout to occur, and deferred
payout period to begin, within 30 days of termination of service.)
<PAGE> 1
Exhibit 10.4
-1-
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is made and entered into as of September 16,
1996, by and among Graham Corporation, a Delaware corporation with offices at 20
Florence Avenue, Batavia, New York 14020 (the "Company"), Graham Manufacturing
Co., Inc., a New York corporation with offices at 20 Florence Avenue, Batavia,
New York 14020 ("GMC"), and ALVARO CADENA currently residing at 4 LePere Drive,
Pittsford, New York 14534 (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.
(a) The Company hereby employs the Executive and the
Executive hereby accepts employment (such employment, together with the
Executive's employment with GMC hereunder, the "Employment"), as Vice President
of the Company and GMC hereby employs the Executive and the Executive hereby
accepts employment as President and Chief Operating Officer of the Company's
subsidiary, GMC, upon the terms and conditions hereinafter set forth. Failure in
any year of either the Company Board at its Annual Meeting to elect the
Executive to the offices of Vice President, or of the Board of Directors of GMC
("GMC Board") at its Annual Meeting to elect the Executive to the office of
President and Chief Operating Officer, shall constitute termination of the
Executive's employment without cause for purposes of this Agreement.
(b) The Company and GMC shall allocate between
themselves all expenses of the Executive's employment pursuant to this
Agreement.
(c) Except as otherwise specifically provided herein,
all obligations of theCompany referred to herein shall be joint and several
obligations of the Company and GMC.
2. DUTIES. The Executive is engaged as Vice President of the
Company and President and Chief Operating Officer of GMC. The Executive shall
have authority and responsibility, on a day to day basis, for the overall
management and direction of GMC and shall perform such duties consistent with
Executive's title as may from time to time be required of Executive by the Board
of Directors of Graham Corporation (the "Board"), or by the Chairman, President
and Chief Executive Officer of the Company, to whom Executive shall be directly
responsible. In his capacity as President and Chief Operating Officer of GMC,
the Executive shall also report to the Chairman and Chief Executive Officer of
GMC. The Executive's office shall be at the Company's headquarters office in, or
within a reasonable commuting distance east of Batavia, New York. The Executive
agrees to travel to the extent
<PAGE> 2
-2-
reasonably necessary for the performance of his duties hereunder. The Executive
shall devote his full business time to the business and affairs of the Company
and GMC (to be allocated between them as the Company may determine) and shall
use his best efforts, skill and ability in performing his duties on behalf of
the Company and 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 September 16,
1996, 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 the Company and 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 later of (i) the first
anniversary of the date of this Agreement, or (ii) 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
the Company or 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 later of the fifth anniversary of the date of this Agreement or 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 the Holding Company or 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 the Company and the Executive may mutually
agree upon.
4. BASE COMPENSATION. As the base compensation for all
services to be rendered by the Executive in any capacity to the Company and GMC,
the Company agrees to pay to the Executive, and the Executive shall accept, a
salary at a rate of $155,397 per annum, payable in arrears in equal monthly
installments, subject to such deductions and withholdings as may be required by
law. During the fourth quarter of each year, the Company 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
<PAGE> 3
-3-
following year, to such rate and for such period of time as the Company deems
proper, provided that the Company 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 the
Company or GMC, who was not an owner of twenty percent of the equity stock of
either the Company (in the case of an acquisition of Company stock) or GMC (in
the case of an acquisition of GMC stock) prior to May 13, 1993, or in the event
that any person or entity acquires twenty percent (20%) or more of the assets of
either the 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 Company assets) or of
GMC (in the case of an acquisition of GMC assets) prior to September 16, 1996
then, subsequent to such acquisition of twenty percent stock or twenty percent
asset ownership of either the 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 the Company and GMC shall be obligated to pay
the Executive the amounts, and provide the benefits, specified in Section 9.3 of
this Agreement.
5. BONUSES. The Company 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 Company as may be in
effect from time to time, as determined by the Company's Board of Directors or a
committee thereof.
6. BENEFITS. During the term of this Agreement, the Company
shall provide the following benefits to the Executive:
6.1 MEDICAL. The Company 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 the Company may adopt.
6.2 VACATION. The Executive shall be entitled to 25
business days of paid vacation in calendar year 1996 with additional time to
accrue thereafter in accordance with the Company's vacation policy, as the same
may be in effect from time to time.
6.3 GENERAL BENEFITS. The Executive shall be entitled
to participate in all employee benefit plans and arrangements of the 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 the Company and of GMC, subject to and on
a basis consistent with the terms, conditions and overall
<PAGE> 4
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administration of such plans and arrangements. Nothing in this Section 6.3 shall
be construed to limit or restrict the complete discretion of the Board of
Directors of the 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
Company or GMC where such action generally affects plan participants or
employees, including the Executive.
6.4 LIFE INSURANCE. (a) The Executive agrees that the
Company, 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). (b) As soon
as practical following the termination of employment for any reason, the Company
and 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
7.2 Notwithstanding the provisions of Section 7.1 (b)
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. The Company 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 Board of Directors of the Company.
9. TERMINATION. This Agreement shall terminate prior to the
Term expiration date, hereinabove set forth, in the event that the Executive
shall die or the Company shall determine that the Executive has become disabled,
or if the Executive shall be dismissed for cause or without cause, as
hereinafter provided.
<PAGE> 5
-5-
9.1 DISABILITY. The Company or GMC may determine that
the Executive has become disabled, for purposes of this Agreement, in the event
that the Executive shall fail, because of illness or incapacity, to render for
nine (9) successive months, or for shorter periods aggregating twelve (12)
months or more in any period of eighteen (18) months, services of the character
contemplated by this Agreement; and thereupon this Agreement and the employment
and all rights of the Executive hereunder shall be deemed to have been
terminated as of the end of the calendar month in which such determination was
made.
9.2 FOR CAUSE. The Company or GMC may dismiss the
Executive for cause in the event that it determines that there has been willful
misconduct by the Executive in connection with the performance of his duties
hereunder, or any other conduct on the part of the Executive which has been
materially injurious to the Company or GMC; and thereupon this Agreement and the
Employment shall terminate effective upon the delivery to the Executive of 90
day written notice that the Company Board or the GMC Board has made such
determination. For purposes of this Agreement, "Cause" shall be determined only
by a good faith finding thereof by the Company Board or the GMC Board, which
shall afford the Executive the opportunity to appear before it prior to
finalizing any such determination. If the Executive in good faith contests a
termination for cause by the Company or GMC, the Company and GMC will pay all
legal fees and other expenses incurred by the Executive, as the Executive is
billed for such costs, within ten (10) days of periodic submission to the
Company or GMC of statements of charges of attorneys and statements of other
expenses incurred by the Executive in connection with such challenge; the
Executive will reimburse the Company or GMC if it should be determined by a
court of final adjudication that the Executive did not act in good faith in
bringing such challenge.
9.3 WITHOUT CAUSE. The Company or GMC may dismiss the
Executive without cause at any time upon thirty (30) days notice to the
Executive. In the event the Company or GMC dismisses the Executive other than
for cause, or if the Executive resigns because of a material breach of this
Agreement by the Company or GMC, the Company or GMC shall thereupon pay to the
Executive (a) the compensation due him to the date of termination, plus (b) an
additional lump sum in an amount equal to twelve months' salary at the rate
specified in Section 4 hereinabove. At any time prior to the effective date of
termination of employment, the Executive may in writing elect to receive the
additional lump sum equal to twelve months' salary in monthly installments of up
to, but not to exceed, thirty-six (36) successive months. In addition, the
Company and GMC shall (a) provide the Executive with continuing health care
coverage, as described in Section 6.1 hereof, for a period of thirty-six (36)
months following the effective date of termination of employment; (b) shall pay
for, or in the Executive's sole discretion, reimburse the Executive as the
Executive is billed, within ten (10) days of periodic submission to the Company
or GMC of statements of charges, for outplacement services of the Executive's
choice until the sooner of (i) the Executive's commencement of employment with
another employer or (ii) thirty-six (36) months following the effective date of
termination of employment. In the event that the provisions of this Section 9.3
are triggered by discharge of the Executive without cause
<PAGE> 6
-6-
by one of the Company or GMC, the Executive shall resign from all offices and
directorships of the other entity and of all subsidiaries and affiliates of the
Company, upon payment to the Executive of the amount referred to in subsection
(a) of the second sentence of this Section 9.3, payment of the amount referred
to in subsection (b) of the second sentence of this Section 9.3 (or the first
installment thereof) and Accrued bonus, if any.
9.4 RETURN OF CONFIDENTIAL DOCUMENTATION. Upon
termination of employment for any reason whatsoever, the Executive shall return
to the Company all working papers, notebooks, strategic plans and other
confidential documents and information, in any form whatsoever.
10. COVENANTS OF EXECUTIVE
The Executive acknowledges that: (a) the business of
the Company and its affiliates, as currently conducted and as conducted from
time to time throughout the term of this Agreement (collectively, the
"Business"), is conducted by and is proposed to be conducted by the Company on a
world wide basis (the "Company's Market"); (b) the Business involves providing
design, engineering and manufacture of certain vacuum and heat transfer
equipment, including but not limited to steam condensers, steam jet ejectors,
shell and tube heat exchangers, plate and frame heat exchangers Heliflow heat
exchangers, liquid ring vacuum pumps and rotary piston pumps; (c) the Company
has developed trade secrets and confidential information concerning the
Business; and (d) the agreements and covenants contained in this Section 10 are
essential to protect the Business of the Company. In order to induce the Company
to enter into this Employment Agreement, the Executive covenants and agrees
that:
10.1 AGREEMENT NOT TO COMPETE. In the event that the
Executive resigns (for reasons other than a material breach of this Agreement by
the Company) or departs from the employ of the Company without the approval of
the Board of Directors or is discharged for cause, then for a period of twelve
(12) months after such resignation, departure or discharge (such period of time
hereinafter the "Restricted Period"), neither the Executive nor any entity of
which 20% or more of the beneficial ownership is held by the Executive or a
person related to the Executive by blood or marriage ("Controlled Entity") will,
anywhere in the Company's Market, directly or indirectly own, manage, operate,
control, invest or acquire an interest in, or herewise engage or participate in,
whether as a proprietor, partner, stockholder, director, officer or employee,
any business which competes in the Company's Market with the Business, without
the prior written consent of the Company. Notwithstanding any other provisions
of this Agreement, the Executive may make a passive investment in any
publicly-traded company or entity in an amount not to exceed 5% of the voting
stock of any such company or entity.
10.2 AGREEMENT NOT TO INTERFERE IN BUSINESS
RELATIONSHIPS. (a) During the Restricted Period, neither the Executive nor any
Controlled Entity will directly or indirectly
<PAGE> 7
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solicit, induce or influence customer, or any other person which has a business
relationship with the Company or any affiliate, or which had on the date of this
Agreement such a relationship with the Company or any affiliate, to discontinue
or reduce the extent of such relationship with the Company or any affiliate in
the Company's Market without the prior written consent of the Company. (b)
During the Restricted Period, neither the Executive nor any Controlled Entity
will (i) directly or indirectly recruit, solicit or otherwise induce or
influence any shareholder or employee of the Company or any of its affiliates to
discontinue such employment or other relationship with the Company or any
affiliate without the prior written consent of the Company, or (ii) employ or
seek to employ, or cause or permit any Competitive Business which competes in
the Company's Markets to employ or seek to employ for any Competitive Business,
any person who is then (or was at any time within six months prior to the date
the Executive or the Competitive Business employs or seeks to employ such
person) employed by the Company or any affiliate without the prior written
consent of the Company. Nothing herein shall prevent the Executive from
providing a letter of recommendation to an Employee with respect to a future
employment opportunity, nor prohibit the Executive from making general
employment advertisements in mass-circulation newspapers or other mass media.
10.3 CONFIDENTIALITY. During the Restricted Period,
neither the Executive nor any Controlled Entity will directly or indirectly
disclose to anyone, or use or otherwise exploit for the Executive's or any
Controlled Entity's own benefit or for the benefit of anyone other than the
Company, any confidential information, including, without limitation, any
confidential "know-how", trade secrets, customer lists, details of customer
contracts, pricing policies, operational methods, marketing plans or strategies,
product development techniques or plans, business acquisition plans and new
personnel acquisition plans of the Company or any affiliate related to the
Business or any portion or phase of any scientific, engineering or technical
information, design, process, procedure, formula, improvement, discovery,
invention, machinery or device of the Company or any affiliate that is not
generally known to the competitors of the Company whether or not in written or
tangible form (hereinafter referred to as "Confidential Information"). The term
"Confidential Information" does not include, and there shall be no obligation
hereunder with respect to, information that becomes generally available to the
public other than as a result of a disclosure by the Executive or a Controlled
Entity or any agent or other representative thereof. Neither the Executive nor
any Controlled Entity shall have any obligation hereunder to keep confidential
any Confidential Information to the extent disclosure is required by law, or
determined in good faith by the Executive to be necessary or appropriate to
comply with any legal or regulatory order, regulation or requirement; provided,
however, that in the event disclosure is required by law, the Executive or the
Controlled Entity concerned shall provide the Company with prompt notice of such
requirement so that the Company may seek an appropriate protective order. It is
understood that in any new employment, the Executive may use his ordinary skill
and non-confidential knowledge, even though said skill and non-confidential
knowledge may have been gained at the Company. The Executive's obligations under
this Section 10.3 shall be in addition to, not in substitution for, any common
law fiduciary duties the Executive has to the Company or
<PAGE> 8
-8-
GMC regarding information acquired during the course of his employment.
10.4 INTELLECTUAL PROPERTY. The Executive shall
communicate to the Company full information concerning all inventions,
improvements, discoveries, formulas, processes, systems of organization,
management procedures, software or computer applications (hereinafter,
collectively, "Intellectual Property") made or conceived by him either solely or
jointly with others while in the employ of the Company, whether or not perfected
during his period of employment and which shall be within the existing or
contemplated scope of the Company's business during his employment. The
Executive will assist the Company and its nominees in every way at the Company's
expense in obtaining patents for such Intellectual Property as may be patentable
in any and all countries and the Executive will execute all papers the Company
may desire and assignments thereof to the Company or its nominees and said
Intellectual Property shall be and remain the property of the Company and its
nominees, if any, whether patented or not or assigned or not.
10.5 SURVIVAL OF COVENANTS. In the event of a
termination of this Agreement, the covenants and agreements contained in this
Section 10 shall survive, shall continue thereafter, and shall not expire unless
and except as expressly set forth in such Section.
10.6 REMEDIES. The parties to this Agreement agree
that (a) if either the Executive or any Controlled Entity breaches any provision
of this Section 10, the damage to the Company and its affiliates will be
substantial, although difficult to ascertain, and money damages will not afford
an adequate remedy, and (b) if either the Executive or any Controlled Entity is
in breach of this Agreement, or threatens a breach of this Agreement, the
Company shall be entitled in its own right and/or on behalf of one or more of
its affiliates, in addition to all other rights and remedies as may be available
at law or in equity, to (i) injunctive and other equitable relief to prevent or
restrain a breach of this Agreement and (ii) may require the breaching party to
pay damages as the result of any transactions constituting a breach hereof.
11. INDEMNIFICATION OF EXECUTIVE. In the event the Employment
is terminated for any reason, (a) the Company will hold harmless and indemnify
the Executive for all acts or omissions and for any suits it has at law or in
equity, claims, actions or other proceedings against the Executive initiated
either prior to the termination of employment or thereafter which relate to
duties performed in good faith by the Executive while employed by the Company;
and (b) The Company will retain the Executive as named insured under any
directors' and officers' insurance policies it may have, for acts of the
Executive during the time he served as an officer of the Company and GMC.
Additionally, all legal and other costs incurred by the Executive to defend
himself will be paid by the Company, as the Executive is billed for such costs,
within ten (10) days of periodic submission to the Company or GMC of statements
of charges of attorneys and statements of other expenses incurred by the
Executive in connection with such defense.
<PAGE> 9
-9-
12. EFFECT OF WAIVER. The waiver by either party of a breach
of any provision of this Agreement shall not operate as or be construed as a
waiver of any subsequent breach thereof.
13. NOTICE. Any and all notices provided for herein shall be
in writing and shall be physically delivered or mailed by registered or
certified mail, return receipt requested to the parties at their respective
addresses set forth hereinabove. Either party may from time to time designate a
different address for notices to be sent to such party by giving the other party
due notice of such different address.
14. VALIDITY. If any part of this Agreement shall be found
to be invalid or unenforceable, the same shall be deemed to be severable and
the remaining portions of this Agreement shall remain in full force and
effect.
15. MODIFICATION AND ASSIGNMENT. This Agreement shall not be
modified or amended except by an instrument in writing signed by the parties
hereto. This Agreement and all of its terms and conditions shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, legal representatives, successors and assigns, including but not limited
to any corporation or other entity with or into which the Company is merged or
consolidated or any other successor of the Company. The Executive agrees that
he will not and may not assign, transfer or convey, pledge or encumber this
Agreement or his right, title or interest therein, or his power to execute the
same or any monies due or to become due hereunder, this Agreement being
intended to secure the personal services of the Executive, and the Company
shall not recognize any such assignment, transfer, conveyance, pledge or
encumbrance.
