HAYNES HOLDINGS, INC.
                   HAYNES' KEY EMPLOYEES RESTRICTED STOCK PLAN



                                   ARTICLE I.

                                     Purpose

     Section 1.1 The purpose of the Haynes Key Employees  Restricted  Stock Plan
(the "Plan") is to create incentives for key personnel of Haynes  International,
Inc., an operating  subsidiary of Haynes  Holdings,  Inc., (the  "Company"),  to
provide  services to such  subsidiary  over a long period of time and to enhance
the level of  performance  of the  subsidiary and thus increase the value of the
Company,  by awarding such employees shares of Stock (as defined herein) subject
to certain vesting requirements.


                                  ARTICLE II.

                                 Administration

     Section 2.1 Either the board of directors (the "Board") of the Company as a
whole or its previously  established  Compensation  Committee (the "Committee"),
which is comprised of at least two members of the Board,  including the Chairman
of the Board and at least one other member who is a  "disinterested  person" (as
defined below),  will (i) administer the Plan,  (ii)  establish,  subject to the
provisions of the Plan,  such rules and  regulations as it may deem  appropriate
for the proper  administration  of the Plan and (iii)  make such  determinations
under, and such  interpretations of, and take such steps in connection with, the
Plan or the Stock issued  thereunder as it may deem necessary or advisable.  The
members of the  Committee  may be  appointed  from time to time by the Board and
serve at the pleasure of the Board.  The  Committee or the Board as a whole will
hereinafter be referred to as the "Administrator."

     Section 2.2 For the purposes of this Section 2, a "disinterested person" is
a person who, on a given date, is disinterested within the meaning of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").


                                  ARTICLE III.

                                 Administration

     Section  3.1 The stock  which is the subject of the Plan will be the shares
of common stock of the Company, $.01 par value per share (the "Stock"),  whether
authorized  and  unissued or treasury  stock,  and is intended to be  restricted
stock within the meaning of Section 83 of the Internal  Revenue Code of 1986, as
amended.  The total number of shares of Stock which may be issued under the Plan
will not exceed, in the aggregate, one hundred fifty thousand (150,000) shares.


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                                   ARTICLE IV.

                                 Award of Stock

     Section  4.1 The  Committee  will  determine  the  Employees  that  will be
eligible to receive awards under this plan.

     Section  4.2 In  consideration  of future  services  to be provided by each
Employee to the Company, awards of shares under this plan shall be made to those
Employees  as  selected  by the  Committee  at the  time  and in the  amount  as
determined by the Committee. Such awards shall be in writing.


                                   ARTICLE V.

                                     Vesting

     Section  5.1  Subject to the  forfeiture  provisions  contained  herein,  a
percentage of the shares of Stock awarded  hereunder to each Employee shall vest
with each  Employee  over future years such that the  cumulative  percentage  of
total shares of Stock vested with each Employee shall be the following:

     (a) one third vests immediately on the date of award;

     (b) two thirds by the first anniversary of the award; and

     (c) 100% by the second anniversary of the award.

     Section 5.2 In the event an Employee  terminates  for any reason other than
as set forth in paragraph (c) following, all of the shares of Stock remaining to
be vested with such Employee  hereunder and all rights  arising from such shares
of Stock shall be forfeited by such Employee and returned to the Company.

     Section 5.3 In the event an Employee  dies,  is  Permanently  Disabled  (as
defined herein), or retires after age 65, or after age 55 with at least 10 years
of employment  by the Company,  or in the event there is a Change of Control (as
defined  herein),  all shares of Stock remaining to be vested with such Employee
hereunder  shall  immediately  vest  with  such  Employee.   The  Company  shall
immediately   cause  the  issuance  to  such  Employee  of   appropriate   stock
certificates  representing  such  shares  of  Stock in such  Employee's  name in
accordance with Section 6 hereof.



