Document:

Exhibit 4.1

 

Exhibit 4.1

FIRST AMENDMENT TO CREDIT FACILITY AGREEMENT

     THIS FIRST AMENDMENT, dated as of the 24th day of February, 2006, to that certain Amended and
Restated Credit Facility Agreement dated as of July 12, 2005 (the “Agreement”), between BANK OF
AMERICA, N.A., a national banking association and successor by merger to Fleet National Bank,
having an office at One East Avenue, Rochester, New York 14638 (the “Bank”), and GRAHAM
CORPORATION, a corporation formed under the laws of the State of Delaware with offices at 20
Florence Avenue, Batavia, New York 14020 (the “Borrower”).

     The parties hereby agree as follows:

     1. Agreement Ratified. Except as expressly amended hereby, the Agreement is in all
respects ratified and confirmed, and all of the terms, provisions and conditions thereof shall be
and remain in full force and effect, and this Amendment and all of its terms, provisions and
conditions shall be deemed to be a part of the Agreement. All capitalized terms used herein and
not defined shall have the meanings given them in the Agreement.

     2. Section 3.1. Section 3.1 of the Agreement shall be amended as follows:

	 	 	     3.1 Letters of Credit. Subject to the terms and conditions of this Agreement,
the Bank will make Letters of Credit available for the account of the Borrower in an
aggregate stated face amount not exceeding the lesser of (a) Ten Million Dollars
($10,000,000), and (b) the availability under the Revolving Line. Letters of Credit will be
made promptly available for the Borrower’s work in process (to support customer progress
payments) or as otherwise requested by Borrower for general business purposes. The stated
amount outstanding under all Letters of Credit at all times shall reduce, dollar for dollar,
the amount available for advances under the Revolving Line. The Letters of Credit shall be
in form satisfactory to the Bank and will be for a term of up to three (3) years from the
date of issuance, except that Letters of Credit in the aggregate face amount of
$5,000,000.00 may have maturities of up to five (5) years from the date of issuance.

     3. Section 10.4 (a). Section 10.4(a) of the Agreement shall be amended as
follows

	 	 	     (a) Except as permitted by Section 10.4 (b), make any loan or advance to, or any
investment in, any person, firm, joint venture, corporation or other entity whatsoever
exceeding $150,000 in the aggregate at any one time outstanding, except (i) short-term
investments in certificates of deposit of financial institutions and similar investments
made in the ordinary course of business; and (ii) loans to and investments in a Wholly
Owned Foreign Enterprise (the “WOFE”) to be formed in China on or about April 1, 2006 in
accordance with the letter dated February 9, 2006 from the Borrower to the Bank, which loans
and investments shall not exceed $2,500,000.00 in the aggregate.

     4. Section 10.4(b). Section 10.4(b) of the Agreement shall be amended as
follows:

	 	 	     (b) Borrower shall not make any loans, advances, or other distributions of any kind
except (i) loans and advances exceeding $500,000 in the aggregate at any one time

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	 	 	outstanding to any Affiliates of the Borrower, and (ii) additional loans and advances
to the WOFE permitted by Section 10.4(a) above, without the prior consent of the Bank, which
may be withheld in its absolute discretion.

	5.	 	Section 10.6. Section 10.6 of the Agreement shall be amended as
follows:

	 	 	     10.6 Distributions. Make any Distributions or apply any of its property or
assets to Distributions or set apart any sum or asset for the purpose of Distribution;
provided, however, that Borrower may make dividends in the aggregate maximum amount of
$600,000 per year and may repurchase or redeem stock in the aggregate maximum amount of
$600,000 per year so long as after any such transactions no Event of Default exists and the
Borrower continues to comply with Article 11 hereof.

     6. Representations and Warranties. The Borrower confirms the accuracy of and remakes
as of the date hereof all of its representations, warranties contained in the Agreement. The
Borrower further represents and warrants to the Bank that all necessary action on the part of the
Borrower relating to authorization of the execution and delivery of this Amendment, and the
performance of the Obligations of the Borrower thereunder has been taken. This Amendment
constitute legal, valid and binding obligations of the Borrower, enforceable in accordance with
their respective terms. The Borrower has no defenses, offsets, claims, or counterclaims with
respect to its obligations arising under the Amendment. The execution and delivery by the Borrower
of the Amendment, and the performance by the Borrower of the Amendment, will not violate any
provision of law or the Borrower’s Certificate of Incorporation or By-laws or organizational or
other documents or agreements. The execution, delivery and performance of the Amendment, and the
consummation of the transactions contemplated thereby will not violate, be in conflict with, result
in a breach of, or constitute a default under any agreement to which the Borrower is a party or by
which any of its properties is bound, or any order, writ, injunction, or decree of any court or
governmental instrumentality, and will not result in the creation or imposition of any lien, charge
or encumbrance upon any of its properties.