16. APPLICABLE LAW. This agreement and the rights and
obligations of the parties hereunder shall be construed and interpreted in
accordance with the laws of the State of New York, without giving effect to the
conflict of laws provisions thereof.
17. PRIOR AGREEMENTS. This Agreement shall supersede any prior
employment agreement between the Company and the Executive and shall be
effective from the date specified hereinabove, PROVIDED, HOWEVER, that the
Senior Executive Severance Agreement between the Company and the Executive as
approved by the Board of Directors of the Company at its meeting on [DATE], as
the same may from time to time be amended, shall remain in full force and effect
and all obligations of either the Company or the Executive under the Senior
Executive Severance Agreement are and shall be deemed separate and independent
obligations in addition to any obligations created by this Agreement.
18. BUSINESS COMBINATIONS. In the event of any sale, merger or
any form of business combination affecting the Company or GMC whatsoever, the
Company and GMC will obtain the express written assumption of this Agreement by
the acquiring or surviving entity from such combination, and failure of the
Company and GMC to obtain such an assumption will
<PAGE> 10
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constitute a breach of this Agreement, entitling the Executive to all payments
and other benefits to be provided in the event of termination without cause
provided in Section 9.3 hereof.
19. HEADINGS. This section headings of this Agreement are for
convenience of reference only and are not to be considered in the interpretation
of the terms and conditions of this Agreement.
20. INVALIDITY OR UNENFORCEABILITY. If any term or provision
of this Agreement is held to be invalid or unenforceable, for any reason, such
invalidity or unenforceability shall not affect any other term or provision
hereof and this Agreement shall continue in full force and effect as if such
invalid or unenforceable term or provision (to the extent of the invalidity or
unenforceability) had not been contained herein. If any court determines that
any provision of Section 10 hereof is unenforceable because of the duration or
geographic scope of such provision, such court shall have the power to reduce
the scope or duration of such provision, as the case may be, and, in its reduced
form, such provision shall then be enforceable.
21. COUNTERPARTS. This agreement may be executed in any number
of counterparts, each of which for all purposes shall be deemed to be an
original.
<PAGE> 11
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IN WITNESS WHEREOF, the parties hereto have duly executed this
agreement as of the day and year first above written.
(Corporate Seal)
GRAHAM CORPORATION
By /s/ F.D. Berkeley
---------------------------------
Chairman, President & Chief Executive Officer
(Corporate Seal) GRAHAM MANUFACTURING CO., INC.
By /s/ F.D. Berkeley
----------------------------------
President
/s/ A. Cadena
----------------------------------
ALVARO CADENA
Attest: /s/ Christine Jean Sabatino
----------------------------
<PAGE> 12
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STATE OF NEW YORK )
: ss.:
COUNTY OF GENESEE )
On the 27th day of September, 1996, before me
personally came F. D. Berkeley, to me known, who, being by me duly sworn, did
depose and say that he resides at 50 Old Mill Road, Rochester, New York; that he
is Chairman, President and Chief Executive Officer of Graham Corporation
described in and which executed the attached instrument; that he knows the seal
of said corporation and that the seal affixed to said instrument is such
corporate seal; that it was so affixed by authorizations of the Board of
Directors of said corporation, and that he signed his name thereto by like
authority.
/s/ Carole M. Anderson
---------------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF GENESEE )
On the 27th day of September, 1996, before me
personally came Alvaro Cadena, to me known, who, being by me duly sworn, did
depose and say that he resides at 4 LePere Drive, Pittsford, New York; that he
is President of Graham Manufacturing Co., Inc. described in and which executed
the attached instrument; that he knows the seal of said corporation and that the
seal affixed to said instrument is such corporate seal; that it was so affixed
by authorizations of the Board of Directors of said corporation, and that he
signed his name thereto by like authority.
/s/ Carole M. Anderson
---------------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF GENESEE )
On the 27th day of September, 1996, before me
personally came ALVARO CADENA, to me known to be the person described in and who
executed the attached instrument and acknowledged that he executed the same.
/s/ Christine Jean Sabatino
---------------------------------
Notary Public
<PAGE> 13
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is made and entered into as of May 13, 1993, by and among
Graham Corporation, a Delaware corporation with offices at 20 Florence Avenue,
Batavia, New York 14020 (the "Company"), Graham Manufacturing Co., Inc., a New
York corporation with offices at 20 Florence Avenue, Batavia, New York 14020
("GMC"), and J. Ronald Hansen, currently residing at 109 Central Avenue,
Fredonia, New York 14063 (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.
(a) The Company hereby employs the Executive and the Executive hereby
accepts employment (such employment, together with the Executive's employment
with GMC hereunder, the "Employment"), as Vice President-Finance and Chief
Financial Officer of the Company and GMC hereby employs the Executive and the
Executive hereby accepts employment as Vice President-Finance of the Company's
subsidiary, GMC, upon the terms and conditions hereinafter set forth. Failure in
any year of either the Company Board at its Annual Meeting to elect the
Executive to the offices of Vice President-Finance and Chief Financial Officer,
or of the Board of Directors of GMC ("GMC Board") at its Annual Meeting to elect
the Executive to the office of Vice President-Finance, shall constitute
termination of the Executive's employment without cause for purposes of this
Agreement.
(b) The Company and GMC shall allocate between themselves all expenses
of the Executive's employment pursuant to this Agreement.
(c) Except as otherwise specifically provided herein, all obligations
of the Company referred to herein shall be joint and several obligations of the
Company and GMC.
2. DUTIES. The Executive is engaged as Vice President-Finance and Chief
Financial Officer of the Company and Vice President-Finance of GMC. The
Executive shall have authority and responsibility for the financial operation
and management, on a day to day basis, of the Company and its related entities
and GMC, and shall perform such duties consistent with Executive's title as may
from time to time be required of Executive by the Board of Directors of Graham
Corporation (the "Board"), or by the Chairman, President and Chief Executive
Officer of the Company, to whom Executive shall be directly responsible. In his
capacity as Vice President-Finance of GMC, the Executive shall also report to
the President of GMC. The Executive's office shall be at the Company's
headquarters office in, or within a reasonable commuting distance of Batavia,
New York. 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 the Company and GMC (to be
allocated between
<PAGE> 14
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them as the Company may determine) and shall use his best efforts, skill and
ability in performing his duties on behalf of the Company and 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 five (5) years commencing on May 13, 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 fourth
anniversary of the date of this Agreement, the Term shall be automatically
extended for one (1) additional day each day, unless either the Company and 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 later of (i) the
fifth anniversary of the date of this Agreement, or (ii) 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 the Company or 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 later of the fifth anniversary of the date of this
Agreement or 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 the Holding Company or 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 the Company and the Executive may mutually agree upon.
4. BASE COMPENSATION. As the base compensation for all services to be
rendered by the Executive in any capacity to the Company and GMC, the Company
agrees to pay to the Executive, and the Executive shall accept, a salary at a
rate of $105,000 per annum, payable in arrears in equal monthly installments,
subject to such deductions and withholdings as may be required by law. During
the fourth quarter of each year, the Company 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 the Company deems proper, provided that the
Company 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 the Company or GMC, who was not an owner
of twenty percent of
<PAGE> 15
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the equity stock of either the Company (in the case of an acquisition of Company
stock) or GMC (in the case of an acquisition of GMC stock) prior to May 13,
1993, or in the event that any person or entity acquires twenty percent (20%) or
more of the assets of either the 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
Company assets) or of GMC (in the case of an acquisition of GMC assets) prior to
May 13, 1993 then, subsequent to such acquisition of twenty percent stock or
twenty percent asset ownership of either the 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 the Company and GMC shall be obligated to pay
the Executive the amounts, and provide the benefits, specified in Section 9.3 of
this Agreement.
5. BONUSES. The Company 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 Company as may be in effect
from time to time, as determined by the Company's Board of Directors or a
committee thereof.
6. BENEFITS. During the term of this Agreement, the Company shall provide
the following benefits to the Executive:
6.1 MEDICAL. The Company 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 the Company may adopt.
6.2 VACATION. The Executive shall be entitled to five (5) business days
of paid vacation in the period from September 1 through November 30, 1993,
fifteen (15) business days in calendar year 1994 and twenty (20) business days
each calendar year thereafter, with additional time to accrue in accordance with
the Company's vacation policy, as the same may be in effect from time to time.
6.3 RELOCATION. The Executive's relocation expenses in moving from 109
Central Avenue, Fredonia, New York to the Batavia, New York area will be paid by
the Company pursuant to the relocation policy of Graham Manufacturing Co., Inc.
for new employees.
6.4 GENERAL BENEFITS. The Executive shall be entitled to participate in
all employee benefit plans and arrangements of the 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 the Company and of GMC, subject to and on a basis
consistent with the terms, conditions and overall
<PAGE> 16
-4-
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 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
Company or GMC where such action generally affects plan participants or
employees, including the Executive.
6.5 LIFE INSURANCE. (a) The Executive agrees that the Company, 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). (b) As soon as
practical following the termination of employment for any reason except for
cause, the Company and 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 The Company 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
the Company on such automobile shall not exceed in any year seven percent (7%)
of the Executive's annual base salary for such year. The Company 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 the Company pursuant to this Section 7.1, the Company 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 the
Company's expense. In the event the Company elects to do neither, the Company
shall permit the Executive to purchase the automobile from the lessor.
7.2 Notwithstanding the provisions of Section 7.1 (b) 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. The Company shall pay or reimburse the Executive for all
reasonable and necessary traveling and other expenses incurred or paid by the
Executive in
<PAGE> 17
-5-
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 Board of Directors of the Company.
9. TERMINATION. This Agreement shall terminate prior to the Term expiration
date, hereinabove set forth, in the event that the Executive shall die or the
Company 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. The Company or GMC may determine that the Executive has
become disabled, for purposes of this Agreement, in the event that the Executive
shall fail, because of illness or incapacity, to render for nine (9) successive
months, or for shorter periods aggregating twelve (12) months or more in any
period of eighteen (18) months, services of the character contemplated by this
Agreement; and thereupon this Agreement and the employment and all rights of the
Executive hereunder shall be deemed to have been terminated as of the end of the
calendar month in which such determination was made.
9.2 FOR CAUSE. The Company or GMC may dismiss the Executive for cause
in the event that it determines that there has been willful misconduct by the
Executive in connection with the performance of his duties hereunder, or any
other conduct on the part of the Executive which has been materially injurious
to the Company or GMC; and thereupon this Agreement and the Employment shall
terminate effective upon the delivery to the Executive of 90 day written notice
that the Company Board or the GMC Board has made such determination. For
purposes of this Agreement, "Cause" shall be determined only by a good faith
finding thereof by the Company Board or the GMC Board, which shall afford the
Executive the opportunity to appear before it prior to finalizing any such
determination. If the Executive in good faith contests a termination for cause
by the Company or GMC, the Company and GMC will pay all legal fees and other
expenses incurred by the Executive, as the Executive is billed for such costs,
within ten (10) days of periodic submission to the Company or GMC of statements
of charges of attorneys and statements of other expenses incurred by the
Executive in connection with such challenge; the Executive will reimburse the
Company or GMC if it should be determined by a court of final adjudication that
the Executive did not act in good faith in bringing such challenge.
9.3 WITHOUT CAUSE. The Company or GMC may dismiss the Executive without
cause at any time upon thirty (30) days notice to the Executive. In the event
the Company or GMC dismisses the Executive other than for cause, or if the
Executive resigns because of a material breach of this Agreement by the Company
or GMC, the Company or GMC shall thereupon pay to the Executive (a) the
compensation due him to the date of termination, plus (b) an additional lump sum
in an amount equal to twelve months' salary at the rate specified in Section 4
hereinabove. At any time prior to the effective date of termination of
employment, the Executive may in writing elect to receive the additional lump
sum equal to twelve months' salary in monthly installments of up to, but not to
exceed, thirty-six (36) successive months. In addition,
<PAGE> 18
-6-
the Company and GMC shall (a) provide the Executive with continuing health care
coverage, as described in Section 6.1 hereof, for a period of thirty-six (36)
months following the effective date of termination of employment; (b) shall pay
for, or in the Executive's sole discretion, reimburse the Executive as the
Executive is billed, within ten (10) days of periodic submission to the Company
or GMC of statements of charges, for outplacement services of the Executive's
choice until the sooner of (i) the Executive's commencement of employment with
another employer or (ii) thirty-six (36) months following the effective date of
termination of employment; and (c) shall assign to the Executive its interest in
the automobile lease in force at the time of termination of employment and shall
reimburse the Executive for each remaining lease payment thereafter, within ten
(10) days of the due date of each remaining lease payment; or in the event that
termination of employment occurs following the expiration of automobile lease
and prior to the Company or GMC extending such lease or leasing a new automobile
for the Executive, the Company or GMC, if either then owns the automobile,
shall, at the election of the Executive, sell the automobile to the Executive
for the value for such automobile stated in the then-current edition of the NADA
Official Used Car Guide for Domestic and Imported Cars and Trucks. In the event
that the provisions of this Section 9.3 are triggered by discharge of the
Executive without cause by one of the Company or GMC, the Executive shall resign
from all offices and directorships of the other entity and of all subsidiaries
and affiliates of the Company, upon payment to the Executive of the amounts
referred to in the second sentence of this Section 9.3, and the performance by
the Company and GMC of their obligations pursuant to the fourth sentence,
subsections (c) and (d), of this Section 9.3.
9.4 RETURN OF CONFIDENTIAL DOCUMENTATION. Upon termination of
employment for any reason whatsoever, the Executive shall return to the Company
all working papers, notebooks, strategic plans and other confidential documents
and information, in any form whatsoever.
10. COVENANTS OF EXECUTIVE
The Executive acknowledges that: (a) the business of the Company and
its affiliates, as currently conducted and as conducted from time to time
throughout the term of this Agreement (collectively, the "Business"), is
conducted by and is proposed to be conducted by the Company on a world wide
basis (the "Company's Market"); (b) the Business involves providing design,
engineering and manufacture of certain vacuum and heat transfer equipment,
including but not limited to steam condensers, steam jet ejectors, shell and
tube heat exchangers, plate and frame heat exchangers, Heliflow heat exchangers,
liquid ring vacuum pumps and rotary piston pumps; (c) the Company has developed
trade secrets and confidential information concerning the Business; and (d) the
agreements and covenants contained in this Section 10 are essential to protect
the Business of the Company. In order to induce the Company to enter into this
Employment Agreement, the Executive covenants and agrees that:
10.1 AGREEMENT NOT TO COMPETE. In the event that the Executive resigns
(for reasons other than a material breach of this Agreement by the Company) or
departs from the
<PAGE> 19
-7-
employ of the Company without the approval of the Board of Directors or is
discharged for cause, then for a period of twelve (12) months after such
resignation, departure or discharge (such period of time hereinafter the
"Restricted Period"), neither the Executive nor any entity of which 20% or more
of the beneficial ownership is held by the Executive or a person related to the
Executive by blood or marriage ("Controlled Entity") will, anywhere in the
Company's Market, directly or indirectly own, manage, operate, control, invest
or acquire an interest in, or herewise engage or participate in, whether as a
proprietor, partner, stockholder, director, officer or employee, any business
which competes in the Company's Market with the Business, without the prior
written consent of the Company. Notwithstanding any other provisions of this
Agreement, the Executive may make a passive investment in any publicly-traded
company or entity in an amount not to exceed 5% of the voting stock of any such
company or entity.
10.2 AGREEMENT NOT TO INTERFERE IN BUSINESS RELATIONSHIPS. (a) During
the Restricted Period, neither the Executive nor any Controlled Entity will
directly or indirectly solicit, induce or influence customer, or any other
person which has a business relationship with the Company or any affiliate, or
which had on the date of this Agreement such a relationship with the Company or
any affiliate, to discontinue or reduce the extent of such relationship with the
Company or any affiliate in the Company's Market without the prior written
consent of the Company. (b) During the Restricted Period, neither the Executive
nor any Controlled Entity will (i) directly or indirectly recruit, solicit or
otherwise induce or influence any shareholder or employee of the Company or any
of its affiliates to discontinue such employment or other relationship with the
Company or any affiliate without the prior written consent of the Company, or
(ii) employ or seek to employ, or cause or permit any Competitive Business which
competes in the Company's Markets to employ or seek to employ for any
Competitive Business, any person who is then (or was at any time within six
months prior to the date the Executive or the Competitive Business employs or
seeks to employ such person) employed by the Company or any affiliate without
the prior written consent of the Company. Nothing herein shall prevent the
Executive from providing a letter of recommendation to an Employee with respect
to a future employment opportunity, nor prohibit the Executive from making
general employment advertisements in mass-circulation newspapers or other mass
media.