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     Section 5.4 For purposes of the Plan:

     (a) "Change of Control"  shall mean any of the  following:  (i) a report on
Schedule 13D is filed with the  Securities and Exchange  Commission  pursuant to
Section  13(d) of the  Exchange  Act,  disclosing  that any  person  or group of
persons  (within the meaning of Section 13(d) of the Exchange  Act),  other than
the Company (or one of its subsidiaries),  is the beneficial owner (as such term
is defined in Rule 13d-3 under the Exchange  Act),  directly or  indirectly,  of
fifty percent (50%) or more of the combined voting power of the then outstanding
equity of the Company (as determined under paragraph (d) of Rule 13d-3 under the
Exchange Act, in the case of rights to acquire Stock); (ii) any transaction or a
series  of  related  transactions  (as  a  result  of a  tender  offer,  merger,
consolidation  or  otherwise  whether or not the  Company is the  continuing  or
surviving  entity) that results in, or that is in connection with, any person or
group of persons  (within the  meaning of Section  13(d) of the  Exchange  Act),
other  than  the  Company  (or one of its  subsidiaries),  acquiring  beneficial
ownership  (as such term is  defined  in Rule  13d-3  under the  Exchange  Act),
directly or  indirectly,  of fifty percent (50%) or more of the combined  voting
power of the  then  outstanding  equity  of the  Company  (as  determined  under
paragraph  (d) of Rule 13d-3  under the  Exchange  Act, in the case of rights to
acquire  the Stock) or of any person or group of persons  (within the meaning of
Section 13(d) of the Exchange Act) that possesses  beneficial ownership (as such
term is defined in Rule 13d-4 under the Exchange  Act),  directly or indirectly,
of  fifty  percent  (50%)  or more of the  combined  voting  power  of the  then
outstanding  equity of the  Company;  (iii) the sale,  lease,  exchange or other
transfer of all or substantially  all of the assets of the Company to any person
or group of persons (within the meaning of Section 13(d) of the Exchange Act) in
one  transaction  or  a  series  of  related  transactions;   provided,  that  a
transaction  where the holders of all classes of the then outstanding  equity of
the Company  immediately  prior to such transaction own, directly or indirectly,
fifty  percent  (50%) or more of the  aggregate  voting  power of all classes of
equity of such person or group  immediately after such transaction will not be a
Change of Control under this clause (iii);  (iv) the  liquidation or dissolution
of the Company; provided, that a liquidation or dissolution of the Company which
is part of a  transaction  or  series  of  related  transactions  that  does not
constitute a Change of Control under the "provided" clause of clause (iii) above
will not  constitute a Change of Control under this clause (iv); or (v) a change
in a majority of the members of the Board of Directors  of the Company  within a
12-month period, unless the election or nomination for election by the Company's
stockholders  of each new director  during such 12-month  period was approved by
the vote of two-thirds of the directors  then still in office who were directors
at the beginning of such 12-month period.

     (b)  "Permanently  Disabled"  means  physical or mental  incapacity of such
nature that an Employee is unable to engage in or perform the  principal  duties
of his customary  employment  or occupation on a continuing or sustained  basis.
All determinations as to the date and extent of disability of any Employee shall
be made by the  Administrator  upon  the  basis  of such  evidence  as it  deems
necessary or desirable.

                                  ARTICLE VI.

                               Stock Certificates

     Section 6.1 Each Employee shall receive a stock certificate  reflecting the
number  of  shares  of  Stock  awarded  hereunder.  Such  certificate  shall  be
registered  in the name of such  Employee  and shall bear,  along with any other
required notices, the following legend:



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     The securities  (the "Shares")  represented by this stock  certificate  are
     restricted by the terms of the Haynes Key Employees  Restricted  Stock Plan
     ("Restricted Stock Plan"),  which contains provisions  affecting the rights
     and  obligations  of the  holder  of the  Shares  and  restrictions  on the
     transfer of the Shares. Any attempted transfer of the Shares represented by
     this stock  certificate in violation of the  Restricted  Stock Plan is null
     and void.

     Section 6.2 The Administrator may, in its sole discretion, require that the
stock  certificates  evidencing  the  shares of Stock be held in  custody by the
Company  until the  restrictions  thereon  shall  have  lapsed,  and that,  as a
condition of receiving the shares of Stock,  the Employee shall have delivered a
stock power,  endorsed in blank,  relating to the shares of Stock. If and to the
extent any shares of Stock vest with an  Employee in  accordance  with the terms
hereof,  stock certificates for the appropriate number of unrestricted shares of
Stock shall be delivered  promptly to the Employee.  Shares of Stock will not be
released to an Employee  unless and until the amount of federal,  state or local
taxes  required  to be  withheld  has been paid or  satisfied.  Tax  withholding
liabilities  may be  satisfied  by the  Employee  relinquishing  shares of Stock
vested pursuant to the Plan, valued at the market price of the Stock on the date
such shares of Stock are released to the Employee.


                                  ARTICLE VII.

