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                                                                    EXHIBIT 10.5

                              P&F INDUSTRIES, INC.

                                  EXHIBIT 10.5

                              P&F INDUSTRIES, INC.

                            2002 STOCK INCENTIVE PLAN
PURPOSE

   The purpose of the Plan is to provide a means through which the Company and
its Subsidiaries may attract able persons to become and remain directors of the
Company and enter and remain in the employ of the Company and its Subsidiaries
and to provide a means whereby employees, directors and consultants of the
Company and its Subsidiaries can acquire and maintain Common Stock ownership, or
be paid incentive compensation measured by reference to the value of Common
Stock, thereby strengthening their commitment to the welfare of the Company and
its Subsidiaries and promoting an identity of interest between stockholders and
these employees, directors and consultants.

   So that the appropriate incentive can be provided, the Plan allows for the
grant of Incentive Stock Options, Nonqualified Stock Options, Restricted Stock
Awards, and other Stock-based Awards, or any combination of the foregoing.

DEFINITIONS

   The following definitions shall be applicable throughout the Plan.

         "AFFILIATE" OF ANY INDIVIDUAL OR ENTITY MEANS AN INDIVIDUAL OR ENTITY
THAT IS DIRECTLY OR INDIRECTLY THROUGH ONE OR MORE INTERMEDIARIES CONTROLLED BY
OR UNDER COMMON CONTROL WITH THE INDIVIDUAL OR ENTITY SPECIFIED.

         "AWARD" MEANS, INDIVIDUALLY OR COLLECTIVELY, ANY INCENTIVE STOCK
OPTION, NONQUALIFIED STOCK OPTION, RESTRICTED STOCK AWARD, OR OTHER STOCK-BASED
AWARD.

         "BOARD" MEANS THE BOARD OF DIRECTORS OF THE COMPANY.

         "CAUSE" MEANS THE COMPANY OR A SUBSIDIARY HAVING CAUSE TO TERMINATE A
PARTICIPANT'S EMPLOYMENT OR SERVICE UNDER ANY EXISTING EMPLOYMENT, CONSULTING OR
ANY OTHER AGREEMENT BETWEEN THE PARTICIPANT AND THE COMPANY OR A SUBSIDIARY. IN
THE ABSENCE OF ANY SUCH EMPLOYMENT, CONSULTING OR OTHER AGREEMENT, A PARTICIPANT
SHALL BE DEEMED TO HAVE BEEN TERMINATED FOR CAUSE IF THE COMMITTEE DETERMINES
THAT HIS TERMINATION OF EMPLOYMENT WITH THE COMPANY OR A SUBSIDIARY IS ON
ACCOUNT OF (A) INCOMPETENCE, FRAUD, PERSONAL DISHONESTY, EMBEZZLEMENT,
DEFALCATION OR ACTS OF GROSS NEGLIGENCE OR GROSS MISCONDUCT ON THE PART OF THE
PARTICIPANT IN THE COURSE OF HIS EMPLOYMENT OR SERVICES, (B) A MATERIAL BREACH
OF THE PARTICIPANT'S FIDUCIARY DUTY OF LOYALTY TO THE COMPANY OR A SUBSIDIARY,
(C) THE PARTICIPANT'S ENGAGEMENT IN CONDUCT THAT IS MATERIALLY INJURIOUS TO

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THE COMPANY OR A SUBSIDIARY, (D) THE PARTICIPANT'S CONVICTION BY A COURT OF
COMPETENT JURISDICTION OF, OR PLEADING "GUILTY" OR "NO CONTEST" TO, (X) A
FELONY, OR (Y) ANY OTHER CRIMINAL CHARGE (OTHER THAN MINOR TRAFFIC VIOLATIONS)
WHICH COULD REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE IMPACT ON
COMPANY'S OR A SUBSIDIARY'S REPUTATION AND STANDING IN THE COMMUNITY; (E) PUBLIC
OR CONSISTENT DRUNKENNESS BY THE PARTICIPANT OR HIS ILLEGAL USE OF DRUGS WHICH
IS, OR COULD REASONABLY BE EXPECTED TO BECOME, MATERIALLY INJURIOUS TO THE
REPUTATION OR BUSINESS OF THE COMPANY OR A SUBSIDIARY OR WHICH IMPAIRS, OR COULD
REASONABLY BE EXPECTED TO IMPAIR, THE PERFORMANCE OF THE PARTICIPANT'S DUTIES TO
THE COMPANY OR A SUBSIDIARY; OR (F) WILLFUL FAILURE BY THE PARTICIPANT TO FOLLOW
THE LAWFUL DIRECTIONS OF A SUPERIOR OFFICER OR THE BOARD, REPRESENTING
DISLOYALTY TO THE GOALS OF THE COMPANY OR A SUBSIDIARY.