10.3 CONFIDENTIALITY. During the Restricted Period, neither the
Executive nor any Controlled Entity will directly or indirectly disclose to
anyone, or use or otherwise exploit for the Executive's or any Controlled
Entity's own benefit or for the benefit of anyone other than the Company, any
confidential information, including, without limitation, any confidential
"know-how", trade secrets, customer lists, details of customer contracts,
pricing policies, operational methods, marketing plans or strategies, product
development techniques or plans, business acquisition plans and new personnel
acquisition plans of the Company or any affiliate related to the Business or any
portion or phase of any scientific, engineering or technical information,
design, process, procedure, formula, improvement, discovery, invention,
machinery or device of the Company or any affiliate that is not generally known
to the competitors of the Company whether or not in written or tangible form
(hereinafter referred to as "Confidential Information"). The term "Confidential
Information" does not include, and there shall be no obligation hereunder
<PAGE> 20
-8-
with respect to, information that becomes generally available to the public
other than as a result of a disclosure by the Executive or a Controlled Entity
or any agent or other representative thereof. Neither the Executive nor any
Controlled Entity shall have any obligation hereunder to keep confidential any
Confidential Information to the extent disclosure is required by law, or
determined in good faith by the Executive to be necessary or appropriate to
comply with any legal or regulatory order, regulation or requirement; provided,
however, that in the event disclosure is required by law, the Executive or the
Controlled Entity concerned shall provide the Company with prompt notice of such
requirement so that the Company may seek an appropriate protective order. It is
understood that in any new employment, the Executive may use his ordinary skill
and non- confidential knowledge, even though said skill and non-confidential
knowledge may have been gained at the Company. The Executive's obligations under
this Section 10.3 shall be in addition to, not in substitution for, any common
law fiduciary duties the Executive has to the Company or GMC regarding
information acquired during the course of his employment.
10.4 INTELLECTUAL PROPERTY. The Executive shall communicate to the
Company full information concerning all inventions, improvements, discoveries,
formulas, processes, systems of organization, management procedures, software or
computer applications (hereinafter, collectively, "Intellectual Property") made
or conceived by him either solely or jointly with others while in the employ of
the Company, whether or not perfected during his period of employment and which
shall be within the existing or contemplated scope of the Company's business
during his employment. The Executive will assist the Company and its nominees in
every way at the Company's expense in obtaining patents for such Intellectual
Property as may be patentable in any and all countries and the Executive will
execute all papers the Company may desire and assignments thereof to the Company
or its nominees and said Intellectual Property shall be and remain the property
of the Company and its nominees, if any, whether patented or not or assigned or
not.
10.5 SURVIVAL OF COVENANTS. In the event of a termination of this
Agreement, the covenants and agreements contained in this Section 10 shall
survive, shall continue thereafter, and shall not expire unless and except as
expressly set forth in such Section.
10.6 REMEDIES. The parties to this Agreement agree that (a) if either
the Executive or any Controlled Entity breaches any provision of this Section
10, the damage to the Company and its affiliates will be substantial, although
difficult to ascertain, and money damages will not afford an adequate remedy,
and (b) if either the Executive or any Controlled Entity is in breach of this
Agreement, or threatens a breach of this Agreement, the Company shall be
entitled in its own right and/or on behalf of one or more of its affiliates, in
addition to all other rights and remedies as may be available at law or in
equity, to (i) injunctive and other equitable relief to prevent or restrain a
breach of this Agreement and (ii) may require the breaching party to pay damages
as the result of any transactions constituting a breach hereof.
11. INDEMNIFICATION OF EXECUTIVE. In the event the Employment is terminated
for any reason, (a) the Company will hold harmless and indemnify the Executive
for all acts or
<PAGE> 21
-9-
omissions and for any suits it has at law or in equity, claims, actions or other
proceedings against the Executive initiated either prior to the termination of
employment or thereafter which relate to duties performed in good faith by the
Executive while employed by the Company; and (b) The Company will retain the
Executive as named insured under any directors' and officers' insurance policies
it may have, for acts of the Executive during the time he served as an officer
of the Company and GMC. Additionally, all legal and other costs incurred by the
Executive to defend himself will be paid by the Company, as the Executive is
billed for such costs, within ten (10) days of periodic submission to the
Company or GMC of statements of charges of attorneys and statements of other
expenses incurred by the Executive in connection with such defense.
12. EFFECT OF WAIVER. The waiver by either party of a breach of any
provision of this Agreement shall not operate as or be construed as a waiver of
any subsequent breach thereof.
13. NOTICE. Any and all notices provided for herein shall be in writing and
shall be physically delivered or mailed by registered or certified mail, return
receipt requested to the parties at their respective addresses set forth
hereinabove. Either party may from time to time designate a different address
for notices to be sent to such party by giving the other party due notice of
such different address.
14. VALIDITY. If any part of this Agreement shall be found to be invalid or
unenforceable, the same shall be deemed to be severable and the remaining
portions of this Agreement shall remain in full force and effect.
15. MODIFICATION AND ASSIGNMENT. This Agreement shall not be modified or
amended except by an instrument in writing signed by the parties hereto. This
Agreement and all of its terms and conditions shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns, including but not limited to any
corporation or other entity with or into which the Company is merged or
consolidated or any other successor of the Company. The Executive agrees that he
will not and may not assign, transfer or convey, pledge or encumber this
Agreement or his right, title or interest therein, or his power to execute the
same or any monies due or to become due hereunder, this Agreement being intended
to secure the personal services of the Executive, and the Company shall not
recognize any such assignment, transfer, conveyance, pledge or encumbrance.
16. APPLICABLE LAW. This agreement and the rights and obligations of the
parties hereunder shall be construed and interpreted in accordance with the laws
of the State of New York, without giving effect to the conflict of laws
provisions thereof.
17. PRIOR AGREEMENTS. This Agreement shall supersede any prior employment
agreement between the Company and the Executive and shall be effective from the
date specified hereinabove, PROVIDED, HOWEVER, that the Senior Executive
Severance Agreement between the Company and the Executive as approved by the
Board of Directors of the Company at its meeting on May 13, 1993, as the same
may from time to time be amended, shall remain in full force and
<PAGE> 22
-10-
effect and all obligations of either the Company or the Executive under the
Senior Executive Severance Agreement are and shall be deemed separate and
independent obligations in addition to any obligations created by this
Agreement.
18. BUSINESS COMBINATIONS. In the event of any sale, merger or any form of
business combination affecting the Company or GMC whatsoever, the Company and
GMC will obtain the express written assumption of this Agreement by the
acquiring or surviving entity from such combination, and failure of the Company
and GMC to obtain such an assumption will constitute a breach of this Agreement,
entitling the Executive to all payments and other benefits to be provided in the
event of termination without cause provided in Section 9.3 hereof.
19. HEADINGS. This section headings of this Agreement are for convenience
of reference only and are not to be considered in the interpretation of the
terms and conditions of this Agreement.
20. INVALIDITY OR UNENFORCEABILITY. If any term or provision of this
Agreement is held to be invalid or unenforceable, for any reason, such
invalidity or unenforceability shall not affect any other term or provision
hereof and this Agreement shall continue in full force and effect as if such
invalid or unenforceable term or provision (to the extent of the invalidity or
unenforceability) had not been contained herein. If any court determines that
any provision of Section 10 hereof is unenforceable because of the duration or
geographic scope of such provision, such court shall have the power to reduce
the scope or duration of such provision, as the case may be, and, in its reduced
form, such provision shall then be enforceable.
21. COUNTERPARTS. This agreement may be executed in any number of
counterparts, each of which for all purposes shall be deemed to be an original.
<PAGE> 23
-11-
IN WITNESS WHEREOF, the parties hereto have duly executed this
agreement as of the day and year first above written.
(Corporate Seal)
GRAHAM CORPORATION
/s/ F.D. Berkeley
-----------------------------------
By Chairman, President &
Chief Executive Officer
(Corporate Seal) GRAHAM MANUFACTURING CO., INC.
/s/ A. Cadena
-----------------------------------
By President
/s/ J. Ronald Hansen
-----------------------------------
J. Ronald Hansen
Attest: /s/ Carole M. Anderson
--------------------------
<PAGE> 24
-12-
STATE OF NEW YORK )
: ss.:
COUNTY OF GENESEE )
On the 1st day of December, 1993, before me personally came F. D. Berkeley
to me known, who, being by me duly sworn, did depose and say that he resides at
50 Old Mill Road, Rochester, New York; that he is Chairman, President & Chief
Executive Officer of Graham Corporation described in and which executed the
attached instrument; that he knows the seal of said corporation and that the
seal affixed to said instrument is such corporate seal; that it was so affixed
by authorizations of the Board of Directors of said corporation, and that he
signed his name thereto by like authority.
/s/ Carole M. Anderson
---------------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF GENESEE )
On the 1st day of December, 1993, before me personally came Alvaro Cadena,
to me known, who, being by me duly sworn, did depose and say that he resides at
4 LePere Drive, Pittsford, New York; that he is President of Graham
Manufacturing Co., Inc. described in and which executed the attached instrument;
that he knows the seal of said corporation and that the seal affixed to said
instrument is such corporate seal; that it was so affixed by authorizations of
the Board of Directors of said corporation, and that he signed his name thereto
by like authority.
/s/ Carole M. Anderson
---------------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF GENESEE )
On the 1st day of December, 1993, before me personally came J. Ronald
Hansen, to me known to be the person described in and who executed the attached
instrument and acknowledged that he executed the same.
/s/ Carole M. Anderson
---------------------------------
Notary Public
<PAGE> 25
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
ENTERED INTO AS OF MAY 13, 1993 AMONG GRAHAM CORPORATION,
GRAHAM MANUFACTURING CO., INC. AND J. RONALD HANSEN
THIS AMENDMENT, is made and entered into as of September 26,
1996, by and among Graham Corporation, a Delaware corporation with offices at 20
Florence Avenue, Batavia, New York 14020 (the "Company"), Graham Manufacturing
Co., Inc., a New York corporation with offices at 20 Florence Avenue, Batavia,
New York 14020 ("GMC"), and J. Ronald Hansen currently residing at 9295 Fargo
Road, Stafford, New York 14143 (the "Executive").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Company and GMC have entered into an Employment
Agreement with the Executive entered into as of May 13, 1993 (the "Employment
Agreement"); and
WHEREAS, the Company, GMC and the Executive wish to amend
certain provisions of the Employment Agreement;
NOW, THEREFORE, the Company, GMC and the Executive, intending
to be legally bound hereby, agree as follows:
1. The final sentence of Section 2 of the Employment
Agreement be and hereby is amended to read in its entirety as follows:
"The Executive shall devote his full time during the Company's
or GMC's hours of work to the business and affairs of the
Company and GMC (to be allocated between them as the Company
may determine) and shall use his best efforts, skill and
ability in performing his duties on behalf of the Company and
GMC."
2. Section 4 of the Employment Agreement be and hereby is
amended to read in its entirety as follows:
"4. BASE COMPENSATION. As the base compensation for all
services to be rendered by the Executive in any capacity to
the Company and GMC, the Company and GMC agree to pay to the
Executive, and the Executive shall accept, a salary at a rate
of $117,374 per annum, payable in arrears in equal monthly
installments, subject to such deductions and withholdings as
may be required by law. During the fourth quarter of each
year, the Company and GMC will review the salary rate
<PAGE> 26
-2-
of the Executive, taking into consideration such factors as
the Executive's performance during the preceding year and such
other matters as they deem relevant and, in their discretion
alone, 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 the Company and GMC deems proper, provided that the Company
and GMC shall in no event be required to grant any such
increase. However, in the event that any person or entity
acquires twenty percent (20%) or more of the outstanding
equity stock of the Company or GMC, who was not an owner of
twenty percent of the equity stock of either the Company (in
the case of an acquisition of Company stock) or GMC (in the
case of an acquisition of GMC stock) prior to May 13, 1993, or
in the event that any person or entity acquires twenty percent
(20%) or more of the assets of either the 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 Company assets) or
of GMC (in the case of an acquisition of GMC assets) prior to
May 13, 1993 then, subsequent to such acquisition of twenty
percent stock or twenty percent asset ownership of either the
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 the Company and GMC shall be obligated
to pay the Executive the amounts, and provide the benefits,
specified in Section 9.3 of this Agreement."
3. Section 5 of the Employment Agreement be and hereby is
amended by replacing the words "The Executive Bonus Plan" with the words "The
Incentive Compensation Plan (formerly the Executive Bonus Plan)".
4. Section 7 of the Employment Agreement be and hereby is
amended to read in its entirety as follows:
"7. AUTOMOBILE ALLOWANCE."
"7.1 The Company and GMC shall pay the Executive an automobile
allowance of $8,550 per annum (the "Automobile Allowance").
Neither the Automobile
<PAGE> 27
-3-
Allowance nor any portion of it shall be included as Base
Compensation for the purpose of eligibility for possible
increases in Base Compensation as provided by Section 4 of
this Agreement. During the fourth quarter of each calendar
year, the Company and GMC will review the automobile allowance
amount of the Executive and, in their discretion, may increase
the automobile allowance paid to the Executive for the
following calendar year, to be effective from January 1 of the
following year, to such increased rate and for such period of
time as the Company and GMC deem proper, provided that neither
the Company nor GMC shall be required to grant any such
increase."
"7.2 The Executive represents that he now carries automobile
liability insurance, with respect to any automobile owned by
him, for injuries to persons and property."
5. Section 9.3 of the Employment Agreement be and hereby is
amended by deleting subsection (c) of the fourth sentence.
6. Section 9.3 of the Employment Agreement be and hereby is
further amended by deleting the last sentence and adding the following
sentences:
"In addition to other amounts payable to the Executive under
this Section 9.3, the Company and GMC shall pay to the
Executive Accrued Bonus as defined hereinafter. For purposes
of this Section 9.3, Accrued Bonus shall mean any amount of
bonus with respect to any year prior to the year in which
dismissal without cause occurs ("Prior Bonus Year") calculable
by applying the formula prescribed by the Incentive
Compensation Plan (formerly the Executive Bonus Plan) of
Graham Corporation as it existed on December 31 of such Prior
Bonus Year and employing in the application of such formula
the goals, ratios and weighting percentages and other variable
figures which the Bonus Plan calls for the Company's Board or
any Committee thereof to determine annually ("Bonus Plan
Variables") which the Company's Board of Directors or any
Committee thereof adopted for purposes of the Bonus Plan prior
to December 31 of such Prior Bonus Year. With respect to any
Prior Bonus Year for which neither the Company's Board nor any
Committee thereof adopted Bonus Plan Variables prior to
December 31 of such year, the Bonus Plan Variables adopted
most recently prior to the commencement of the Prior Bonus
Year in issue shall be employed for purposes of calculating
the amount of Accrued Bonus payable pursuant to this
Agreement. Notwithstanding any other provision of this
Section, no Accrued Bonus shall be payable pursuant to
Section 9.3 of this Agreement for any Prior Bonus Year with
<PAGE> 28
-4-
respect to which a bonus amount was paid to and accepted by
the Executive. In the event that the provisions of this
Section 9.3 are triggered by discharge of the Executive
without cause by one of the Company or GMC, the Executive
shall resign from all offices and directorships of the other
entity and of all subsidiaries and affiliates of the Company,
upon payment to the Executive of the amount referred to in
subsection (a) of the second sentence of this Section 9.3,
payment of the amount referred to in subsection (b) of the
second sentence of this Section 9.3 (or the first installment
thereof) and Accrued Bonus, if any."
7. The Employment Agreement be and hereby is amended by adding
the following section:
"9.5 NON-DUPLICATION. In the event that the Executive shall be
a party to any other contract, agreement or arrangement
providing termination payments (other than retirement or
similar benefits or pursuant to any plan providing for stock
options or appreciation rights) upon a cessation of service
for the Company or GMC, any compensation or other benefits
provided to the Executive under such other contract, agreement
or arrangement and paid to the Executive shall be applied to
offset the obligations of the Company and GMC to pay a lump
sum equal to twelve months' salary as provided by Section 9.3
hereof, it being intended that such lump sum payment provided
under Section 9.3 hereof not duplicate payments otherwise due
to the Executive on account of his cessation of service."
8. Section 16 of the Employment Agreement be and hereby is
amended by adding the following sentence:
"Any action or proceeding brought by either party against the
other arising out of or related to the Agreement shall be
brought only in a state court of competent jurisdiction
located in the County of Monroe, State of New York or the
Federal District Court for the Western District of New York
located in Monroe County, New York and the parties hereby
consent to the personal jurisdiction of said courts."
9. Section 17 of the Employment Agreement be and hereby is
amended by replacing the date "May 13, 1993" with the date "July 27,
1995."
10. All other terms and conditions of the Employment Agreement
remain unchanged and in full force and effect.
<PAGE> 29
-5-
IN WITNESS WHEREOF, the parties hereto have duly executed this
agreement as of the day and year first above written.
(Corporate Seal)
GRAHAM CORPORATION
By /s/ F.D. Berkeley
--------------------------------------------
Chairman, President & Chief Executive Officer
(Corporate Seal)
GRAHAM MANUFACTURING CO., INC.
By /s/ A. Cadena
--------------------------------------------
President
/s/ J. Ronald Hansen
--------------------------------------------
J. Ronald Hansen
Attest: /s/ Carole M. Anderson
----------------------
<PAGE> 30
-6-
STATE OF NEW YORK )
: ss.:
COUNTY OF GENESEE )
On the 27th day of September, 1996, before me personally came
F. D. Berkeley, to me known, who, being by me duly sworn, did depose and say
that he resides at 50 Old Mill Road, Rochester, New York; that he is Chairman,
President and Chief Executive Officer of Graham Corporation described in and
which executed the attached instrument; that he knows the seal of said
corporation and that the seal affixed to said instrument is such corporate
seal; that it was so affixed by authorizations of the Board of Directors of
said corporation, and that he signed his name thereto by like authority.