                             Term and Effective Date

     Section 7.1 The Plan will become  effective  upon (i) approval by the Board
and (ii)  written  approval  by the  shareholders  holding  more than 75% of the
voting power of all  outstanding  shares of voting capital stock of the Company.
Awards of Stock under the Plan will become  effective  on the date  specified by
the  Committee.  Subject  to Section  15  hereof,  the Plan shall  automatically
terminate  upon issuance and vesting all of the Stock  issuable  pursuant to the
Plan.


                                 ARTICLE VIII.

                                 Transferability

     Section 8.1  Employees  shall not be permitted to sell,  transfer,  pledge,
assign or otherwise  encumber  shares of Stock  awarded  hereunder  prior to the
vesting  of such  shares of Stock.  Upon  vesting  of such  shares of Stock,  an
Employee will only transfer such shares of Stock in compliance  with  applicable
federal and state securities  laws.  Employees who are affiliates of the Company
may generally  dispose of their shares in accordance  with Rule 144  promulgated
under the Securities Act of 1933, as amended.



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                                  ARTICLE IX.

                             Rights as a Stockholder

     Section  9.1  Except as  provided  in  Section 8 hereof or this  Section 9,
Employees shall have, with respect to any shares of Stock remaining to be vested
hereunder, all of the rights of stockholders of the Company, including the right
to vote such shares of Stock and to receive any cash dividends. Stock dividends,
if any, issued with respect to such shares of Stock shall be subject to the same
restrictions and other terms and conditions  hereunder that apply to such shares
of Stock.


                                   ARTICLE X.

                               Investment Purpose

     Section  10.1  At  the  time  of  issuance  of any  shares  of  Stock,  the
Administrator  may, if it will deem it necessary  or  desirable  for any reason,
require an  Employee  to  represent  in writing to the  Company  that it is such
Employee's  then intention to acquire the Stock for investment  purposes and not
with a view to the distribution thereof.


                                  ARTICLE XI.

                          Right to Terminate Employment

     Section  11.1  Nothing  contained  herein  will  restrict  the right of the
Company to terminate the employment of any Employee at any time.


                                  ARTICLE XII.

                           Finality of Determinations

     Section 12.1 Each  determination,  interpretation,  or other action made or
taken pursuant to the provisions of the Plan by the Administrator  will be final
and be binding and conclusive for all purposes.


                                 ARTICLE XIII.

                       Subsidiary and Parent Corporations

     Section 13.1 Unless the context  requires  otherwise,  references under the
Plan to the Company will be deemed to include any  subsidiary  corporations  and
parent corporations of the Company, as those terms are defined in Section 424 of
the Internal Revenue Code of 1986, as amended.




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                                  ARTICLE XIV.

                                  Governing Law

     Section  14.1 The Plan will be governed  by the federal tax and  securities
laws and such other of the State of Indiana as are applicable.


                                  ARTICLE XV.

                            Amendment and Termination

     Section 15.1 The Board may at any time terminate,  amend or modify the Plan
in any respect it deems suitable, including the amendment or modification of the
vesting provisions in Section 2 hereof, without the approval of the stockholders
of the Company,  except to the extent that such stockholder approval is required
under  applicable law or the Board determines that such approval is necessary or
desirable in order to ensure that the stock granted  hereunder  qualifies  under
any  applicable  section  of the  Internal  Revenue  Code or the  Exchange  Act;
provided,  however,  that no amendment,  modification or termination of the Plan
may (A) adversely affect any unvested shares  theretofore  issued under the Plan
without  the  consent of the  Employee  to whom such  shares  were issued or (B)
modify  the  allocation  of shares  issued to the  employees  designated  by the
Administrator.


                                  ARTICLE XVI.

                                    Override

     Section 16.1 With respect to persons  subject to Section 16 of the Exchange
Act,  transactions  under the Plan are  intended to comply  with all  applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent
any provision of the Plan or action by the Administrator  fails to so comply, it
shall be  deemed  null and  void,  to the  extent  permitted  by law and  deemed
advisable by the Administrator.


     Section  16.2 All  transactions  pursuant to terms of the Plan,  including,
without limitation, awards and vesting of Stock, shall only be effective at such
time as counsel to the Company shall have determined that such  transaction will
not violate federal or state securities or other laws. The Administrator may, in
its sole  discretion,  defer the  effectiveness  of such  transaction  to pursue
whatever actions may be required to ensure compliance with such federal or state
securities or other laws.


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