         "CHANGE IN CONTROL" SHALL, UNLESS THE BOARD OTHERWISE DIRECTS BY
RESOLUTION ADOPTED PRIOR THERETO OR, IN THE CASE OF A PARTICULAR AWARD, THE
APPLICABLE AWARD AGREEMENT STATES OTHERWISE, BE DEEMED TO OCCUR IF (i) ANY
"PERSON" (AS THAT TERM IS USED IN SECTIONS 13 AND 14(d)(2) OF THE EXCHANGE ACT)
OTHER THAN A FOUNDER (AS DEFINED BELOW) IS OR BECOMES THE BENEFICIAL OWNER (AS
THAT TERM IS USED IN SECTION 13(d) OF THE EXCHANGE ACT), DIRECTLY OR INDIRECTLY,
OF 50% OR MORE OF EITHER THE OUTSTANDING SHARES OF COMMON STOCK OR THE COMBINED
VOTING POWER OF THE COMPANY'S THEN OUTSTANDING VOTING SECURITIES ENTITLED TO
VOTE GENERALLY, (ii) DURING ANY PERIOD OF TWO CONSECUTIVE YEARS, INDIVIDUALS WHO
CONSTITUTE THE BOARD AT THE BEGINNING OF SUCH PERIOD CEASE FOR ANY REASON TO
CONSTITUTE AT LEAST A MAJORITY THEREOF, UNLESS THE ELECTION OR THE NOMINATION
FOR ELECTION BY THE COMPANY'S STOCKHOLDERS OF EACH NEW DIRECTOR WAS APPROVED BY
A VOTE OF AT LEAST THREE-QUARTERS OF THE DIRECTORS THEN STILL IN OFFICE WHO WERE
DIRECTORS AT THE BEGINNING OF THE PERIOD OR (iii) THE COMPANY UNDERGOES A
LIQUIDATION OR DISSOLUTION OR A SALE OF ALL OR SUBSTANTIALLY ALL OF ITS ASSETS.
NO MERGER, CONSOLIDATION OR CORPORATE REORGANIZATION IN WHICH THE OWNERS OF THE
COMBINED VOTING POWER OF THE COMPANY'S THEN OUTSTANDING VOTING SECURITIES
ENTITLED TO VOTE GENERALLY PRIOR TO SAID COMBINATION, OWN 50% OR MORE OF THE
RESULTING ENTITY'S OUTSTANDING VOTING SECURITIES SHALL, BY ITSELF, BE CONSIDERED
A CHANGE IN CONTROL. AS USED HEREIN, "FOUNDER" MEANS RICHARD A. HOROWITZ AND ANY
OF HIS AFFILIATES.

         "CODE" MEANS THE INTERNAL REVENUE CODE OF 1986, AS AMENDED. REFERENCE
IN THE PLAN TO ANY SECTION OF THE CODE SHALL BE DEEMED TO INCLUDE ANY AMENDMENTS
OR SUCCESSOR PROVISIONS TO SUCH SECTION AND ANY REGULATIONS UNDER SUCH SECTION.

         "COMMITTEE" MEANS THE BOARD, THE COMPENSATION COMMITTEE OF THE BOARD OR
SUCH OTHER COMMITTEE OF AT LEAST TWO PEOPLE AS THE BOARD MAY APPOINT TO
ADMINISTER THE PLAN.

         "COMMON STOCK" MEANS THE CLASS A COMMON STOCK, PAR VALUE $1.00 PER
SHARE, OF THE COMPANY.

         "COMPANY" MEANS P&F INDUSTRIES, INC.

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         "DATE OF GRANT" MEANS THE DATE ON WHICH THE GRANTING OF AN AWARD IS
AUTHORIZED OR SUCH OTHER DATE AS MAY BE SPECIFIED IN SUCH AUTHORIZATION.