/s/ Carole M. Anderson
---------------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF GENESEE )
On the 27th day of September, 1996, before me personally came
Alvaro Cadena, to me known, who, being by me duly sworn, did depose and say
that he resides at 4 LePere Drive, Pittsford, New York; that he is President of
Graham Manufacturing Co., Inc. described in and which executed the attached
instrument; that he knows the seal of said corporation and that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
authorizations of the Board of Directors of said corporation, and that he
signed his name thereto by like authority.
/s/ Christine Jean Sabatino
---------------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF GENESEE )
On the 27th day of September, 1996, before me personally came
J. Ronald Hansen, to me known to be the person described in and who executed
the attached instrument and -2- acknowledged that he executed the same.
/s/ Carole M. Anderson
---------------------------------
Notary Public
<PAGE> 31
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is made and entered into as of September 26, 1996 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 JOSEPH P. GORMAN, JR., currently residing at 20 LePere
Drive, Pittsford, New York 14534 (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 -
Sales 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 Sales shall constitute
termination of the Executive's employment without cause under Section 9.3 of
this Agreement.
2. DUTIES. The Executive is engaged as Vice President - Sales of GMC. The
Executive shall have authority and responsibility for the operation and
management, on a day to day basis, for the Company's domestic and international
sales efforts, including its sales offices and all sales agents and
representatives , 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 of GMC, or by 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 east of Batavia, New York. The Executive agrees to
travel to the extent reasonably necessary for the performance of his duties
hereunder. The Executive shall devote his full time during GMC's hours of work
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)
<PAGE> 32
-2-
year commencing on September 26, 1996, 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.
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
$107,744 per annum and as such rate may be increased from time to time in
accordance with this Section 4 or otherwise, payable in arrears in equal monthly
installments, subject to such deductions and withholdings as may be required by
law. During the fourth quarter of each year commencing in calendar year 1996,
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 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
September 26, 1996, 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 September 26, 1996, 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)
<PAGE> 33
-3-
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 or any successor 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 Incentive
Compensation Plan (formerly 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 or the Holding Company's Board of
Directors or a committee of either.
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 25 business days of
paid vacation in calendar year 1996 with additional time to accrue thereafter in
accordance with GMC's vacation policy, as the same may be in effect from time to
time.
6.3 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 6.3 shall be construed to limit or restrict
<PAGE> 34
-4-
the complete discretion of the Board of Directors of the Holding Company (with
respect to employee benefit or bonus plan or plans of the Holding Company or the
Board of Directors of GMC (with respect to employee benefit or bonus plan or
plans of GMC, to amend, modify or terminate any of such plans, provided that
such action generally affects plan participants or employees, including the
Executive.
6.4 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 The Company shall pay the Executive an automobile allowance of
$8,550 per annum (the "Automobile Allowance") toward the Executive's use and
maintenance of his own automobile. Neither the Automobile Allowance or any
portion of it shall be included as Base Compensation for the purpose of any
eligibility for possible increases in Base Compensation as provided by Section 4
of this Agreement. During the fourth quarter of each year, the Company will
review the automobile allowance amount of the Executive and, in its sole
discretion, may increase the automobile allowance paid to the Executive for the
following calendar year, to be effective from January 1 of such following year,
to such increased rate and for such period of time as the Company deems proper,
provided that the Company shall in no event be required to grant any such
increase.
7.2 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,
<PAGE> 35
-5-
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
disabled, for purposes of this Agreement, in the event that the Executive shall
fail, because of illness or incapacity, to render for nine (9) successive
months, or for shorter periods aggregating twelve (12) months or more in any
period of eighteen (18) months, services of the character contemplated by this
Agreement; and thereupon this Agreement and the employment and all rights of the
Executive hereunder shall be deemed to have been terminated as of the end of the
calendar month in which such determination was made.
9.2 FOR CAUSE. GMC may dismiss the Executive for Cause. For purposes of
this Agreement, "Cause" shall mean willful misconduct by the Executive in
connection with the performance of his duties hereunder or any other conduct on
the part of the Executive which has been materially injurious to GMC or any
affiliate. Existence of Cause as defined herein shall be determined only by a
good faith finding thereof by the GMC Board, which shall afford the Executive
the opportunity to appear before it, with the Executive's legal counsel if the
Executive chooses, prior to finalizing any such determination. Following such a
good faith determination by the GMC Board and upon the delivery to the Executive
of written notice that the GMC Board has made such determination, the Employment
shall terminate. If the Executive in good faith contests a termination for cause
by GMC, GMC will pay all legal fees and other expenses incurred by the
Executive, as the Executive is billed for such costs, within ten (10) days of
periodic submission to GMC of statements of charges of attorneys and statements
of other expenses incurred by the Executive in connection with such challenge;
the Executive will reimburse GMC for the amount of legal fees and other expenses
so paid if it should be determined by a court of final adjudication that the
Executive did not act in good faith in bringing such challenge.
9.3 WITHOUT CAUSE. GMC may dismiss the Executive without cause at any
time upon thirty (30) days notice to the Executive. In the event GMC dismisses
the Executive other than for cause, or if the Executive resigns because of a
material breach of this Agreement by GMC, GMC shall thereupon pay to the
Executive (a) the compensation due him to the date of termination, plus (b) an
additional lump sum in an amount equal to twelve months' salary at the rate
specified in Section 4 hereinabove. At any time prior to the effective date of
termination of employment, the Executive may in writing elect to receive the
additional lump sum equal to twelve months' salary in monthly installments of up
to, but not to exceed, thirty-six (36) successive months. In addition, GMC shall
(a) provide the Executive with continuing health care coverage,
<PAGE> 36
-6-
as described in Section 6.1 hereof, for a period of thirty-six (36) months
following the effective date of termination of employment; and (b) shall pay
for, or in the Executive's sole discretion, reimburse the Executive as the
Executive is billed, within ten (10) days of periodic submission to GMC of
statements of charges, for outplacement services from a provider agreed to by
the Executive and GMC until the sooner of (i) the Executive's commencement of
employment with another employer or (ii) thirty-six (36) months following the
effective date of termination of employment. In addition to other amounts
payable to the Executive under this Section 9.3, the Company and GMC shall pay
to the Executive Accrued Bonus as defined hereinafter. For purposes of this
Section 9.3, Accrued Bonus shall mean any amount of bonus with respect to any
calendar year prior to the calendar year in which dismissal without cause occurs
("Prior Bonus Year") calculable by applying the formula prescribed by the
Executive Bonus Plan of Graham Corporation as it existed on December 31 of such
Prior Bonus Year and employing in the application of such formula the goals,
ratios and weighting percentages and other variable figures which the Bonus Plan
calls for the Holding Company Board or any Committee thereof to determine
annually ("Bonus Plan Variables") which the Holding Company's Board of Directors
or any Committee thereof adopted for purposes of the Bonus Plan prior to
December 31 of such Prior Bonus Year. With respect to any Prior Bonus Year for
which neither the Holding Company Board nor any Committee thereof adopted Bonus
Plan Variables prior to December 31 of such year, the Bonus Plan Variables
adopted most recently prior to the commencement of the Prior Bonus Year in issue
shall be employed for purposes of calculating the amount of Accrued Bonus
payable pursuant to this Agreement. Notwithstanding any other provision of this
Section, no Accrued Bonus shall be payable pursuant to Section 9.3 of this
Agreement for any Prior Bonus Year with respect to which a bonus amount was paid
to and accepted by the Executive. In the event that the provisions of this
Section 9.3 are triggered by discharge of the Executive without cause by GMC,
the Executive shall resign from all offices and directorships all subsidiaries
and affiliates of GMC and of the Holding Company, upon payment to the Executive
of the amounts referred to in subsection (a) of the second sentence of this
Section 9.3, payment of the amount referred to in subsection (b) of the second
sentence of this Section 9.3 (or the first installment thereof) and Accrued
Bonus, if any.
9.4 RETURN OF CONFIDENTIAL DOCUMENTATION. Upon termination of
employment for any reason whatsoever, the Executive shall return to GMC all
working papers, notebooks, strategic plans, computer programs and files, and
other confidential documents and information, in any form whatsoever.
10. COVENANTS OF EXECUTIVE
The Executive acknowledges that: (a) the business of GMC and its
affiliates, as currently conducted and as conducted from time to time throughout
the term of this Agreement (collectively, the "Business"), is conducted by and
is proposed to be conducted on a world wide basis (the "Company's Market"); (b)
the Business involves providing design,
<PAGE> 37
-7-
engineering and manufacture of certain vacuum and heat transfer equipment,
including but not limited to steam condensers, steam jet ejectors, shell and
tube heat exchangers, plate and frame heat exchangers, Heliflow heat exchangers,
liquid ring vacuum pumps and rotary piston pumps; (c) GMC and its affiliates
have developed trade secrets and confidential information concerning the
Business; and (d) the agreements and covenants contained in this Section 10 are
essential to protect the Business. In order to induce GMC to enter into this
Employment Agreement, the Executive covenants and agrees that:
10.1 AGREEMENT NOT TO COMPETE. In the event that the Executive resigns
(for reasons other than a material breach of this Agreement by GMC) or departs
from the employ of GMC without the approval of the GMC Board or is discharged
for cause, then for a period of twelve (12) months after such resignation,
departure or discharge (such period of time hereinafter the "Restricted
Period"), neither the Executive nor any entity of which 20% or more of the
beneficial ownership is held by the Executive or a person related to the
Executive by blood or marriage ("Controlled Entity") will, anywhere the Market
of GMC or any affiliate, directly or indirectly own, manage, operate, control,
invest or acquire an interest in, or herewise engage or participate in, whether
as a proprietor, partner, stockholder, director, officer or employee, any
business which competes in the Market of GMC or any affiliate with the Business
as such Business was conducted, or such other business as the Company had plans
to conduct or had taken material steps toward conducting as of the date of
termination of the Executive's employment with the Company, without the prior
written consent of GMC. Notwithstanding any other provisions of this Agreement,
the Executive may make a passive investment in any publicly-traded company or
entity in an amount not to exceed 5% of the voting stock of any such company or
entity.
10.2 AGREEMENT NOT TO INTERFERE IN BUSINESS RELATIONSHIPS. (a) During
the Restricted Period, neither the Executive nor any Controlled Entity will
directly or indirectly solicit, induce or influence customer, or any other
person which has a business relationship with GMC or any affiliate, or which had
on the date of this Agreement such a relationship with GMC or any affiliate, to
discontinue or reduce the extent of such relationship with GMC or any affiliate
in the Market of GMC or any affiliate without the prior written consent of GMC.
(b) During the Restricted Period, neither the Executive nor any Controlled
Entity will (i) directly or indirectly recruit, solicit or otherwise induce or
influence any shareholder or employee of GMC or any of its affiliates to
discontinue such employment or other relationship with GMC or any affiliate
without the prior written consent of GMC, or (ii) employ or seek to employ, or
cause or permit any Competitive Business which competes in the Market of GMC or
any affiliate to employ or seek to employ for any Competitive Business, any
person who is then (or was at any time within six months prior to the date the
Executive or the Competitive Business employs or seeks to employ such person)
employed by GMC or any affiliate without the prior written consent of GMC.
Nothing herein shall prevent the Executive from providing a letter of
recommendation to an Employee with respect to a future employment opportunity,
nor prohibit the Executive from making general employment advertisements in
mass-circulation newspapers or other mass media.
<PAGE> 38
-8-
10.3 CONFIDENTIALITY. During the Restricted Period, neither the
Executive nor any Controlled Entity will directly or indirectly disclose to
anyone, or use or otherwise exploit for the Executive's or any Controlled
Entity's own benefit or for the benefit of anyone other than GMC, any
confidential information, including, without limitation, any confidential
"know-how", trade secrets, customer lists, details of customer contracts,
pricing policies, operational methods, marketing plans or strategies, product
development techniques or plans, business acquisition plans and new personnel
acquisition plans of GMC or any affiliate related to the Business or any portion
or phase of any scientific, engineering or technical information, design,
process, procedure, formula, improvement, discovery, invention, machinery or
device of GMC or any affiliate that is not generally known to the competitors of
the Company whether or not in written or tangible form (hereinafter referred to
as "Confidential Information"). The term "Confidential Information" does not
include, and there shall be no obligation hereunder with respect to, information
that becomes generally available to the public other than as a result of a
disclosure by the Executive or a Controlled Entity or any agent or other
representative thereof. Neither the Executive nor any Controlled Entity shall
have any obligation hereunder to keep confidential any Confidential Information
to the extent disclosure is required by law, or determined in good faith by the
Executive to be necessary or appropriate to comply with any legal or regulatory
order, regulation or requirement; provided, however, that in the event
disclosure is required by law, the Executive or the Controlled Entity concerned
shall provide the Company with prompt notice of such requirement so that GMC may
seek an appropriate protective order. It is understood that in any new
employment, the Executive may use his ordinary skill and non-confidential
knowledge, even though said skill and non-confidential knowledge may have been
gained at GMC. The Executive's obligations under this Section 10.3 shall be in
addition to, not in substitution for, any common law fiduciary duties the
Executive has to GMC regarding information acquired during the course of his
employment.
10.4 INTELLECTUAL PROPERTY. The Executive shall communicate to GMC full
information concerning all inventions, improvements, discoveries, formulas,
processes, systems of organization, management procedures, software or computer
applications (hereinafter, collectively, "Intellectual Property") made or
conceived by him either solely or jointly with others while in the employ of
GMC, whether or not perfected during his period of employment and which shall be
within the existing or contemplated scope of the Business during his employment.
The Executive will assist GMC and its nominees in every way at GMC's expense in
obtaining patents for such Intellectual Property as may be patentable in any and
all countries and the Executive will execute all papers GMC may desire and
assignments thereof to GMC or its nominees and said Intellectual Property shall
be and remain the property of GMC and its nominees, if any, whether patented or
not or assigned or not.
10.5 SURVIVAL OF COVENANTS. In the event of a termination of this
<PAGE> 39
-9-
Agreement, the covenants and agreements contained in this Section 10 shall
survive, shall continue thereafter, and shall not expire unless and except as
expressly set forth in such Section.
10.6 REMEDIES. The parties to this Agreement agree that (a) if either
the Executive or any Controlled Entity breaches any provision of this Section
10, the damage to GMC and its affiliates will be substantial, although difficult
to ascertain, and money damages will not afford an adequate remedy, and (b) if
either the Executive or any Controlled Entity is in breach of this Agreement, or
threatens a breach of this Agreement, GMC shall be entitled in its own right
and/or on behalf of one or more of its affiliates, in addition to all other
rights and remedies as may be available at law or in equity, to (i) injunctive
and other equitable relief to prevent or restrain a breach of this Agreement and
(ii) may require the breaching party to pay damages as the result of any
transactions constituting a breach hereof.
11. INDEMNIFICATION OF EXECUTIVE. In the event the Employment is terminated
for any reason, (a) GMC will hold harmless and indemnify the Executive for all
acts or omissions and for any suits it has at law or in equity, claims, actions
or other proceedings against the Executive initiated either prior to the
termination of employment or thereafter which relate to duties performed in good
faith by the Executive while employed by GMC; and (b) GMC will retain the
Executive as named insured under any directors' and officers' insurance policies
it may have, for acts of the Executive during the time he served as an officer
of GMC and any affiliate. Additionally, all legal and other costs incurred by
the Executive to defend himself will be paid by GMC, as the Executive is billed
for such costs, within ten (10) days of periodic submission to GMC of statements
of charges of attorneys and statements of other expenses incurred by the
Executive in connection with such defense.
12. EFFECT OF WAIVER. The waiver by either party of a breach of any
provision of this Agreement shall not operate as or be construed as a waiver of
any subsequent breach thereof.
13. NOTICE. Any and all notices provided for herein shall be in writing and
shall be physically delivered or mailed by registered or certified mail, return
receipt requested to the parties at their respective addresses set forth
hereinabove. Either party may from time to time designate a different address
for notices to be sent to such party by giving the other party due notice of
such different address.
14. VALIDITY. If any part of this Agreement shall be found to be invalid or
unenforceable, the same shall be deemed to be severable and the remaining
portions of this Agreement shall remain in full force and effect.
15. MODIFICATION AND ASSIGNMENT. This Agreement shall not be modified or
amended except by an instrument in writing signed by the parties hereto. This
Agreement and all of its terms and conditions shall be binding upon and shall
inure to the benefit of the parties hereto
<PAGE> 40
-10-
and their respective heirs, legal representatives, successors and assigns,
including but not limited to any corporation or other entity with or into which
GMC is merged or consolidated or any other successor of GMC. The Executive
agrees that he will not and may not assign, transfer or convey, pledge or
encumber this Agreement or his right, title or interest therein, or his power to
execute the same or any monies due or to become due hereunder, this Agreement
being intended to secure the personal services of the Executive, and GMC shall
not recognize any such assignment, transfer, conveyance, pledge or encumbrance.