     7. No Events of Default. The Borrower confirms that as of the date hereof, there
exists no condition or event that constitutes (or that would after expiration of applicable grace
or cure periods constitute) an Event of Default as described in Article 14 of the Agreement.

     8. No Offsets. As of the date hereof, the Borrower has no defenses, offsets, claims or
counterclaims with respect to its obligations arising under the Agreement or this Amendment and all
related documents and instruments.

     9. Governing Law. This Amendment, together with all of the rights and obligations of
the parties hereto, shall be construed and interpreted in accordance with the laws of the State of
New York, excluding the laws applicable to conflicts or choice of law.

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     IN WITNESS WHEREOF, the parties have executed this Amendment on the date first above written.

	 	 	 	 	 	 	 	 
	BANK OF AMERICA, N.A.	 	GRAHAM CORPORATION
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	By:

	 	/s/ Colleen O’Brien
	 	By:	 	/s/ Ron Hansen
	 

	 	 
	 	 	 	 
	 

	 	Colleen O’Brien
	 	 	 	Ron Hansen
	Title:

	 	Vice President
	 	Title:
	 	Vice President

3Exhibit 10.26

 

Exhibit 10.26

Summary of Directors’ and Named Executive Officers’ Compensation

Compensation of Non-Employee Directors

On July 21, 2005, upon recommendation of the Compensation Committee of the Board of Directors, the
Board approved changes in fees payable to non-employee directors for their service on the Board.
These changes were made retroactive to May 5, 2005, the date of the annual Board meeting in 2005.
For service on the Board, non-employee directors receive an annual retainer of $16,000. The
non-employee Chairman of the Board receives an additional annual retainer of $24,000, and the
Chairmen of the Audit, Compensation, Corporate Governance and Investment Committees of the Board
receive additional annual retainers of $10,000, $8,000, $6,000 and $6,000, respectively. In
addition to these annual retainers, Board members receive a fee of $1,000 for attendance at each
Board meeting and a fee of $750 for attendance at each committee meeting.

Pursuant to the Company’s 1995 Long-Term Incentive Compensation Plan (the “1995 Plan”), the Board
was permitted to make grants and awards under the 1995 Plan to non-employee directors from time to
time through October 14, 2005, the last date on which any awards are permitted to have been granted
under the 1995 Plan. The material provisions of the 1995 Plan are summarized in, and a copy of the
1995 Plan is attached to, the Proxy Statement of the Company, filed with the SEC on March 22, 2002.
Such summary and exhibit are incorporated herein by reference. In July 2003, the Board adopted a
policy regarding stock option grants to directors, pursuant to which 5,000 non-qualified stock
options are granted each year to each of the non-employee directors, unless otherwise determined by
the Board. On October 10, 2005, the Chairman of the Board of Directors received 10,000 options,
and each other non-employee director received 5,000 options, under the 1995 Plan. These option
grants were made with an exercise price equal to the fair market value of the Company’s Common
Stock on the date of grant, were immediately exercisable, and remain outstanding for a period of
ten years.

Compensation of Named Executive Officers

Base Salary

In 2005, the Company’s Chief Executive Officer and the four other most highly compensated executive
officers of the Company who were serving as executive officers at December 31, 2005 (the “Named
Executive Officers”) earned the base salary set forth opposite his or her name:

	 	 	 	 	 	 	 
	Name	 	Title	 	2005 Salary
	Mark B. Peterson

	 	CEO and President
	 	$	312,393 	(1)
	Richard A. Bair, Jr.

	 	EVP, Engineering
	 	$	171,761	 
	Carol M. Franklin

	 	EVP, Research and Development
	 	$	188,212 	(2)
	Samuel C. Knoch

	 	CFO and Treasurer
	 	$	197,091	 
	Gregory B. Quiggle

	 	EVP, Marketing
	 	$	239,393	 

 

			
	(1)	 	Mr. Peterson’s base salary is established in his employment agreement (described
more particularly below) at $315,000, and was made retroactive to January 17, 2005,
the date he was appointed Chief Executive Officer.
	 