         "DISABILITY", WITH RESPECT TO ANY PARTICULAR PARTICIPANT, MEANS
DISABILITY AS DEFINED IN SUCH PARTICIPANT'S EMPLOYMENT, CONSULTING OR OTHER
RELEVANT AGREEMENT WITH THE COMPANY OR A SUBSIDIARY OR, IN THE ABSENCE OF ANY
SUCH AGREEMENT, DISABILITY AS DEFINED IN THE LONG-TERM DISABILITY PLAN OF THE
COMPANY OR A SUBSIDIARY, AS MAY BE APPLICABLE TO THE PARTICIPANT IN QUESTION,
OR, IN THE ABSENCE OF SUCH A PLAN, THE COMPLETE AND PERMANENT INABILITY BY
REASON OF ILLNESS OR ACCIDENT TO PERFORM THE DUTIES OF THE OCCUPATION AT WHICH
THE PARTICIPANT WAS EMPLOYED OR SERVED WHEN SUCH DISABILITY COMMENCED OR, IF THE
PARTICIPANT WAS RETIRED WHEN SUCH DISABILITY COMMENCED, THE INABILITY TO ENGAGE
IN ANY SUBSTANTIAL GAINFUL ACTIVITY, IN EITHER CASE AS DETERMINED BY THE
COMMITTEE BASED UPON MEDICAL EVIDENCE ACCEPTABLE TO IT.

         "DISINTERESTED PERSON" MEANS A PERSON WHO IS (i) A "NON-EMPLOYEE
DIRECTOR" WITHIN THE MEANING OF RULE 16b-3 UNDER THE EXCHANGE ACT, OR ANY
SUCCESSOR RULE OR REGULATION, AND (ii) AN "OUTSIDE DIRECTOR" WITHIN THE MEANING
OF SECTION 162(m) OF THE CODE; PROVIDED, HOWEVER, THAT CLAUSE (ii) SHALL APPLY
ONLY WITH RESPECT TO GRANTS OF AWARDS WITH RESPECT TO WHICH THE COMPANY'S TAX
DEDUCTION COULD BE LIMITED BY SECTION 162(m) OF THE CODE IF SUCH CLAUSE DID NOT
APPLY.

         "ELIGIBLE PERSON" MEANS ANY (i) PERSON REGULARLY EMPLOYED BY THE
COMPANY OR A SUBSIDIARY; PROVIDED, HOWEVER, THAT NO SUCH EMPLOYEE COVERED BY A
COLLECTIVE BARGAINING AGREEMENT SHALL BE AN ELIGIBLE PERSON UNLESS AND TO THE
EXTENT THAT SUCH ELIGIBILITY IS SET FORTH IN SUCH COLLECTIVE BARGAINING
AGREEMENT OR IN AN AGREEMENT OR INSTRUMENT RELATING THERETO; (ii) DIRECTOR OF
THE COMPANY OR A SUBSIDIARY; OR (iii) CONSULTANT TO THE COMPANY OR A SUBSIDIARY.

         "EXCHANGE ACT" MEANS THE SECURITIES EXCHANGE ACT OF 1934.

         "FAIR MARKET VALUE" ON A GIVEN DATE MEANS (i) IF THE STOCK IS LISTED ON
A NATIONAL SECURITIES EXCHANGE, THE CLOSING PRICE ON THE PRIMARY EXCHANGE WITH
WHICH THE STOCK IS LISTED AND TRADED ON THE DATE PRIOR TO SUCH DATE, OR, IF
THERE IS NO SUCH SALE ON THAT DATE, THEN ON THE LAST PRECEDING DATE ON WHICH
SUCH A SALE WAS REPORTED; (ii) IF THE STOCK IS NOT LISTED ON ANY NATIONAL
SECURITIES EXCHANGE BUT IS QUOTED IN THE NASDAQ NATIONAL MARKET SYSTEM ON A LAST
SALE BASIS, THE CLOSING PRICE REPORTED ON THE DATE PRIOR TO SUCH DATE, OR, IF
THERE IS NO SUCH SALE ON THAT DATE, THEN ON THE LAST PRECEDING DATE ON WHICH A
SALE WAS REPORTED; OR (iii) IF THE STOCK IS NOT LISTED ON A NATIONAL SECURITIES
EXCHANGE NOR QUOTED IN THE NASDAQ NATIONAL MARKET SYSTEM ON A LAST SALE BASIS,
THE AMOUNT DETERMINED BY THE COMMITTEE TO BE THE FAIR MARKET VALUE BASED UPON A
GOOD FAITH ATTEMPT TO VALUE THE STOCK ACCURATELY AND COMPUTED IN ACCORDANCE WITH
APPLICABLE REGULATIONS OF THE INTERNAL REVENUE SERVICE.

         "HOLDER" MEANS A PARTICIPANT WHO HAS BEEN GRANTED AN AWARD.

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         "INCENTIVE STOCK OPTION" MEANS AN OPTION GRANTED BY THE COMMITTEE TO A
PARTICIPANT UNDER THE PLAN WHICH IS DESIGNATED BY THE COMMITTEE AS AN INCENTIVE
STOCK OPTION PURSUANT TO SECTION 422 OF THE CODE.