16. APPLICABLE LAW; VENUE. This agreement and the rights and obligations of
the parties hereunder shall be construed and interpreted in accordance with the
laws of the State of New York, without giving effect to the conflict of laws
provisions thereof. Any action or proceeding brought by either party against the
other arising out of or related to the Agreement shall be brought only in a
state court of competent jurisdiction located in the County of Monroe, State of
New York or the Federal District Court for the Western District of New York
located in Monroe County, New York and the parties hereby consent to the
personal jurisdiction of said courts.
17. PRIOR AGREEMENTS. This Agreement shall supersede any prior employment
agreement between GMC and the Executive and shall be effective from the date
specified hereinabove.
18. BUSINESS COMBINATIONS. In the event of any sale, merger or any form of
business combination affecting the Holding Company or GMC whatsoever, the
Holding Company and GMC will obtain the express written assumption of this
Agreement by the acquiring or surviving entity from such combination, and
failure of the Holding Company and GMC to obtain such an assumption no later
than the effective date of any such business combination will constitute a
breach of this Agreement, entitling the Executive to all payments and other
benefits to be provided in the event of termination without cause provided in
Section 9.3 hereof.
19. HEADINGS. The section headings of this Agreement are for convenience of
reference only and are not to be considered in the interpretation of the terms
and conditions of this Agreement.
20. INVALIDITY OR UNENFORCEABILITY. If any term or provision of this
Agreement is held to be invalid or unenforceable, for any reason, such
invalidity or unenforceability shall not affect any other term or provision
hereof and this Agreement shall continue in full force and effect as if such
invalid or unenforceable term or provision (to the extent of the invalidity or
unenforceability) had not been contained herein. If any court determines that
any provision of Section 10 hereof is unenforceable because of the duration or
geographic scope of such provision, such court shall have the power to reduce
the scope or duration of such provision, as the case may be, and, in its reduced
form, such provision shall then be enforceable.
<PAGE> 41
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21. COUNTERPARTS. This agreement may be executed in any number of
counterparts, each of which for all purposes shall be deemed to be an original.
<PAGE> 42
-12-
IN WITNESS WHEREOF, the parties hereto have duly executed this agreement as
of the day and year first above written.
(Corporate Seal) GRAHAM CORPORATION
By /s/ F.D. Berkeley
-----------------------------------
Chairman, President and Chief
Executive Officer
(Corporate Seal) GRAHAM MANUFACTURING CO., INC.
By /s/ A. Cadena
------------------------------------
President
/s/ Joseph P. Gorman, Jr.
------------------------------------
JOSEPH P. GORMAN, JR.
Attest: /s/ Carole M. Anderson
------------------------
<PAGE> 43
-13-
STATE OF NEW YORK )
: ss.:
COUNTY OF GENESEE )
On the 10th day of February, 1997, before me personally came
F. D. Berkeley, to me known, who, being by me duly sworn, did depose and say
that he resides at 50 Old Mill Road, Rochester, New York; that he is Chairman,
President and Chief Executive Officer of Graham Corporation described in and
which executed the attached instrument; that he knows the seal of said
corporation and that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authorizations of the Board of Directors of said
corporation,k and that he signed his name thereto by like authority.
/s/ Carole M. Anderson
------------------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF GENESEE )
On the 10th day of February, 1997, before me personally came Alvaro
Cadena, to me known, who, being by me duly sworn, did depose and say that he
resides at 4 LePere Drive, Pittsford, New York; that he is President of Graham
Manufacturing Co., Inc. described in and which executed the attached
instrument; that he knows the seal of said corporation and that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
authorizations of the Board of Directors of said corporation, and that he
signed his name thereto by like authority.
/s/ Carole M. Anderson
---------------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF GENESEE )
On the 10th day of February, 1997, before me personally came
JOSEPH P. GORMAN, JR., to me known to be the person described in and who
executed the attached instrument and acknowledged that he executed the same.
/s/ Carole M. Anderson
---------------------------------
Notary Public
<PAGE> 44
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is made and entered into as of September 26,
1996 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 STEPHEN P. NORTHRUP, currently residing
at 5034 Barrville Road, Elba, New York 14058 (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 - Engineering 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 -
Engineering shall constitute termination of the Executive's employment without
cause under Section 9.3 of this Agreement.
2. DUTIES. The Executive is engaged as Vice President -
Engineering of GMC. The Executive shall have authority and responsibility for
the operation and management, on a day to day basis, for the Company's contract
engineering and quality assurance departments, 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
of GMC, or by 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 of Batavia, New
York. The Executive agrees to travel to the extent reasonably necessary for the
performance of his duties hereunder. The Executive shall devote his full time
during GMC's hours of work 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 September 26,
1996, plus such extensions, if any, as are provided pursuant
<PAGE> 45
-2-
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.
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 $109,595 per annum and as such rate may be increased from
time to time in accordance with this Section 4 or otherwise, payable in arrears
in equal monthly installments, subject to such deductions and withholdings as
may be required by law. During the fourth quarter of each year commencing in
calendar year 1996, 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 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 September 26, 1996, 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 September 26, 1996, 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
<PAGE> 46
-3-
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 or any successor 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
Incentive Compensation Plan (formerly 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 or the Holding Company's
Board of Directors or a committee of either.
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 20
business days of paid vacation in calendar year 1996 with additional time to
accrue thereafter in accordance with GMC's vacation policy, as the same may be
in effect from time to time.
6.3 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 6.3 shall be construed to limit
or restrict the complete discretion of the Board of Directors of the Holding
Company (with respect to
<PAGE> 47
-4-
employee benefit or bonus plan or plans of the Holding Company or the Board of
Directors of GMC (with respect to employee benefit or bonus plan or plans of
GMC, to amend, modify or terminate any of such plans, provided that such action
generally affects plan participants or employees, including the Executive.
6.4 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 The Company shall pay the Executive an automobile
allowance of $8,550 per annum (the "Automobile Allowance") toward the
Executive's use and maintenance of his own automobile. Neither the Automobile
Allowance or any portion of it shall be included as Base Compensation for the
purpose of any eligibility for possible increases in Base Compensation as
provided by Section 4 of this Agreement. During the fourth quarter of each year,
the Company will review the automobile allowance amount of the Executive and, in
its sole discretion, may increase the automobile allowance paid to the Executive
for the following calendar year, to be effective from January 1 of such
following year, to such increased rate and for such period of time as the
Company deems proper, provided that the Company shall in no event be required to
grant any such increase.
7.2 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
<PAGE> 48
-5-
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 disabled, for purposes of this Agreement, in the event that the
Executive shall fail, because of illness or incapacity, to render for nine (9)
successive months, or for shorter periods aggregating twelve (12) months or more
in any period of eighteen (18) months, services of the character contemplated by
this Agreement; and thereupon this Agreement and the employment and all rights
of the Executive hereunder shall be deemed to have been terminated as of the end
of the calendar month in which such determination was made.
9.2 FOR CAUSE. GMC may dismiss the Executive for
Cause. For purposes of this Agreement, "Cause" shall mean willful misconduct by
the Executive in connection with the performance of his duties hereunder or any
other conduct on the part of the Executive which has been materially injurious
to GMC or any affiliate. Existence of Cause as defined herein shall be
determined only by a good faith finding thereof by the GMC Board, which shall
afford the Executive the opportunity to appear before it, with the Executive's
legal counsel if the Executive chooses, prior to finalizing any such
determination. Following such a good faith determination by the GMC Board and
upon the delivery to the Executive of written notice that the GMC Board has made
such determination, the Employment shall terminate. If the Executive in good
faith contests a termination for cause by GMC, GMC will pay all legal fees and
other expenses incurred by the Executive, as the Executive is billed for such
costs, within ten (10) days of periodic submission to GMC of statements of
charges of attorneys and statements of other expenses incurred by the Executive
in connection with such challenge; the Executive will reimburse GMC for the
amount of legal fees and other expenses so paid if it should be determined by a
court of final adjudication that the Executive did not act in good faith in
bringing such challenge.
9.3 WITHOUT CAUSE. GMC may dismiss the Executive
without cause at any time upon thirty (30) days notice to the Executive. In the
event GMC dismisses the Executive other than for cause, or if the Executive
resigns because of a material breach of this Agreement by GMC, GMC shall
thereupon pay to the Executive (a) the compensation due him to the date of
termination, plus (b) an additional lump sum in an amount equal to twelve
months' salary at the rate specified in Section 4 hereinabove. At any time
prior to the effective date of termination of employment, the Executive may in
writing elect to receive the additional lump sum equal to twelve months' salary
in monthly installments of up to, but not to exceed, thirty-six (36) successive
months. In addition, GMC shall (a) provide the Executive with continuing health
care coverage, as described in Section 6.1 hereof, for a period of thirty-six
(36) months following the effective date of termination of employment; and (b)
shall pay for, or in the Executive's sole discretion, reimburse the Executive
as the Executive is billed, within ten (10) days of periodic submission to GMC
of statements of charges, for outplacement services from a provider agreed to
by the Executive and GMC until the sooner of (i) the Executive's commencement
of employment with another employer or (ii) thirty-six (36) months following
the effective
<PAGE> 49
-6-
date of termination of employment. In addition to other amounts payable to the
Executive under this Section 9.3, the Company and GMC shall pay to the
Executive Accrued Bonus as defined hereinafter. For purposes of this Section
9.3, Accrued Bonus shall mean any amount of bonus with respect to any calendar
year prior to the calendar year in which dismissal without cause occurs ("Prior
Bonus Year") calculable by applying the formula prescribed by the Executive
Bonus Plan of Graham Corporation as it existed on December 31 of such Prior
Bonus Year and employing in the application of such formula the goals, ratios
and weighting percentages and other variable figures which the Bonus Plan calls
for the Holding Company Board or any Committee thereof to determine annually
("Bonus Plan Variables") which the Holding Company's Board of Directors or any
Committee thereof adopted for purposes of the Bonus Plan prior to December 31
of such Prior Bonus Year. With respect to any Prior Bonus Year for which
neither the Holding Company Board nor any Committee thereof adopted Bonus Plan
Variables prior to December 31 of such year, the Bonus Plan Variables adopted
most recently prior to the commencement of the Prior Bonus Year in issue shall
be employed for purposes of calculating the amount of Accrued Bonus payable
pursuant to this Agreement. Notwithstanding any other provision of this
Section, no Accrued Bonus shall be payable pursuant to Section 9.3 of this
Agreement for any Prior Bonus Year with respect to which a bonus amount was
paid to and accepted by the Executive. In the event that the provisions of this
Section 9.3 are triggered by discharge of the Executive without cause by GMC,
the Executive shall resign from all offices and directorships all subsidiaries
and affiliates of GMC and of the Holding Company, upon payment to the Executive
of the amounts referred to in subsection (a) of the second sentence of this
Section 9.3, payment of the amount referred to in subsection (b) of the second
sentence of this Section 9.3 (or the first installment thereof) and Accrued
Bonus, if any.
9.4 RETURN OF CONFIDENTIAL DOCUMENTATION. Upon
termination of employment for any reason whatsoever, the Executive shall return
to GMC all working papers, notebooks, strategic plans, computer programs and
files, and other confidential documents and information, in any form whatsoever.
10. COVENANTS OF EXECUTIVE
The Executive acknowledges that: (a) the business of
GMC and its affiliates, as currently conducted and as conducted from time to
time throughout the term of this Agreement (collectively, the "Business"), is
conducted by and is proposed to be conducted on a world wide basis (the
"Company's Market"); (b) the Business involves providing design, engineering and
manufacture of certain vacuum and heat transfer equipment, including but not
<PAGE> 50
-7-
limited to steam condensers, steam jet ejectors, shell and tube heat exchangers,
plate and frame heat exchangers, Heliflow heat exchangers, liquid ring vacuum
pumps and rotary piston pumps; (c) GMC and its affiliates have developed trade
secrets and confidential information concerning the Business; and (d) the
agreements and covenants contained in this Section 10 are essential to protect
the Business. In order to induce GMC to enter into this Employment Agreement,
the Executive covenants and agrees that:
10.1 AGREEMENT NOT TO COMPETE. In the event that the
Executive resigns (for reasons other than a material breach of this Agreement by
GMC) or departs from the employ of GMC without the approval of the GMC Board or
is discharged for cause, then for a period of twelve (12) months after such
resignation, departure or discharge (such period of time hereinafter the
"Restricted Period"), neither the Executive nor any entity of which 20% or more
of the beneficial ownership is held by the Executive or a person related to the
Executive by blood or marriage ("Controlled Entity") will, anywhere the Market
of GMC or any affiliate, directly or indirectly own, manage, operate, control,
invest or acquire an interest in, or herewise engage or participate in, whether
as a proprietor, partner, stockholder, director, officer or employee, any
business which competes in the Market of GMC or any affiliate with the Business
as such Business was conducted, or such other business as the Company had plans
to conduct or had taken material steps toward conducting as of the date of
termination of the Executive's employment with the Company, without the prior
written consent of GMC. Notwithstanding any other provisions of this Agreement,
the Executive may make a passive investment in any publicly-traded company or
entity in an amount not to exceed 5% of the voting stock of any such company or
entity.
10.2 AGREEMENT NOT TO INTERFERE IN BUSINESS
RELATIONSHIPS. (a) During the Restricted Period, neither the Executive nor any
Controlled Entity will directly or indirectly solicit, induce or influence
customer, or any other person which has a business relationship with GMC or any
affiliate, or which had on the date of this Agreement such a relationship with
GMC or any affiliate, to discontinue or reduce the extent of such relationship
with GMC or any affiliate in the Market of GMC or any affiliate without the
prior written consent of GMC. (b) During the Restricted Period, neither the
Executive nor any Controlled Entity will (i) directly or indirectly recruit,
solicit or otherwise induce or influence any shareholder or employee of GMC or
any of its affiliates to discontinue such employment or other relationship with
GMC or any affiliate without the prior written consent of GMC, or (ii) employ or
seek to employ, or cause or permit any Competitive Business which competes in
the Market of GMC or any affiliate to employ or seek to employ for any
Competitive Business, any person who is then (or was at any time within six
months prior to the date the Executive or the Competitive Business employs or
seeks to employ such person) employed by GMC or any affiliate without the prior
written consent of GMC. Nothing herein shall prevent the Executive from
providing a letter of recommendation to an Employee with respect to a future
employment opportunity, nor prohibit the Executive from making general
employment advertisements in mass-circulation newspapers or other mass media.
<PAGE> 51
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10.3 CONFIDENTIALITY. During the Restricted Period,
neither the Executive nor any Controlled Entity will directly or indirectly
disclose to anyone, or use or otherwise exploit for the Executive's or any
Controlled Entity's own benefit or for the benefit of anyone other than GMC, any
confidential information, including, without limitation, any confidential
"know-how", trade secrets, customer lists, details of customer contracts,
pricing policies, operational methods, marketing plans or strategies, product
development techniques or plans, business acquisition plans and new personnel
acquisition plans of GMC or any affiliate related to the Business or any portion
or phase of any scientific, engineering or technical information, design,
process, procedure, formula, improvement, discovery, invention, machinery or
device of GMC or any affiliate that is not generally known to the competitors of
the Company whether or not in written or tangible form (hereinafter referred to
as "Confidential Information"). The term "Confidential Information" does not
include, and there shall be no obligation hereunder with respect to, information
that becomes generally available to the public other than as a result of a
disclosure by the Executive or a Controlled Entity or any agent or other
representative thereof. Neither the Executive nor any Controlled Entity shall
have any obligation hereunder to keep confidential any Confidential Information
to the extent disclosure is required by law, or determined in good faith by the
Executive to be necessary or appropriate to comply with any legal or regulatory
order, regulation or requirement; provided, however, that in the event
disclosure is required by law, the Executive or the Controlled Entity concerned
shall provide the Company with prompt notice of such requirement so that GMC may
seek an appropriate protective order. It is understood that in any new
employment, the Executive may use his ordinary skill and non-confidential
knowledge, even though said skill and non-confidential knowledge may have been
gained at GMC. The Executive's obligations under this Section 10.3 shall be in
addition to, not in substitution for, any common law fiduciary duties the
Executive has to GMC regarding information acquired during the course of his
employment.
10.4 INTELLECTUAL PROPERTY. The Executive shall
communicate to GMC full information concerning all inventions, improvements,
discoveries, formulas, processes, systems of organization, management
procedures, software or computer applications (hereinafter, collectively,
"Intellectual Property") made or conceived by him either solely or jointly with
others while in the employ of GMC, whether or not perfected during his period of
employment and which shall be within the existing or contemplated scope of the
Business during his employment. The Executive will assist GMC and its nominees
in every way at GMC's expense in obtaining patents for such Intellectual
Property as may be patentable in any and all countries and the Executive will
execute all papers GMC may desire and assignments thereof to GMC or its nominees
and said Intellectual Property shall be and remain the property of GMC and its
nominees, if any, whether patented or not or assigned or not.
10.5 SURVIVAL OF COVENANTS. In the event of a
termination of this Agreement, the covenants and agreements contained in this
Section 10 shall survive, shall continue thereafter, and shall not expire unless
and except as expressly set forth in such Section.