	(2)	 	Ms. Franklin’s salary for 2005 reflects a 10% increase, which was approved by the
Compensation Committee of the Board of Directors and made effective November 8, 2005,
in connection with Ms. Franklin’s assumption of an assignment at the Company’s
Sarasota offices. The increase will remain in effect for the duration of the
assignment.

On January 27, 2006, the Compensation Committee of the Board of Directors approved a three
percent (3%) increase in the base salaries of the executive officers reporting directly to Mr.
Peterson, including Ms. Franklin and Messrs. Bair, Knoch and Quiggle, effective as of January 1,
2006.

Bonus

Each of the Named Executive Officers is eligible to participate in the Company’s Management
Incentive Compensation Plan (the “MICP”). A description of the MICP is provided in the Company’s
Proxy Statement filed with the SEC on March 8, 2005, and is incorporated herein by reference.

In addition, Ms. Franklin may be entitled to receive up to a total of $10,000 in additional
performance-based bonus payments pursuant to the compensation arrangement approved by the
Compensation Committee of the Board of Directors in connection with Ms. Franklin’s assignment to
the Company’s Sarasota, Florida facility.

 

 

Long-Term Incentive Compensation

In addition to the foregoing compensation, prior to October 15, 2005, each of the Named Executive
Officers was eligible to receive grants under the Company’s 1995 Plan. From and after October 15,
2005, by its terms, awards were no longer permitted to be granted under the 1995 Plan. In 2005,
the Named Executive Officers received option grants under the 1995 Plan with respect to the number
of underlying securities set forth opposite his or her name, below:

	 	 	 	 	 
	 	 	 	 	Number of Securities
	 	 	 	 	Underlying Options
	Name	 	Title	 	Granted
	Mark B. Peterson

	 	CEO and President
	 	50,000 (1)

27,250 (2)
	Richard A. Bair

	 	EVP, Engineering
	 	10,000 (2)
	Carol M. Franklin

	 	EVP, Research and Development
	 	13,760 (2)
	Samuel C. Knoch

	 	CFO and Treasurer
	 	13,760 (2)
	Gregory B. Quiggle

	 	EVP, Marketing
	 	15,864 (2)

 

			
	(1)	 	These option grants were made with an exercise price equal to the fair market value of
the Company’s Common Stock on the date of the grant, are exercisable in equal installments
on July 21, 2005, July 21, 2006 and July 21, 2007, and remain outstanding for a period of
ten years.
	 
	(2)	 	These option grants were made with an exercise price equal to the fair market value of
the Company’s Common Stock on the date of grant, are exercisable in equal installments on
October 10, 2005, October 10, 2006 and October 10, 2007, and remain outstanding for a period
of ten years.

Employment Agreement

The Company is party to an employment agreement with its Chief Executive Officer and President,
Mark B. Peterson. A description of Mr. Peterson’s employment agreement is included in, and a copy
of Mr. Peterson’s employment agreement is attached to, the Current Report on Form 8-K/A filed by
the Company on June 2, 2005. Such description and exhibit are incorporated herein by reference.
The Company has not entered into employment agreements with any of its other Named Executive
Officers, who are employed on an at-will basis.

Change-in-Control Agreements

Each of Mr. Bair, Ms. Franklin, Mr. Knoch and Mr. Quiggle is party to a change in control
agreement, which provides that the executive is entitled to receive certain payments under certain
circumstances in connection with a “change in control” (as defined in the agreement). Copies of
the form of change in control agreement and the related extension and amendment to which each of
Mr. Bair, Ms. Franklin, Mr. Knoch and Mr. Quiggle is party are filed with this Annual Report on
Form 10-K as Exhibits 10.6 and 10.7, respectively. Each of the aforementioned exhibits is
incorporated herein by reference.

Employee Benefit Plans

The Company also has adopted certain broad-based employee benefit plans for all employees. Senior
executives such as the Named Executive Officers are permitted to participate in these plans on the
same terms as non-executive employees who meet applicable eligibility criteria, subject to any
legal limitations and the amount that may be contributed or the benefits that may be payable under
the plans. These plans include such customary employee benefit plans as medical insurance, life
insurance, and a 401(k) plan.

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