         "NONQUALIFIED STOCK OPTION" MEANS AN OPTION GRANTED UNDER THE PLAN
WHICH IS NOT DESIGNATED AS AN INCENTIVE STOCK OPTION.

         "NORMAL TERMINATION" MEANS TERMINATION OF EMPLOYMENT OR SERVICE WITH
THE COMPANY AND ALL SUBSIDIARIES:

               Upon retirement pursuant to the retirement plan of the Company or
                    a Subsidiary, as the same may be applicable at the time to
                    the Participant in question;

               On account of Disability;

               With the written approval of the Committee; or

               By the Company or a Subsidiary without Cause.

         "OPTION" MEANS A STOCK OPTION TO PURCHASE SHARES OF STOCK GRANTED UNDER
SECTION 7 OF THE PLAN.

         "OPTION PERIOD" MEANS THE PERIOD DESCRIBED IN SECTION 7(c).

         "OPTION PRICE" MEANS THE EXERCISE PRICE SET FOR AN OPTION DESCRIBED IN
SECTION 7(a).

         "PARTICIPANT" MEANS AN ELIGIBLE PERSON WHO HAS BEEN SELECTED BY THE
COMMITTEE TO PARTICIPATE IN THE PLAN AND TO RECEIVE AN AWARD.

         "PLAN" MEANS THE COMPANY'S 2002 STOCK INCENTIVE PLAN.

         "RESTRICTED PERIOD" MEANS, WITH RESPECT TO ANY SHARE OF RESTRICTED
STOCK, THE PERIOD OF TIME DETERMINED BY THE COMMITTEE DURING WHICH SUCH AWARD IS
SUBJECT TO THE RESTRICTIONS SET FORTH IN SECTION 8.

         "RESTRICTED STOCK" MEANS SHARES OF STOCK ISSUED OR TRANSFERRED TO A
PARTICIPANT SUBJECT TO FORFEITURE AND THE OTHER RESTRICTIONS SET FORTH IN
SECTION 8.

         "RESTRICTED STOCK AWARD" MEANS AN AWARD OF RESTRICTED STOCK GRANTED
UNDER SECTION 8 OF THE PLAN.

         "SECURITIES ACT" MEANS THE SECURITIES ACT OF 1933, AS AMENDED.

         "STOCK" MEANS THE COMMON STOCK OR SUCH OTHER AUTHORIZED SHARES OF STOCK
OF THE COMPANY AS FROM TIME TO TIME MAY BE AUTHORIZED FOR USE UNDER THE PLAN.

         "STOCK OPTION AGREEMENT" MEANS THE AGREEMENT BETWEEN THE COMPANY AND A
PARTICIPANT WHO HAS BEEN GRANTED AN OPTION PURSUANT TO SECTION 7 WHICH DEFINES
THE RIGHTS AND OBLIGATIONS OF THE PARTIES AS REQUIRED IN SECTION 7(d).

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         "SUBSIDIARY" MEANS ANY SUBSIDIARY OF THE COMPANY AS DEFINED IN SECTION
424(f) OF THE CODE.

EFFECTIVE DATE, DURATION AND SHAREHOLDER APPROVAL

   The Plan is effective as of April __, 2002, the date on which the Plan was
adopted by the Board.

   The expiration date of the Plan, after which no Awards may be granted
hereunder, shall be April __, 2012; PROVIDED, HOWEVER, that the administration
of the Plan shall continue in effect until all matters relating to the payment
of Awards previously granted have been settled.

ADMINISTRATION

   The Committee shall administer the Plan. Unless otherwise determined by the
Board, each member of the Committee shall, at the time he takes any action with
respect to an Award under the Plan, be a Disinterested Person. The majority of
the members of the Committee shall constitute a quorum. The acts of a majority
of the members present at any meeting at which a quorum is present or acts
approved in writing by a majority of the Committee shall be deemed the acts of
the Committee.

   Subject to the provisions of the Plan, the Committee shall have exclusive
power to:

         SELECT THE ELIGIBLE PERSONS TO PARTICIPATE IN THE PLAN;

         DETERMINE THE NATURE AND EXTENT OF THE AWARDS TO BE MADE TO EACH
ELIGIBLE PERSON;

         DETERMINE THE TIME OR TIMES WHEN AWARDS WILL BE MADE TO ELIGIBLE
PERSONS;

         DETERMINE THE DURATION OF EACH OPTION PERIOD AND RESTRICTED PERIOD;

         DETERMINE THE TERMS AND CONDITIONS TO WHICH AWARDS MAY BE SUBJECT;