<PAGE> 52
-9-
10.6 REMEDIES. The parties to this Agreement agree
that (a) if either the Executive or any Controlled Entity breaches any provision
of this Section 10, the damage to GMC and its affiliates will be substantial,
although difficult to ascertain, and money damages will not afford an adequate
remedy, and (b) if either the Executive or any Controlled Entity is in breach of
this Agreement, or threatens a breach of this Agreement, GMC shall be entitled
in its own right and/or on behalf of one or more of its affiliates, in addition
to all other rights and remedies as may be available at law or in equity, to (i)
injunctive and other equitable relief to prevent or restrain a breach of this
Agreement and (ii) may require the breaching party to pay damages as the result
of any transactions constituting a breach hereof.
11. INDEMNIFICATION OF EXECUTIVE. In the event the Employment
is terminated for any reason, (a) GMC will hold harmless and indemnify the
Executive for all acts or omissions and for any suits it has at law or in
equity, claims, actions or other proceedings against the Executive initiated
either prior to the termination of employment or thereafter which relate to
duties performed in good faith by the Executive while employed by GMC; and (b)
GMC will retain the Executive as named insured under any directors' and
officers' insurance policies it may have, for acts of the Executive during the
time he served as an officer of GMC and any affiliate. Additionally, all legal
and other costs incurred by the Executive to defend himself will be paid by GMC,
as the Executive is billed for such costs, within ten (10) days of periodic
submission to GMC of statements of charges of attorneys and statements of other
expenses incurred by the Executive in connection with such defense.
12. EFFECT OF WAIVER. The waiver by either party of a breach
of any provision of this Agreement shall not operate as or be construed as a
waiver of any subsequent breach thereof.
13. NOTICE. Any and all notices provided for herein shall be
in writing and shall be physically delivered or mailed by registered or
certified mail, return receipt requested to the parties at their respective
addresses set forth hereinabove. Either party may from time to time designate a
different address for notices to be sent to such party by giving the other party
due notice of such different address.
14. VALIDITY. If any part of this Agreement shall be found to
be invalid or unenforceable, the same shall be deemed to be severable and the
remaining portions of this Agreement shall remain in full force and effect.
15. MODIFICATION AND ASSIGNMENT. This Agreement shall
not be modified or amended except by an instrument in writing signed by the
parties hereto. This Agreement and all of its terms and conditions shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors and assigns, including but
not limited to any corporation or other entity with or into which GMC is merged
or consolidated or any other successor of GMC. The Executive agrees that he will
not and may not assign, transfer or convey,
<PAGE> 53
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pledge or encumber this Agreement or his right, title or interest therein, or
his power to execute the same or any monies due or to become due hereunder, this
Agreement being intended to secure the personal services of the Executive, and
GMC shall not recognize any such assignment, transfer, conveyance, pledge or
encumbrance.
16. APPLICABLE LAW; VENUE. This agreement and the rights and
obligations of the parties hereunder shall be construed and interpreted in
accordance with the laws of the State of New York, without giving effect to the
conflict of laws provisions thereof. Any action or proceeding brought by either
party against the other arising out of or related to the Agreement shall be
brought only in a state court of competent jurisdiction located in the County of
Monroe, State of New York or the Federal District Court for the Western District
of New York located in Monroe County, New York and the parties hereby consent to
the personal jurisdiction of said courts.
17. PRIOR AGREEMENTS. This Agreement shall supersede any prior
employment agreement between GMC and the Executive and shall be effective from
the date specified hereinabove.
18. BUSINESS COMBINATIONS. In the event of any sale, merger or
any form of business combination affecting the Holding Company or GMC
whatsoever, the Holding Company and GMC will obtain the express written
assumption of this Agreement by the acquiring or surviving entity from such
combination, and failure of the Holding Company and GMC to obtain such an
assumption no later than the effective date of any such business combination
will constitute a breach of this Agreement, entitling the Executive to all
payments and other benefits to be provided in the event of termination without
cause provided in Section 9.3 hereof.
19. HEADINGS. The section headings of this Agreement are for
convenience of reference only and are not to be considered in the interpretation
of the terms and conditions of this Agreement.
20. INVALIDITY OR UNENFORCEABILITY. If any term or provision
of this Agreement is held to be invalid or unenforceable, for any reason, such
invalidity or unenforceability shall not affect any other term or provision
hereof and this Agreement shall continue in full force and effect as if such
invalid or unenforceable term or provision (to the extent of the invalidity or
unenforceability) had not been contained herein. If any court determines that
any provision of Section 10 hereof is unenforceable because of the duration or
geographic scope of such provision, such court shall have the power to reduce
the scope or duration of such provision, as the case may be, and, in its reduced
form, such provision shall then be enforceable.
21. COUNTERPARTS. This agreement may be executed in any number
of counterparts, each of which for all purposes shall be deemed to be an
original.
<PAGE> 54
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IN WITNESS WHEREOF, the parties hereto have duly executed this
agreement as of the day and year first above written.
(Corporate Seal) GRAHAM CORPORATION
By /s/ F.D. Berkeley
----------------------------------------
Chairman, President and Chief
Executive Officer
(Corporate Seal) GRAHAM MANUFACTURING CO., INC.
By /s/ A. Cadena
----------------------------------------
President
/s/ Stephen P. Northrup
----------------------------------------
STEPHEN P. NORTHRUP
Attest: /s/ Carole M. Anderson
--------------------------
<PAGE> 55
-12-
STATE OF NEW YORK )
: ss.:
COUNTY OF GENESEE )
On the 10th day of February, 1997, before me personally came
F. D. Berkeley, to me known, who, being by me duly sworn, did depose and say
that he resides at 50 Old Mill Road, Rochester, New York; that he is Chairman,
President and Chief Executive Officer of Graham Corporation described in and
which executed the attached instrument; that he knows the seal of said
corporation and that the seal affixed to said instrument is such corporate
seal; that it was so affixed by authorizations of the Board of Directors of
said corporation,k and that he signed his name thereto by like authority.
/s/ Carole M. Anderson
--------------------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF GENESEE )
On the 10th day of February, 1997, before me personally came
Alvaro Cadena, to me known, who, being by me duly sworn, did depose and say
that he resides at 4 LePere Drive, Pittsford, New York; that he is President of
Graham Manufacturing Co., Inc. described in and which executed the attached
instrument; that he knows the seal of said corporation and that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
authorizations of the Board of Directors of said corporation, and that he
signed his name thereto by like authority.
/s/ Carole M. Anderson
--------------------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF GENESEE )
On the 10th day of February, 1997, before me personally came
STEPHEN P. NORTHRUP, to me known to be the person described in and who executed
the attached instrument and acknowledged that he executed the same.
/s/ Carole M. Anderson
--------------------------------------
Notary Public
<PAGE> 1
Exhibit 10.5
GRAHAM CORPORATION
SENIOR EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT between Graham Corporation, a Delaware corporation (the
"Corporation"), and Alvaro Cadena (the "Executive"), WITNESSETH:
WHEREAS, the Board of Directors (the "Board") of the Corporation has
approved the Corporation entering into severance agreements with persons
designated key executives of the Corporation or its Subsidiaries;
WHEREAS, the Executive has been designated as a key executive of the
Corporation or one of its Subsidiaries by the Board to be a party to this
Agreement; and
WHEREAS, should the Corporation receive any proposal from a person
concerning any possible business combination with, or acquisition of equity
securities of, the Corporation, the Board believes it imperative that the
Corporation and the Board be able to rely upon the Executive to continue in his
position, and that the Corporation be able to receive and rely upon his advice,
if it requests it, as to the best interests of the Corporation and its
shareholders without concern that he might be distracted by the personal
uncertainties and risks created by such a proposal; and
WHEREAS, should the Corporation receive any such proposals, in addition to
the Executive's regular duties, he may be called upon to assist in the
assessment of such proposals, to advise management and the Board as to whether
such proposals would be in the best interests
<PAGE> 2
-2-
of the Corporation and its shareholders, and to take such other actions as the
Board might determine to be appropriate;
NOW, THEREFORE, to assure the Corporation that it will have the continued
dedication of the Executive and the availability of his advice and counsel
notwithstanding the possibility, threat or occurrence of a bid to take over
control of the Corporation, and to induce the Executive to remain in the employ
of the Corporation, and for other good and valuable consideration, the
Corporation and the Executive agree as follows:
I. SERVICES DURING CERTAIN EVENTS. In the event a person begins a tender or
exchange offer, circulates a proxy to shareholders, or takes other steps seeking
to effect a Change in Control (as hereinafter defined), the Executive agrees
that he will not voluntarily leave the employ of the Corporation, and will
render the services contemplated in the recitals to this Agreement, until the
person has abandoned or terminated his or its efforts to effect a Change in
Control or until three months after a Change in Control has occurred.
II. TERMINATION AFTER CHANGE IN CONTROL. In the event of a Termination (as
hereinafter defined) of the Executive's employment with the Corporation
(including its Subsidiaries) either (a) within three years after a Change in
Control of the Corporation; or (b) in any of the situations described in
Sections III.G. (ii), III.G. (iii) or III.G. (iv) of this Agreement:
A. LUMP SUM CASH PAYMENT. On or before the Executive's last day of
employment with the Corporation, the Corporation will pay to the
Executive as compensation for services rendered to the Corporation a
lump sum (subject to any applicable payroll or other taxes required to
be withheld) in an amount equal to (i)
<PAGE> 3
-3-
one dollar less than three times the Executive's annualized
tax-includable compensation, including bonus compensation, for the five
most recent taxable years ending before the date of the Change in
Control; or (ii) if the Executive was employed by the Corporation for
less than five years, one dollar less than three times the Executive's
annualized tax includable compensation including bonus compensation for
the period during which the individual was continuously employed by the
Corporation and ending on the date of the Change in Control of the
Corporation. In the event the Executive dies at any time prior to
receiving the lump sum payment but following the occurrence of any
event requiring the Corporation to pay it under the terms of this
Agreement, the payments provided for by this paragraph shall be paid to
the Executive's estate.
B. MONTHLY CASH PAYMENT. (i) At any time prior to the close of business
on the Executive's last day of employment with the Corporation, the
Executive may in writing elect to receive, instead of the lump sum cash
payment provided in Section II.A., consecutive monthly cash payments of
a number to be specified by the Executive but not to exceed 36. In the
event of such election, the Corporation will pay to the Executive as
compensation for services rendered to the Corporation equal consecutive
monthly cash payments (subject to any applicable payroll or other taxes
required to be withheld) of the number specified by the Executive, such
that the sum of the present value on the date of Termination of these
payments in the aggregate, as determined pursuant to Section B. (ii),
is equal to the amount
<PAGE> 4
-4-
specified by either Section II.A. (i) if the Executive has been
employed by the Corporation for five years or more, or Section II.A.
(ii) if the Executive has been employed by the Corporation for less
than five years. The Corporation will pay the Executive the first of
such payments on or before the Executive's last day of employment with
the Corporation, and will pay the remaining payments on the first day
of each succeeding month until the number of payments specified by the
Executive has been paid. In the event the Executive dies at any time
prior to receiving all of the monthly payments in the number specified
by the Executive but following the occurrence of any event requiring
the Corporation to pay them under the terms of this Agreement, the
payments provided for by this paragraph shall be paid to the
Executive's estate. (ii) The present value of the amount payable under
this section II.B. shall be determined using the interest rate
prescribed by the Internal Revenue Code of 1986, as amended, (the
"Code") Section 1274(b)(2) and applicable regulations and the method
prescribed by Code Section 280G(d)(4) and regulations.
C. OTHER PROVISIONS.
(1) BONUS COMPENSATION. Any awards previously made to the
Executive as bonus compensation and not previously paid shall
immediately vest on the date of his Termination and shall be paid on
that date. If the Executive's Termination date and the date of Change
in Control are the same, then the bonus payment made on the date of
termination shall be included as compensation in the month when
<PAGE> 5
-5-
paid, for the purpose of determining the Executive's five-year
annualized tax-includable compensation as provided in paragraph II(A)
herein.
(2) SAVINGS AND OTHER PLANS. The Executive's participation in any
applicable savings and/or profit sharing plan of the Corporation or any
of its subsidiaries, and any terminating distributions and/or vested
rights under such plans shall be governed by the terms of those
respective plans.
(3) STOCK INCENTIVE PLAN; STOCK OPTION AND STOCK APPRECIATION
RIGHTS. Upon Termination of the Executive's employment the Corporation
agrees to accelerate and make immediately exercisable in full all
unmatured installments of all options which the Executive then holds to
acquire securities. Such options shall be exercisable by the Executive
in accordance with their terms.
(4) RETIREMENT BENEFITS. (a) The Executive shall be entitled to
the total retirement benefits actually payable to him or his
beneficiaries under the Corporation's retirement plans or any successor
plans of the Corporation, and in the amount and manner prescribed by
such plans.
(b) Upon Termination of the Executive's employment with the
Corporation following a Change in Control, the Corporation shall
pay and provide to the Executive (or, in the event of his death,
to his estate) within twenty (20) days following his termination
of employment with the Corporation, a lump sum payment in an
amount equal to the excess, if any, of:
(i) the present value of the aggregate benefits to
<PAGE> 6
-6-
which he would be entitled under any and all qualified and
non-qualified defined benefit pension plans maintained by,
or covering employees of, the Corporation if he were 100%
vested thereunder, such benefits to be determined as of the
date of termination of employment; over
(ii) the present value of the benefits to which he is
actually entitled under such defined benefit pension plans
as of the date of his termination;
where such present values are to be determined using the mortality
tables prescribed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly, equal to the annualized rate of
interest prescribed under section 415 of the Code for the valuation of
lump sum payments for the month in which the Executive's termination
of employment occurs; provided, however, that if the Executive so
requests by notifying the Corporation prior to the close of business
on the Executive's last day of employment with the Corporation, the
above payment will be made in equal monthly cash payments of a number
to be specified by the Executive (but not to exceed thirty-six (36)),
and the present value of such monthly payments will equal the above
lump sum amount.
D. OTHER EMPLOYMENT. The Executive shall not be obligated to seek
other employment in mitigation of the amounts payable or arrangements
made under any
<PAGE> 7
-7-
provision of this Agreement, nor shall any payments under this
Agreement be reduced on account of any compensation, benefits or
service credits for benefits from any employment that the Executive
may obtain following his Termination.
E. DEFINITIONS.
(1) "CHANGE IN CONTROL". For the purposes of this Agreement, a "Change
in Control" shall be deemed to have taken place if:
(a) as the result of, or in connection with, any cash tender or
exchange offer, consolidation, merger or other business
combination, sale of assets or contested election or elections,
or any combination of the foregoing transactions (a
"Transaction"), the persons who were directors of the Corporation
before the Transaction shall cease for any reason to constitute a
majority of the Board of Directors of the Corporation or any
successor to the Corporation (including any entity acquiring
substantially all the assets of the Corporation); OR
(b) a "person" (as that term is used in Section 13(d) and
14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange
Act") as in effect on the date hereof), including a "group" as
defined in Section 13(d)(3) of the Exchange Act, becomes the
beneficial owner, directly or indirectly, of shares of the
Corporation having 25% or more of the total number of votes that
may be cast for the election of Directors of the Corporation; OR
(c) any event occurs with respect to the Corporation that would
be required
<PAGE> 8
-8-
to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A, or to Item 1 of Form 8-K, under the Securities
Exchange Act of 1934, as amended.
(2) "TERMINATION". For the purposes of this Agreement, the term
"Termination" shall mean termination by the Corporation of the employment
of the Executive with the Corporation (including its subsidiaries) for any
reason other than death, disability or cause (as defined below), or
resignation of the Executive upon the occurrence of either of the following
events:
(a) A change in the nature or scope of the Executive's authority
from that prior to a Change in Control, a reduction in the
Executive's total compensation (including all and any base
compensation, bonuses, incentive compensation and benefits of any
kind or nature whatsoever and including but not limited to the
benefits referred to in Paragraph C of this Section II) from that
prior to a Change in Control, or failure of the Corporation to
make any increase in compensation to which the Executive may be
entitled under any employment agreement, or a change requiring
the Executive to perform services other than in Batavia, New York
or in any location more than thirty miles distant from Rochester,
New York by road, except for required travel on the Corporation's
business to an extent substantially consistent with the
Executive's present business travel obligations; or
(b) A reasonable determination (as defined below) by the
Executive
<PAGE> 9
-9-
that, as a result of a Change in Control and a change in
circumstances thereafter significantly affecting his position, he
is unable to exercise the authority, powers, function or duties
attached to his position.
(3) "CAUSE". The term "cause" means fraud, misappropriation or
intentional material damage to the property or business of the
Corporation or commission of a felony.
(4) "DISABILITY" The term "disability" means the Executive's absence
from his duties with the Corporation on a full time basis for 6
successive months, or for shorter periods aggregating 7 months or more
in any year, as a result of the Executive's incapacity due to physical
or mental illness, unless within 30 days after the Corporation gives
written notice of termination following such absence the Executive
shall have returned to the full time performance of his duties.
