diff --git a/src/cli/index.ts b/src/cli/index.ts
index 841e05b..06a9c5e 100644
--- a/src/cli/index.ts
+++ b/src/cli/index.ts
@@ -8,6 +8,7 @@
 import { Command } from 'commander';
 import { VERSION } from '../index.js';
 import { CoordinationServer } from '../server/index.js';
+import { GracefulShutdown } from '../server/shutdown.js';
 import { ProcessManager, ProcessRegistry } from '../process/index.js';
 import { LogManager } from '../logging/index.js';
 
@@ -42,17 +43,9 @@ async function startServer(port?: number): Promise<void> {
     process.exit(1);
   }
 
-  // Import shutdown handler (will be implemented in Task 2)
-  // For now, just handle basic signals
-  const handleSignal = async (signal: string) => {
-    console.log(`\nReceived ${signal}, shutting down...`);
-    await server.stop();
-    await processManager.stopAll();
-    process.exit(0);
-  };
-
-  process.on('SIGTERM', () => handleSignal('SIGTERM'));
-  process.on('SIGINT', () => handleSignal('SIGINT'));
+  // Install graceful shutdown handlers
+  const shutdown = new GracefulShutdown(server, processManager, logManager);
+  shutdown.install();
 }
 
 /**
diff --git a/src/server/shutdown.ts b/src/server/shutdown.ts
new file mode 100644
index 0000000..18c1b0f
--- /dev/null
+++ b/src/server/shutdown.ts
@@ -0,0 +1,125 @@
+/**
+ * Graceful Shutdown Handler
+ *
+ * Orchestrates clean shutdown of the coordination server.
+ * Handles SIGTERM, SIGINT, SIGHUP with proper cleanup sequence.
+ */
+
+import type { CoordinationServer } from './index.js';
+import type { ProcessManager } from '../process/index.js';
+import type { LogManager } from '../logging/index.js';
+
+/** Timeout before force exit in milliseconds */
+const SHUTDOWN_TIMEOUT_MS = 10000;
+
+/**
+ * Handles graceful shutdown of the coordination server.
+ *
+ * Shutdown sequence:
+ * 1. Log shutdown initiation
+ * 2. Stop accepting new connections
+ * 3. Stop all managed processes
+ * 4. Close all log file handles (not implemented yet in LogManager)
+ * 5. Remove PID file
+ * 6. Exit with code 0
+ *
+ * If cleanup takes longer than SHUTDOWN_TIMEOUT_MS, force exit with code 1.
+ * Double SIGINT forces immediate exit.
+ */
+export class GracefulShutdown {
+  private readonly server: CoordinationServer;
+  private readonly processManager: ProcessManager;
+  private readonly logManager: LogManager;
+  private isShuttingDown = false;
+  private forceExitCount = 0;
+
+  constructor(
+    server: CoordinationServer,
+    processManager: ProcessManager,
+    logManager: LogManager
+  ) {
+    this.server = server;
+    this.processManager = processManager;
+    this.logManager = logManager;
+  }
+
+  /**
+   * Installs signal handlers for graceful shutdown.
+   * Call this after the server has started.
+   */
+  install(): void {
+    // Handle SIGTERM (kill, docker stop)
+    process.on('SIGTERM', () => this.handleSignal('SIGTERM'));
+
+    // Handle SIGINT (Ctrl+C)
+    process.on('SIGINT', () => this.handleSignal('SIGINT'));
+
+    // Handle SIGHUP (terminal closed)
+    process.on('SIGHUP', () => this.handleSignal('SIGHUP'));
+  }
+
+  /**
+   * Handles a shutdown signal.
+   * @param signal - The signal that triggered shutdown
+   */
+  private async handleSignal(signal: string): Promise<void> {
+    // Handle double SIGINT for force exit
+    if (signal === 'SIGINT' && this.isShuttingDown) {
+      this.forceExitCount++;
+      if (this.forceExitCount >= 1) {
+        console.log('\nForce exit requested. Exiting immediately.');
+        process.exit(1);
+      }
+    }
+
+    // Only run shutdown sequence once
+    if (this.isShuttingDown) {
+      console.log(`\nAlready shutting down... Press Ctrl+C again to force exit.`);
+      return;
+    }
+
+    this.isShuttingDown = true;
+    console.log(`\nReceived ${signal}, shutting down gracefully...`);
+
+    // Set timeout for force exit
+    const forceExitTimer = setTimeout(() => {
+      console.error('Shutdown timeout exceeded. Forcing exit.');
+      process.exit(1);
+    }, SHUTDOWN_TIMEOUT_MS);
+
+    // Ensure timeout doesn't keep the process alive
+    forceExitTimer.unref();
+
+    try {
+      await this.shutdown();
+      clearTimeout(forceExitTimer);
+      console.log('Shutdown complete.');
+      process.exit(0);
+    } catch (error) {
+      clearTimeout(forceExitTimer);
+      console.error('Error during shutdown:', (error as Error).message);
+      process.exit(1);
+    }
+  }
+
+  /**
+   * Performs the shutdown sequence.
+   */
+  async shutdown(): Promise<void> {
+    // Step 1: Stop the HTTP server (stops accepting new connections)
+    console.log('  Stopping HTTP server...');
+    await this.server.stop();
+
+    // Step 2: Stop all managed processes
+    console.log('  Stopping managed processes...');
+    await this.processManager.stopAll();
+
+    // Step 3: Clean up log manager resources (future: close open file handles)
+    // Currently LogManager doesn't maintain persistent handles that need closing
+    // This is a placeholder for future cleanup needs
+    console.log('  Cleaning up resources...');
+
+    // Step 4: PID file is removed by server.stop()
+    // Nothing additional needed here
+  }
+}