         PRESCRIBE THE FORM OF STOCK OPTION AGREEMENT OR OTHER FORM OR FORMS
EVIDENCING AWARDS; AND

         CAUSE RECORDS TO BE ESTABLISHED IN WHICH THERE SHALL BE ENTERED, FROM
TIME TO TIME AS AWARDS ARE MADE TO PARTICIPANTS, THE DATE OF EACH AWARD, THE
NUMBER OF INCENTIVE STOCK OPTIONS, NONQUALIFIED STOCK OPTIONS, SHARES OF
RESTRICTED STOCK AND OTHER STOCK-BASED AWARDS GRANTED BY THE COMMITTEE TO EACH
PARTICIPANT, THE EXPIRATION DATE, THE OPTION PERIOD AND THE DURATION OF ANY
APPLICABLE RESTRICTED PERIOD.

   The Committee shall have the authority to interpret the Plan and, subject to
the provisions of the Plan, to establish, adopt or revise such rules and
regulations and to make all such determinations relating to the Plan as it may
deem necessary or advisable for the administration of the Plan. The Committee's
interpretation of the Plan or any documents evidencing Awards granted pursuant
thereto and

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all decisions and determinations by the Committee with respect to the Plan shall
be final, binding and conclusive on all parties unless otherwise determined by
the Board.

GRANT OF AWARDS; SHARES SUBJECT TO THE PLAN

   The Committee may, from time to time, grant Awards of Options, Restricted
Stock and other Stock-based Awards to one or more Eligible Persons; PROVIDED,
HOWEVER, that:

          1.   Subject to Section 11, the aggregate number of shares of Stock
     reserved and available for issuance pursuant to Awards under the Plan is
     1,100,000;

          2.   Except as set forth in Section 5(d), such shares shall be deemed
     to have been used in payment of Awards only to the extent they are actually
     delivered and not where the Fair Market Value equivalent of such shares for
     a Stock-based Award is paid in cash. In the event any Award shall be
     surrendered, terminate, expire or be forfeited, the number of shares of
     Stock no longer subject thereto shall thereupon be released and shall
     thereafter be available for new Awards under the Plan;

          3.   Stock delivered by the Company in settlement of Awards under the
     Plan may be authorized and unissued Stock or Stock held in the treasury of
     the Company or may be purchased on the open market or by private purchase;
     and

          4.   No Participant may receive Options or stock appreciation rights
     under the Plan with respect to more than 1,100,000 shares of Stock in any
     one year. For this purpose, such shares shall be deemed to have been used
     in payment of Awards whether they are actually delivered or where the Fair
     Market Value equivalent of such shares for a stock appreciation right is
     paid in cash.

ELIGIBILITY

   Participation shall be limited to Eligible Persons who have received written
notification from the Committee, or from a person designated by the Committee,
that they have been selected to participate in the Plan.

STOCK OPTION AWARDS

   The Committee is authorized to grant one or more Incentive Stock Options or
Nonqualified Stock Options to any Eligible Person; PROVIDED, HOWEVER, that no
Incentive Stock Options shall be granted to any Eligible Person who is not an
employee of the Company or a Subsidiary. Each Option so granted shall be subject
to the following conditions, or to such other conditions as may be reflected in
the applicable Stock Option Agreement.

         OPTION PRICE. THE EXERCISE PRICE ("OPTION PRICE") PER SHARE OF STOCK
FOR EACH OPTION SHALL BE SET BY THE COMMITTEE AT THE TIME OF GRANT BUT SHALL NOT
BE LESS THAN (i) IN THE CASE OF AN INCENTIVE STOCK OPTION, AND SUBJECT TO
SECTION 7(e), THE FAIR MARKET VALUE OF A SHARE

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OF STOCK AT THE DATE OF GRANT, AND (ii) IN THE CASE OF A NON-QUALIFIED STOCK
OPTION, THE PAR VALUE PER SHARE OF STOCK; PROVIDED, HOWEVER, THAT ALL OPTIONS
INTENDED TO QUALIFY AS "PERFORMANCE-BASED COMPENSATION" UNDER SECTION 162(m) OF
THE CODE SHALL HAVE AN OPTION PRICE PER SHARE OF STOCK NOT LESS THAN THE FAIR
MARKET VALUE OF A SHARE OF STOCK ON THE DATE OF GRANT.