(5) "REASONABLE DETERMINATION". Termination of employment by the
Executive in his "reasonable determination" shall mean termination
based on:
(a) subsequent to a Change in Control of the Corporation, and
without the Executive's express written consent, the assignment
to him of any duties inconsistent with his positions, duties,
responsibilities and status with the Corporation immediately
prior to a Change in Control, or a change in the Executive's
reporting responsibilities, titles, or offices as in effect
immediately prior to a Change in Control, or any removal of the
Executive from or any failure to re-elect him to any of such
positions, except in
<PAGE> 10
-10-
connection with the termination of his employment for cause,
Disability or Retirement or as a result of his death or by the
Executive other than in a Reasonable Determination; or
(b) subsequent to a Change in Control of the Corporation, a
reduction by the Corporation in the Executive's base salary as in
effect on the date hereof or as the same may be increased from
time to time, or failure of the Corporation to make an increase
in compensation to which the Executive may be entitled under any
employment agreement; or
(c) subsequent to a Change in Control of the Corporation, a
failure by the Corporation to continue any bonus plans in which
the Executive is presently entitled to participate (the "Bonus
Plans") as the same may be modified from time to time but
substantially in the forms currently in effect, or a failure by
the Corporation to continue the Executive as a participant in the
Bonus Plans on at least the same basis as he presently
participates in accordance with the Bonus Plans; or
(d) subsequent to a Change in Control of the Corporation, the
failure by the Corporation to continue in effect (subject to such
changes as may be required by law from time to time) any benefit
or compensation plan, stock ownership plan, stock purchase plan,
stock option plan, life insurance plan, health-and-accident plan
or disability plan in which the Executive is participating at the
time of Change in Control of the Corporation (or plans
<PAGE> 11
-11-
providing him with substantially similar benefits), the taking of
any action by the Corporation which would adversely affect the
Executive's participation in or materially reduce his benefits
under any of such plans or deprive him of any material fringe
benefit enjoyed by him at the time of the Change in Control, or
the failure by the Corporation to provide him with the number of
paid vacation days to which he is then entitled in accordance
with the Corporation's normal vacation policy in effect on the
date hereof; or
(e) prior to a Change in Control of the Corporation, the failure
by the Corporation to obtain the assumption of the agreement to
perform this Agreement by any successor as contemplated in
Section III(D) hereof.
III. GENERAL.
A. INDEMNIFICATION. (1) The Corporation shall indemnify the Executive
for all reasonable attorney fees and other expenses incurred in connection
with enforcement or interpretation of this Agreement or any provision
contained herein, such indemnification to be payable as and when the
Executive is billed for such attorney fees or other expenses. The
Indemnification provided for hereunder shall be payable notwithstanding any
judgment or decision adverse to the Executive resulting from any litigation
or arbitration ("Proceeding") in connection with this agreement provided
that, if such Proceeding is commenced by the Executive, the Executive acted
in good faith in commencing the Proceeding. The Corporation hereby agrees
to pay pre-judgment interest on any money judgment or award obtained by the
Executive in
<PAGE> 12
-12-
connection with this agreement, calculated at the prime interest rate of
the Fleet Bank of New York in effect from time to time from the date that
payment(s) to him should have been made under this Agreement.
(2) (a) If, following a Change in Control, for any taxable year
the Executive shall be liable for the payment of an excise tax under
Section 4999 of the Code or any successor provision of the Code
thereto (Section 4999 of the Code and any successor provision thereto
hereinafter collectively "Section 4999 of the Code"), with respect to
any payment of money or property made by the Corporation or any direct
or indirect subsidiary or affiliate of the Corporation to (or for the
benefit of) the Executive, the Corporation shall pay to the Executive
an amount equal to X determined under the following formula:
E x P
X = -----------------------------------------------
1 - [(FI x (1 - SLI)) + SLI + E + M]
where
X = the amount to be paid to the Executive under this section III.A(2)(a);
E = the rate at which the excise tax is assessed under Section 4999 of the
Code;
P = the amount with respect to which such excise tax is assessed,
determined without regard to this section III.A(2);
FI = the highest marginal rate of income tax applicable to the Executive
under the Code for the taxable year in question; and
SLI = the sum of the highest marginal rates of income tax applicable to
the Executive under applicable state and local laws for the taxable
year in question; and
M = the highest marginal rate of Medicare tax applicable to the
Executive under the Code for the taxable year in question.
<PAGE> 13
-13-
With respect to any payment that is made to the Executive under the terms
of this Agreement, or otherwise, and on which an excise tax under Section
4999 of the Code will be assessed, the payment determined under this
section III.A(2) shall be made to the Executive not later than the earlier
of (i) the date the Corporation or any direct or indirect subsidiary or
affiliate of the Corporation is required to withhold such tax, or (ii) the
date the tax is required to be paid by the Executive. With respect to any
payment made under the terms of this Agreement in any other year and on
which an excise tax under Section 4999 of the Code will be assessed, the
payment under this section III.A(2) shall be made to the Executive not
later than December 31st of the year in which the payment on which such
excise tax will be assessed is made to the Executive.
(b) Notwithstanding anything in this section III.A(2) to the contrary,
in the event that the Executive's liability for the excise tax under
Section 4999 of the Code for a taxable year is subsequently determined to
be different than the amount determined by the formula (X + P) x E, where
X, P and E have the meanings provided in section III.A(2)(a), the Executive
or the Corporation, as the case may be, shall pay to the other party at the
time that the amount of such excise tax is finally determined, an
appropriate amount, plus interest, such that the payment made under section
III.A(2)(a), when increased by the amount of the payment made to the
Executive under this section III.A(2)(b) by the Corporation, or when
reduced by the amount of the payment made to the Corporation under this
section III.A(2)(b) by the Executive, equals the amount that should have
been properly paid to the Executive under section III.A(2)(a). The interest
paid under this Section III.A(2)(b) shall be determined at the rate
provided under Section 1274(b)(2)(B) of the Code. To confirm that the
proper amount, if any, was paid to the
<PAGE> 14
-14-
Executive under this Section III.A(2), the Executive shall furnish to the
Corporation a copy of each tax return which reflects a liability for an
excise tax payment under Section 4999 of the Code with respect to a payment
made by the Corporation, at least twenty (20) days before the date on which
such return is required to be filed with the Internal Revenue Service.
B. PAYMENT OBLIGATIONS ABSOLUTE. The Corporation's obligation
hereunder shall be considered severance pay in consideration of the
Executive's past service, and pay in consideration of his continued service
from the date hereof and shall not be affected in any circumstances,
including, without limitation, any set-off, counterclaim, recoupment,
defense or other right that the Corporation may have against him or anyone
else, or any duty by the Executive to mitigate his damages by seeking
further employment. All amounts payable by the Corporation hereunder shall
be paid without notice or demand. Each and every payment made hereunder by
the Corporation shall be final and the Corporation will not seek to recover
all or any part of such payment from the Executive or from whomsoever may
be entitled thereto, for any reason whatsoever.
C. CONTINUING OBLIGATIONS. The Executive shall retain in confidence
any confidential information known to him concerning the Corporation and
its subsidiaries and their respective businesses as long as such
information is not publicly disclosed.
D. SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the Executive and his estate, and the Corporation and any
successors of the Corporation, but neither this Agreement nor any rights
arising hereunder may be assigned or pledged by the Executive. The
Corporation will require any successor (whether direct or indirect, by
purchase,
<PAGE> 15
-15-
merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Corporation, including the stock or assets of
any subsidiary, by agreement to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Corporation
would be required to perform it if no such succession had taken place, a
copy of which agreement shall be delivered to the Executive prior to or
contemporaneously with such succession. Failure of the Corporation to
obtain such agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle the Executive to
compensation from the Corporation in the same amount and on the same terms
as he would be entitled hereunder in the event of a Termination as herein
provided. As used in this Agreement, "Corporation" shall include any
successor to substantially all of the business and/or assets of the
Corporation.
E. SEVERABILITY. Any provision in this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability
without invalidating or affecting the remaining provisions hereof, and any
such prohibition or enforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
F. CONTROLLING LAW. This Agreement shall in all respects be governed
by, and construed in accordance with, the laws of the State of New York,
without reference to conflict of law principles.
G. TERMINATION. This Agreement shall terminate if the Board
determines, prior to any Termination of the employment of the Executive,
that the Executive is no longer to be
<PAGE> 16
-16-
designated a key executive of the Corporation and so notifies the Executive
in writing; EXCEPT THAT such determination shall not be made, and if made
shall have no effect, (i) within three years after a Change in Control or
(ii) during any period of time when the Corporation has or should have
knowledge that any person has taken steps, or plans to or has proposed to
take steps, reasonably calculated to effect a Change in Control until, in
the opinion of the Board, the person has abandoned or terminated his or its
efforts to effect a Change in Control or (iii) following the commencement
of any discussions with any person that ultimately result in the occurrence
of a Change in Control or (iv) if undertaken at the instance or upon the
suggestion of any participant in a prospective Change in Control or any
agent or other person acting on behalf of or in conjunction with any such
participant in a prospective Change in Control. For purposes of section
(ii) of the preceding sentence, any decision by the Board that a person has
abandoned or terminated his or its efforts to effect a Change in Control
shall be conclusive and binding on the Executive, EXCEPT THAT no such
decision of the Board shall have effect if, within three years following
such decision being made by the Board, any person with respect to whose
abandonment or termination of an effort to cause a Change in Control a
Board determination was made, or any affiliate or agent of such a person,
effects or participates, directly or indirectly, in any activity causing or
assisting in the occurrence of, a Change in Control.
H. FRAUDULENT CONVEYANCE. Should the Corporation be unable to make any
payment called for by this Agreement, as a result of the whole or partial
transfer from its control, by whatever means, of the stock and/or assets of
Graham Manufacturing Co., Inc. or any successor thereto, such transfer
shall be deemed a fraudulent conveyance of assets, voidable to the
<PAGE> 17
-17-
extent necessary to fully discharge all of the obligations of the
Corporation to the Executive under this Agreement.
IV. PRIOR AGREEMENT. This instrument contains the entire agreement of the
parties hereto relating to the subject matter hereof and supersedes in its
entirety any and all prior agreements, understandings, representations, whether
or not in writing, relating to the subject matter hereof, but shall not affect
any Employment Agreement between the Executive and the Corporation and/or any of
its subsidiaries.
<PAGE> 18
-18-
IN WITNESS WHEREOF, the parties have executed this Agreement on the
28th day of July, 1995.
GRAHAM CORPORATION
By:/s/ F.D. Berkeley
---------------------------------
F.D. Berkeley
Chairman and Chief Executive Officer
ATTEST:
/s/ Cornelius S. Van Rees
- -----------------------------
Secretary
[SEAL]
EXECUTIVE
/s/ A. Cadena
-------------------------------
Alvaro Cadena
<PAGE> 19
GRAHAM CORPORATION
SENIOR EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT between Graham Corporation, a Delaware corporation (the
"Corporation"), and J. Ronald Hansen (the "Executive"), WITNESSETH:
WHEREAS, the Board of Directors (the "Board") of the Corporation has
approved the Corporation entering into severance agreements with persons
designated key executives of the Corporation or its Subsidiaries;
WHEREAS, the Executive has been designated as a key executive of the
Corporation or one of its Subsidiaries by the Board to be a party to this
Agreement; and
WHEREAS, should the Corporation receive any proposal from a person
concerning any possible business combination with, or acquisition of equity
securities of, the Corporation, the Board believes it imperative that the
Corporation and the Board be able to rely upon the Executive to continue in his
position, and that the Corporation be able to receive and rely upon his advice,
if it requests it, as to the best interests of the Corporation and its
shareholders without concern that he might be distracted by the personal
uncertainties and risks created by such a proposal; and
WHEREAS, should the Corporation receive any such proposals, in addition to
the Executive's regular duties, he may be called upon to assist in the
assessment of such proposals, to advise management and the Board as to whether
such proposals would be in the best interests
<PAGE> 20
-2-
of the Corporation and its shareholders, and to take such other actions as the
Board might determine to be appropriate;
NOW, THEREFORE, to assure the Corporation that it will have the continued
dedication of the Executive and the availability of his advice and counsel
notwithstanding the possibility, threat or occurrence of a bid to take over
control of the Corporation, and to induce the Executive to remain in the employ
of the Corporation, and for other good and valuable consideration, the
Corporation and the Executive agree as follows:
I. SERVICES DURING CERTAIN EVENTS. In the event a person begins a tender or
exchange offer, circulates a proxy to shareholders, or takes other steps seeking
to effect a Change in Control (as hereinafter defined), the Executive agrees
that he will not voluntarily leave the employ of the Corporation, and will
render the services contemplated in the recitals to this Agreement, until the
person has abandoned or terminated his or its efforts to effect a Change in
Control or until three months after a Change in Control has occurred.
II. TERMINATION AFTER CHANGE IN CONTROL. In the event of a Termination (as
hereinafter defined) of the Executive's employment with the Corporation
(including its Subsidiaries) either (a) within three years after a Change in
Control of the Corporation; or (b) in any of the situations described in
Sections III.G. (ii), III.G. (iii) or III.G. (iv) of this Agreement:
A. LUMP SUM CASH PAYMENT. On or before the Executive's last day of
employment with the Corporation, the Corporation will pay to the Executive
as compensation for services rendered to the Corporation a lump sum
(subject to any applicable payroll or other taxes required to be withheld)
in an amount equal to (i)
<PAGE> 21
-3-
one dollar less than three times the Executive's annualized tax-includable
compensation, including bonus compensation, for the five most recent
taxable years ending before the date of the Change in Control; or (ii) if
the Executive was employed by the Corporation for less than five years, one
dollar less than three times the Executive's annualized tax includable
compensation including bonus compensation for the period during which the
individual was continuously employed by the Corporation and ending on the
date of the Change in Control of the Corporation. In the event the
Executive dies at any time prior to receiving the lump sum payment but
following the occurrence of any event requiring the Corporation to pay it
under the terms of this Agreement, the payments provided for by this
paragraph shall be paid to the Executive's estate.
B. MONTHLY CASH PAYMENT. (i) At any time prior to the close of business on
the Executive's last day of employment with the Corporation, the Executive
may in writing elect to receive, instead of the lump sum cash payment
provided in Section II.A., consecutive monthly cash payments of a number to
be specified by the Executive but not to exceed 36. In the event of such
election, the Corporation will pay to the Executive as compensation for
services rendered to the Corporation equal consecutive monthly cash
payments (subject to any applicable payroll or other taxes required to be
withheld) of the number specified by the Executive, such that the sum of
the present value on the date of Termination of these payments in the
aggregate, as determined pursuant to Section B. (ii), is equal to the
amount
<PAGE> 22
-4-
specified by either Section II.A. (i) if the Executive has been employed by
the Corporation for five years or more, or Section II.A. (ii) if the
Executive has been employed by the Corporation for less than five years.
The Corporation will pay the Executive the first of such payments on or
before the Executive's last day of employment with the Corporation, and
will pay the remaining payments on the first day of each succeeding month
until the number of payments specified by the Executive has been paid. In
the event the Executive dies at any time prior to receiving all of the
monthly payments in the number specified by the Executive but following the
occurrence of any event requiring the Corporation to pay them under the
terms of this Agreement, the payments provided for by this paragraph shall
be paid to the Executive's estate. (ii) The present value of the amount
payable under this section II.B. shall be determined using the interest
rate prescribed by the Internal Revenue Code of 1986, as amended, (the
"Code") Section 1274(b)(2) and applicable regulations and the method
prescribed by Code Section 280G(d)(4) and regulations.
C. OTHER PROVISIONS.
(1) BONUS COMPENSATION. Any awards previously made to the Executive as
bonus compensation and not previously paid shall immediately vest on the
date of his Termination and shall be paid on that date. If the Executive's
Termination date and the date of Change in Control are the same, then the
bonus payment made on the date of termination shall be included as
compensation in the month when
<PAGE> 23
-5-
paid, for the purpose of determining the Executive's five-year annualized
tax-includable compensation as provided in paragraph II(A) herein.
(2) SAVINGS AND OTHER PLANS. The Executive's participation in any
applicable savings and/or profit sharing plan of the Corporation or any of
its subsidiaries, and any terminating distributions and/or vested rights
under such plans shall be governed by the terms of those respective plans.
(3) STOCK INCENTIVE PLAN; STOCK OPTION AND STOCK APPRECIATION RIGHTS.
Upon Termination of the Executive's employment the Corporation agrees to
accelerate and make immediately exercisable in full all unmatured
installments of all options which the Executive then holds to acquire
securities. Such options shall be exercisable by the Executive in
accordance with their terms.
(4) RETIREMENT BENEFITS. (a) The Executive shall be entitled to the
total retirement benefits actually payable to him or his beneficiaries
under the Corporation's retirement plans or any successor plans of the
Corporation, and in the amount and manner prescribed by such plans.
(b) Upon Termination of the Executive's employment with the
Corporation following a Change in Control, the Corporation shall pay
and provide to the Executive (or, in the event of his death, to his
estate) within twenty (20) days following his termination of
employment with the Corporation, a lump sum payment in an amount equal
to the excess, if any, of:
(i) the present value of the aggregate benefits to
<PAGE> 24
-6-
which he would be entitled under any and all qualified and
non-qualified defined benefit pension plans maintained by, or
covering employees of, the Corporation if he were 100% vested
thereunder, such benefits to be determined as of the date of
termination of employment; over
(ii) the present value of the benefits to which he is
actually entitled under such defined benefit pension plans as of
the date of his termination;
where such present values are to be determined using the mortality
tables prescribed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly, equal to the annualized rate of
interest prescribed under section 415 of the Code for the valuation of
lump sum payments for the month in which the Executive's termination
of employment occurs; provided, however, that if the Executive so
requests by notifying the Corporation prior to the close of business
on the Executive's last day of employment with the Corporation, the
above payment will be made in equal monthly cash payments of a number
to be specified by the Executive (but not to exceed thirty-six (36)),
and the present value of such monthly payments will equal the above
lump sum amount.