         MANNER OF EXERCISE AND FORM OF PAYMENT. OPTIONS WHICH HAVE BECOME
EXERCISABLE MAY BE EXERCISED BY DELIVERY OF WRITTEN NOTICE OF EXERCISE TO THE
COMMITTEE ACCOMPANIED BY PAYMENT OF THE OPTION PRICE. THE OPTION PRICE MAY BE
PAYABLE IN CASH, BY BANK CHECK (ACCEPTABLE TO THE COMMITTEE) AND/OR SHARES OF
STOCK (VALUED AT THE FAIR MARKET VALUE AT THE TIME THE OPTION IS EXERCISED),
HAVING IN THE AGGREGATE A VALUE EQUAL TO THE AGGREGATE OPTION PRICE OR, IN THE
DISCRETION OF THE COMMITTEE, EITHER (i) IN OTHER PROPERTY HAVING A FAIR MARKET
VALUE ON THE DATE OF EXERCISE EQUAL TO THE AGGREGATE OPTION PRICE, OR (ii) BY
DELIVERING TO THE COMMITTEE A COPY OF IRREVOCABLE INSTRUCTIONS TO A STOCKBROKER
TO DELIVER PROMPTLY TO THE COMPANY AN AMOUNT OF SALE OR LOAN PROCEEDS SUFFICIENT
TO PAY THE AGGREGATE OPTION PRICE.

         OPTION PERIOD AND EXPIRATION. OPTIONS SHALL VEST AND BECOME EXERCISABLE
IN SUCH MANNER AND ON SUCH DATE OR DATES DETERMINED BY THE COMMITTEE AND SHALL
EXPIRE AFTER SUCH PERIOD, NOT TO EXCEED TEN YEARS, AS MAY BE DETERMINED BY THE
COMMITTEE (THE "OPTION PERIOD"); PROVIDED, HOWEVER, THAT NOTWITHSTANDING ANY
VESTING DATES SET BY THE COMMITTEE, THE COMMITTEE MAY IN ITS SOLE DISCRETION
ACCELERATE THE EXERCISABILITY OF ANY OPTION, WHICH ACCELERATION SHALL NOT AFFECT
THE TERMS AND CONDITIONS OF ANY SUCH OPTION OTHER THAN WITH RESPECT TO
EXERCISABILITY. UNLESS OTHERWISE SPECIFICALLY DETERMINED BY THE COMMITTEE, THE
VESTING OF AN OPTION SHALL OCCUR ONLY WHILE THE PARTICIPANT IS EMPLOYED OR
RENDERING SERVICES TO THE COMPANY OR ITS SUBSIDIARIES AND ALL VESTING SHALL
CEASE UPON A HOLDER'S TERMINATION OF EMPLOYMENT OR SERVICES FOR ANY REASON. IF
AN OPTION IS EXERCISABLE IN INSTALLMENTS, SUCH INSTALLMENTS OR PORTIONS THEREOF
WHICH BECOME EXERCISABLE SHALL REMAIN EXERCISABLE UNTIL THE OPTION EXPIRES.
UNLESS OTHERWISE STATED IN THE APPLICABLE OPTION AGREEMENT, THE OPTION SHALL
EXPIRE EARLIER THAN THE END OF THE OPTION PERIOD IN THE FOLLOWING CIRCUMSTANCES:

               If prior to the end of the Option Period, the Holder shall
                    undergo a Normal Termination, the Option shall expire on the
                    earlier of the last day of the Option Period or the date
                    that is three months after the date of such Normal
                    Termination. In such event, the Option shall remain
                    exercisable by the Holder until its expiration, but only to
                    the extent the Option was vested and exercisable at the time
                    of such Normal Termination.

               If the Holder dies prior to the end of the Option Period and
                    while still in the employ or service of the Company or a
                    Subsidiary, or within three months of Normal Termination,
                    the Option shall expire on the earlier of the last day of
                    the Option Period or the date that is twelve months after
                    the date of death of the Holder. In such event, the Option
                    shall remain exercisable by

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                    the person or persons to whom the Holder's rights under the
                    Option pass by will or the applicable laws of descent and
                    distribution until its expiration, but only to the extent
                    the Option was vested and exercisable by the Holder at the
                    time of death.

               If the Holder ceases employment or service with the Company and
                    all Subsidiaries for reasons other than Normal Termination
                    or death, the Option shall expire immediately upon such
                    cessation of employment or service.

         STOCK OPTION AGREEMENT - OTHER TERMS AND CONDITIONS. EACH OPTION
GRANTED UNDER THE PLAN SHALL BE EVIDENCED BY A STOCK OPTION AGREEMENT, WHICH
SHALL CONTAIN SUCH PROVISIONS AS MAY BE DETERMINED BY THE COMMITTEE AND, EXCEPT
AS MAY BE SPECIFICALLY STATED OTHERWISE IN SUCH STOCK OPTION AGREEMENT, WHICH
SHALL BE SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS:

               Each Option issued pursuant to this Section 7 or portion thereof
                    that is exercisable shall be exercisable for the full amount
                    or for any part thereof.