D. OTHER EMPLOYMENT. The Executive shall not be obligated to seek other
employment in mitigation of the amounts payable or arrangements made under
any
<PAGE> 25
-7-
provision of this Agreement, nor shall any payments under this Agreement be
reduced on account of any compensation, benefits or service credits for
benefits from any employment that the Executive may obtain following his
Termination.
E. DEFINITIONS.
(1) "CHANGE IN CONTROL". For the purposes of this Agreement, a "Change in
Control" shall be deemed to have taken place if:
(a) as the result of, or in connection with, any cash tender or
exchange offer, consolidation, merger or other business combination,
sale of assets or contested election or elections, or any combination
of the foregoing transactions (a "Transaction"), the persons who were
directors of the Corporation before the Transaction shall cease for
any reason to constitute a majority of the Board of Directors of the
Corporation or any successor to the Corporation (including any entity
acquiring substantially all the assets of the Corporation); OR
(b) a "person" (as that term is used in Section 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934 (the "Exchange Act") as in effect
on the date hereof), including a "group" as defined in Section
13(d)(3) of the Exchange Act, becomes the beneficial owner, directly
or indirectly, of shares of the Corporation having 25% or more of the
total number of votes that may be cast for the election of Directors
of the Corporation; OR
(c) any event occurs with respect to the Corporation that would be
required
<PAGE> 26
-8-
to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A, or to Item 1 of Form 8-K, under the Securities Exchange Act of
1934, as amended.
(2) "TERMINATION". For the purposes of this Agreement, the term
"Termination" shall mean termination by the Corporation of the employment
of the Executive with the Corporation (including its subsidiaries) for any
reason other than death, disability or cause (as defined below), or
resignation of the Executive upon the occurrence of either of the following
events:
(a) A change in the nature or scope of the Executive's authority from
that prior to a Change in Control, a reduction in the Executive's
total compensation (including all and any base compensation, bonuses,
incentive compensation and benefits of any kind or nature whatsoever
and including but not limited to the benefits referred to in Paragraph
C of this Section II) from that prior to a Change in Control, or
failure of the Corporation to make any increase in compensation to
which the Executive may be entitled under any employment agreement, or
a change requiring the Executive to perform services other than in
Batavia, New York or in any location more than thirty miles distant
from Rochester, New York by road, except for required travel on the
Corporation's business to an extent substantially consistent with the
Executive's present business travel obligations; or
(b) A reasonable determination (as defined below) by the Executive
<PAGE> 27
-9-
that, as a result of a Change in Control and a change in circumstances
thereafter significantly affecting his position, he is unable to
exercise the authority, powers, function or duties attached to his
position.
(3) "CAUSE". The term "cause" means fraud, misappropriation or intentional
material damage to the property or business of the Corporation or
commission of a felony.
(4) "DISABILITY" The term "disability" means the Executive's absence from
his duties with the Corporation on a full time basis for 6 successive
months, or for shorter periods aggregating 7 months or more in any year, as
a result of the Executive's incapacity due to physical or mental illness,
unless within 30 days after the Corporation gives written notice of
termination following such absence the Executive shall have returned to the
full time performance of his duties.
(5) "REASONABLE DETERMINATION". Termination of employment by the Executive
in his "reasonable determination" shall mean termination based on:
(a) subsequent to a Change in Control of the Corporation, and without
the Executive's express written consent, the assignment to him of any
duties inconsistent with his positions, duties, responsibilities and
status with the Corporation immediately prior to a Change in Control,
or a change in the Executive's reporting responsibilities, titles, or
offices as in effect immediately prior to a Change in Control, or any
removal of the Executive from or any failure to re-elect him to any of
such positions, except in
<PAGE> 28
-10-
connection with the termination of his employment for cause,
Disability or Retirement or as a result of his death or by the
Executive other than in a Reasonable Determination; or
(b) subsequent to a Change in Control of the Corporation, a reduction
by the Corporation in the Executive's base salary as in effect on the
date hereof or as the same may be increased from time to time, or
failure of the Corporation to make an increase in compensation to
which the Executive may be entitled under any employment agreement; or
(c) subsequent to a Change in Control of the Corporation, a failure by
the Corporation to continue any bonus plans in which the Executive is
presently entitled to participate (the "Bonus Plans") as the same may
be modified from time to time but substantially in the forms currently
in effect, or a failure by the Corporation to continue the Executive
as a participant in the Bonus Plans on at least the same basis as he
presently participates in accordance with the Bonus Plans; or
(d) subsequent to a Change in Control of the Corporation, the failure
by the Corporation to continue in effect (subject to such changes as
may be required by law from time to time) any benefit or compensation
plan, stock ownership plan, stock purchase plan, stock option plan,
life insurance plan, health-and-accident plan or disability plan in
which the Executive is participating at the time of Change in Control
of the Corporation (or plans
<PAGE> 29
-11-
providing him with substantially similar benefits), the taking of any
action by the Corporation which would adversely affect the Executive's
participation in or materially reduce his benefits under any of such
plans or deprive him of any material fringe benefit enjoyed by him at
the time of the Change in Control, or the failure by the Corporation
to provide him with the number of paid vacation days to which he is
then entitled in accordance with the Corporation's normal vacation
policy in effect on the date hereof; or
(e) prior to a Change in Control of the Corporation, the failure by
the Corporation to obtain the assumption of the agreement to perform
this Agreement by any successor as contemplated in Section III(D)
hereof.
III. GENERAL.
A. INDEMNIFICATION. (1) The Corporation shall indemnify the Executive
for all reasonable attorney fees and other expenses incurred in connection
with enforcement or interpretation of this Agreement or any provision
contained herein, such indemnification to be payable as and when the
Executive is billed for such attorney fees or other expenses. The
Indemnification provided for hereunder shall be payable notwithstanding any
judgment or decision adverse to the Executive resulting from any litigation
or arbitration ("Proceeding") in connection with this agreement provided
that, if such Proceeding is commenced by the Executive, the Executive acted
in good faith in commencing the Proceeding. The Corporation hereby agrees
to pay pre-judgment interest on any money judgment or award obtained by the
Executive in
<PAGE> 30
-12-
connection with this agreement, calculated at the prime interest rate of
the Fleet Bank of New York in effect from time to time from the date that
payment(s) to him should have been made under this Agreement.
(2) (a) If, following a Change in Control, for any taxable year the
Executive shall be liable for the payment of an excise tax under Section
4999 of the Code or any successor provision of the Code thereto (Section
4999 of the Code and any successor provision thereto hereinafter
collectively "Section 4999 of the Code"), with respect to any payment of
money or property made by the Corporation or any direct or indirect
subsidiary or affiliate of the Corporation to (or for the benefit of) the
Executive, the Corporation shall pay to the Executive an amount equal to X
determined under the following formula:
E x P
X = ----------------------------------------------------
1 - [(FI x (1 - SLI)) + SLI + E + M]
where
X = the amount to be paid to the Executive under this section
III.A(2)(a);
E = the rate at which the excise tax is assessed under Section 4999 of
the Code;
P = the amount with respect to which such excise tax is assessed,
determined without regard to this section III.A(2);
FI = the highest marginal rate of income tax applicable to the Executive
under the Code for the taxable year in question; and
SLI = the sum of the highest marginal rates of income tax applicable to
the Executive under applicable state and local laws for the taxable
year in question; and
M = the highest marginal rate of Medicare tax applicable to the
Executive under the Code for the taxable year in question.
<PAGE> 31
-13-
With respect to any payment that is made to the Executive under the terms of
this Agreement, or otherwise, and on which an excise tax under Section 4999 of
the Code will be assessed, the payment determined under this section III.A(2)
shall be made to the Executive not later than the earlier of (i) the date the
Corporation or any direct or indirect subsidiary or affiliate of the Corporation
is required to withhold such tax, or (ii) the date the tax is required to be
paid by the Executive. With respect to any payment made under the terms of this
Agreement in any other year and on which an excise tax under Section 4999 of the
Code will be assessed, the payment under this section III.A(2) shall be made to
the Executive not later than December 31st of the year in which the payment on
which such excise tax will be assessed is made to the Executive.
(b) Notwithstanding anything in this section III.A(2) to the contrary,
in the event that the Executive's liability for the excise tax under
Section 4999 of the Code for a taxable year is subsequently determined to
be different than the amount determined by the formula (X + P) x E, where
X, P and E have the meanings provided in section III.A(2)(a), the Executive
or the Corporation, as the case may be, shall pay to the other party at the
time that the amount of such excise tax is finally determined, an
appropriate amount, plus interest, such that the payment made under section
III.A(2)(a), when increased by the amount of the payment made to the
Executive under this section III.A(2)(b) by the Corporation, or when
reduced by the amount of the payment made to the Corporation under this
section III.A(2)(b) by the Executive, equals the amount that should have
been properly paid to the Executive under section III.A(2)(a). The interest
paid under this Section III.A(2)(b) shall be determined at the rate
provided under Section 1274(b)(2)(B) of the Code. To confirm that the
proper amount, if any, was paid to the
<PAGE> 32
-14-
Executive under this Section III.A(2), the Executive shall furnish to the
Corporation a copy of each tax return which reflects a liability for an
excise tax payment under Section 4999 of the Code with respect to a payment
made by the Corporation, at least twenty (20) days before the date on which
such return is required to be filed with the Internal Revenue Service.
B. PAYMENT OBLIGATIONS ABSOLUTE. The Corporation's obligation hereunder
shall be considered severance pay in consideration of the Executive's past
service and agreement to accept employment with the Corporation, and pay
in consideration of his continued service from the date hereof and shall
not be affected in any circumstances, including, without limitation, any
set-off, counterclaim, recoupment, defense or other right that the
Corporation may have against him or anyone else, or any duty by the
Executive to mitigate his damages by seeking further employment. All
amounts payable by the Corporation hereunder shall be paid without notice
or demand. Each and every payment made hereunder by the Corporation shall
be final and the Corporation will not seek to recover all or any part of
such payment from the Executive or from whomsoever may be entitled
thereto, for any reason whatsoever.
C. CONTINUING OBLIGATIONS. The Executive shall retain in confidence any
confidential information known to him concerning the Corporation and its
subsidiaries and their respective businesses as long as such information
is not publicly disclosed.
D. SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the Executive and his estate, and the Corporation and any
successors of the Corporation, but neither this Agreement nor any rights
arising hereunder may be assigned or pledged by the Executive. The
Corporation will require any successor (whether direct or indirect, by
purchase,
<PAGE> 33
-15-
merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Corporation, including the stock or assets of
any subsidiary, by agreement to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Corporation
would be required to perform it if no such succession had taken place, a
copy of which agreement shall be delivered to the Executive prior to or
contemporaneously with such succession. Failure of the Corporation to
obtain such agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle the Executive to
compensation from the Corporation in the same amount and on the same terms
as he would be entitled hereunder in the event of a Termination as herein
provided. As used in this Agreement, "Corporation" shall include any
successor to substantially all of the business and/or assets of the
Corporation.
E. SEVERABILITY. Any provision in this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability
without invalidating or affecting the remaining provisions hereof, and any
such prohibition or enforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
F. CONTROLLING LAW. This Agreement shall in all respects be governed
by, and construed in accordance with, the laws of the State of New York,
without reference to conflict of law principles.
G. TERMINATION. This Agreement shall terminate if the Board determines,
prior to any Termination of the employment of the Executive, that the
Executive is no longer to be
<PAGE> 34
-16-
designated a key executive of the Corporation and so notifies the Executive
in writing; EXCEPT THAT such determination shall not be made, and if made
shall have no effect, (i) within three years after a Change in Control or
(ii) during any period of time when the Corporation has or should have
knowledge that any person has taken steps, or plans to or has proposed to
take steps, reasonably calculated to effect a Change in Control until, in
the opinion of the Board, the person has abandoned or terminated his or its
efforts to effect a Change in Control or (iii) following the commencement
of any discussions with any person that ultimately result in the occurrence
of a Change in Control or (iv) if undertaken at the instance or upon the
suggestion of any participant in a prospective Change in Control or any
agent or other person acting on behalf of or in conjunction with any such
participant in a prospective Change in Control. For purposes of section
(ii) of the preceding sentence, any decision by the Board that a person has
abandoned or terminated his or its efforts to effect a Change in Control
shall be conclusive and binding on the Executive, EXCEPT THAT no such
decision of the Board shall have effect if, within three years following
such decision being made by the Board, any person with respect to whose
abandonment or termination of an effort to cause a Change in Control a
Board determination was made, or any affiliate or agent of such a person,
effects or participates, directly or indirectly, in any activity causing or
assisting in the occurrence of, a Change in Control.
H. FRAUDULENT CONVEYANCE. Should the Corporation be unable to make any
payment called for by this Agreement, as a result of the whole or partial
transfer from its control, by whatever means, of the stock and/or assets of
Graham Manufacturing Co., Inc. or any successor thereto, such transfer
shall be deemed a fraudulent conveyance of assets, voidable to the
<PAGE> 35
-17-
extent necessary to fully discharge all of the obligations of the
Corporation to the Executive under this Agreement.
IV. PRIOR AGREEMENT. This instrument contains the entire agreement of
the parties hereto relating to the subject matter hereof and supersedes in
its entirety any and all prior agreements, understandings, representations,
whether or not in writing, relating to the subject matter hereof, but shall
not affect any Employment Agreement between the Executive and the
Corporation and/or any of its subsidiaries.
<PAGE> 36
-18-
IN WITNESS WHEREOF, the parties have executed this Agreement
on the 28th day of July, 1995.
GRAHAM CORPORATION
By: /s/ F.D. Berkeley
---------------------------------
F.D. Berkeley
Chairman and Chief Executive Officer
ATTEST:
/s/ Cornelius S. Van Rees
- -----------------------------
Secretary
[SEAL]
EXECUTIVE
/s/ J. Ronald Hansen
-------------------------------
J. Ronald Hansen
<PAGE> 1
Exhibit 18
May 22, 1998
Board of Directors
Graham Corporation
Batavia, New York
Dear Sirs/Madam:
We have audited the consolidated financial statements of Graham Corporation (the
"Company) as of March 31, 1998 and December 31, 1996, and for the year ended
March 31, 1998, the three month period ended March 31, 1997 and for the years
ended December 31, 1996 and 1995, included in your Annual Report on Form 10-K to
the Securities and Exchange Commission and have issued our report thereon dated
May 22, 1998. Note 1 to such consolidated financial statements contains a
description of your adoption during the year ended March 31, 1998 of a change in
the Company's method of revenue recognition from the completed-contract to the
percentage-of-completion method of revenue recognition for certain long term
contracts. In our judgment, such change is to an alternative accounting
principle that is preferable under the circumstances.
Yours truly,
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Rochester, New York
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT IN FISCAL YEAR 1998
UNITED STATES
- -------------
Graham Manufacturing Co., Inc.
20 Florence Avenue
Batavia, New York 10420
UNITED KINGDOM
- --------------
Graham Vacuum and Heat Transfer Limited
The Forge
Congleton, Cheshire SW12 4HQ, England
Graham Precision Pumps Limited
The Forge
Congleton, Cheshire SW12 4HQ, England
<PAGE> 1
Exhibit 23
INDEPENDENT AUDITORS' REPORT
Graham Corporation
We consent to the incorporation by reference in Registration Statement
No.'s 2-83432, 2-82275, 33-82432, 333-00401 and Post-Effective Amendment No. 1
to Registration Statement No. 33-82432 of Graham Corporation and subsidiaries on
Forms S-3 and S-8 of our reports dated May 22, 1998 (which express an
unqualified opinion and includes an explanatory paragraph relating to a change
in accounting for revenue recognition from the completed contract to the
percentage-of-completion method for certain long-term contracts), appearing in
this Annual Report on Form 10-K of Graham Corporation and subsidiaries for the
year ended March 31, 1998.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Rochester, New York
June 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE GRAHAM
CORPORATION CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,694
<SECURITIES> 4,801
<RECEIVABLES> 6,814
<ALLOWANCES> 23
<INVENTORY> 10,278
<CURRENT-ASSETS> 24,913
<PP&E> 25,244
<DEPRECIATION> 15,218
<TOTAL-ASSETS> 37,030
<CURRENT-LIABILITIES> 12,454
<BONDS> 859
0
0
<COMMON> 169
<OTHER-SE> 17,606
<TOTAL-LIABILITY-AND-EQUITY> 37,030
<SALES> 56,206
<TOTAL-REVENUES> 56,206
<CGS> 38,123
<TOTAL-COSTS> 38,123
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4
<INTEREST-EXPENSE> 242
<INCOME-PRETAX> 5,474
<INCOME-TAX> 1,708
<INCOME-CONTINUING> 3,766
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,766
<EPS-PRIMARY> 2.27
<EPS-DILUTED> 2.21
</TABLE>