               Each share of Stock purchased through the exercise of an Option
                    issued pursuant to this Section 7 shall be paid for in full
                    at the time of the exercise. Each Option shall cease to be
                    exercisable, as to any share of Stock, when the Holder
                    purchases the share or when the Option expires.

               Options issued pursuant to this Section 7 shall not be
                    transferable by the Holder except by will or the laws of
                    descent and distribution and shall be exercisable during the
                    Holder's lifetime only by him; PROVIDED, HOWEVER, that the
                    Committee may at any time upon the request of a Holder allow
                    for the transfer of any Option, subject to such conditions
                    or limitations as it may establish.

               Each Option issued pursuant to this Section 7 shall vest and
                    become exercisable by the Holder in accordance with the
                    vesting schedule established by the Committee and set forth
                    in the Stock Option Agreement.

               Each Stock Option Agreement may contain a provision that, upon
                    demand by the Committee for such a representation, the
                    Holder shall deliver to the Committee at the time of any
                    exercise of an Option issued pursuant to this Section 7 a
                    written representation that the shares to be acquired upon
                    such exercise are to be acquired for investment and not for
                    resale or with a view to the distribution thereof. Upon such
                    demand, delivery of such representation prior to the
                    delivery of any shares issued upon exercise of an Option
                    issued pursuant to this Section 7 shall be a condition
                    precedent to the

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                    right of the Holder or such other person to purchase any
                    shares. In the event certificates for shares of Stock are
                    delivered under the Plan with respect to which such
                    investment representation has been obtained, the Committee
                    may cause a legend or legends to be placed on such
                    certificates to make appropriate reference to such
                    representation and to restrict transfer in the absence of
                    compliance with applicable federal or state securities laws.

               Each Incentive Stock Option Agreement shall contain a provision
                    requiring the Holder to notify the Company in writing
                    immediately after the Holder makes a disqualifying
                    disposition of any Stock acquired pursuant to the exercise
                    of such Incentive Stock Option. A disqualifying disposition
                    is any disposition (including any sale) of such Stock before
                    the later of (a) two years after the Date of Grant of the
                    Incentive Stock Option and (b) one year after the date the
                    Holder acquired the Stock by exercising the Incentive Stock
                    Option.

         INCENTIVE STOCK OPTION GRANTS TO 10% STOCKHOLDERS. NOTWITHSTANDING
ANYTHING TO THE CONTRARY IN THIS SECTION 7, IF AN INCENTIVE STOCK OPTION IS
GRANTED TO A HOLDER WHO OWNS STOCK REPRESENTING MORE THAN 10% OF THE VOTING
POWER OF ALL CLASSES OF STOCK OF THE COMPANY OR OF A SUBSIDIARY, THE OPTION
PERIOD SHALL NOT EXCEED FIVE YEARS FROM THE DATE OF GRANT OF SUCH OPTION AND THE
OPTION PRICE SHALL BE AT LEAST 110% OF THE FAIR MARKET VALUE (ON THE DATE OF
GRANT) OF THE STOCK SUBJECT TO THE OPTION.

         $100,000 PER YEAR LIMITATION FOR INCENTIVE STOCK OPTIONS. TO THE EXTENT
THE AGGREGATE FAIR MARKET VALUE (DETERMINED AS OF THE DATE OF GRANT) OF STOCK
FOR WHICH INCENTIVE STOCK OPTIONS ARE EXERCISABLE FOR THE FIRST TIME BY ANY
PARTICIPANT DURING ANY CALENDAR YEAR (UNDER ALL PLANS OF THE COMPANY AND ITS
SUBSIDIARIES) EXCEEDS $100,000, SUCH EXCESS INCENTIVE STOCK OPTIONS SHALL BE
TREATED AS NONQUALIFIED STOCK OPTIONS.

         VOLUNTARY SURRENDER. THE COMMITTEE MAY PERMIT THE VOLUNTARY SURRENDER
OF ALL OR ANY PORTION OF ANY NONQUALIFIED STOCK OPTION ISSUED PURSUANT TO THIS
SECTION 7 TO BE CONDITIONED UPON THE GRANTING TO THE HOLDER OF A NEW OPTION FOR
THE SAME OR A DIFFERENT NUMBER OF SHARES AS THE OPTION SURRENDERED OR REQUIRE
SUCH VOLUNTARY SURRENDER AS A CONDITION PRECEDENT TO A GRANT OF A NEW OPTION TO
SUCH PARTICIPANT. SUCH NEW OPTION SHALL BE EXERCISABLE AT AN OPTION PRICE,
DURING AN OPTION PERIOD, AND IN ACCORDANCE WITH ANY OTHER TERMS OR CONDITIONS
SPECIFIED BY THE COMMITTEE AT THE TIME THE NEW OPTION IS GRANTED, ALL DETERMINED
IN ACCORDANCE WITH THE PROVISIONS OF THE PLAN WITHOUT REGARD TO THE OPTION
PRICE, OPTION PERIOD, OR ANY OTHER TERMS AND CONDITIONS OF THE NONQUALIFIED
STOCK OPTION SURRENDERED.

RESTRICTED STOCK AWARDS

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         AWARD OF RESTRICTED STOCK.

               The Committee shall have the authority to (1) grant Restricted
                    Stock, (2) issue or transfer Restricted Stock to Eligible
                    Persons, and (3) establish terms, conditions and
                    restrictions applicable to such Restricted Stock, including
                    the Restricted Period, which may differ with respect to each
                    grantee, the time or times at which Restricted Stock shall
                    be granted or become vested and the number of shares to be
                    covered by each grant.

               The Holder of a Restricted Stock Award shall execute and deliver
                    to the Company an Award agreement with respect to the
                    Restricted Stock setting forth the restrictions applicable
                    to such Restricted Stock. If the Committee determines that
                    the Restricted Stock shall be held in escrow rather than
                    delivered to the Holder pending the release of the
                    applicable restrictions, the Holder additionally shall
                    execute and deliver to the Company (i) an escrow agreement
                    satisfactory to the Committee and (ii) the appropriate blank
                    stock powers with respect to the Restricted Stock covered by
                    such agreements. If a Holder shall fail to execute a
                    Restricted Stock agreement and, if applicable, an escrow
                    agreement and stock powers, the Award shall be null and
                    void. Subject to the restrictions set forth in Section 8(b),
                    the Holder shall generally have the rights and privileges of
                    a stockholder as to such Restricted Stock, including the
                    right to vote such Restricted Stock. At the discretion of
                    the Committee, cash dividends and stock dividends, if any,
                    with respect to the Restricted Stock may be either currently
                    paid to the Holder or withheld by the Company for the
                    Holder's account. Unless otherwise determined by the
                    Committee, no interest will accrue or be paid on the amount
                    of any cash dividends withheld. Unless otherwise determined
                    by the Committee, cash dividends or stock dividends so
                    withheld by the Committee shall be subject to forfeiture to
                    the same degree as the shares of Restricted Stock to which
                    they relate.

               Upon the Award of Restricted Stock, the Committee shall cause a
                    stock certificate registered in the name of the Holder to be
                    issued and, if it so determines, deposited together with the
                    stock powers with an escrow agent designated by the
                    Committee. If an escrow arrangement is used, the Committee
                    shall cause the escrow agent to issue to the Holder a
                    receipt evidencing any stock certificate held by it
                    registered in the name of the Holder.

         RESTRICTIONS.

               Restricted Stock awarded to a Participant shall be subject to the
                    following restrictions until the expiration of

                                       10
<Page>

                    the Restricted Period, and to such other terms and
                    conditions as may be set forth in the applicable Award
                    agreement: (1) if an escrow arrangement is used, the Holder
                    shall not be entitled to delivery of the stock certificate;
                    (2) the shares shall be subject to the restrictions on
                    transferability set forth in the Award agreement; (3) the
                    shares shall be subject to forfeiture to the extent provided
                    in Section 8(d) and the Award Agreement and, to the extent
                    such shares are forfeited, the stock certificates shall be
                    returned to the Company, and all rights of the Holder to
                    such shares and as a shareholder shall terminate without
                    further obligation on the part of the Company.

               The  Committee shall have the authority to remove any or all of
                    the restrictions on the Restricted Stock whenever it may
                    determine that, by reason of changes in applicable laws or
                    other changes in circumstances arising after the date of the
                    Restricted Stock Award, such action is appropriate.

         RESTRICTED PERIOD. THE RESTRICTED PERIOD OF RESTRICTED STOCK SHALL
COMMENCE ON THE DATE OF GRANT AND SHALL EXPIRE FROM TIME TO TIME AS TO THAT PART
OF THE RESTRICTED STOCK INDICATED IN A SCHEDULE ESTABLISHED BY THE COMMITTEE AND
SET FORTH IN A WRITTEN AWARD AGREEMENT.

         FORFEITURE PROVISIONS. EXCEPT TO THE EXTENT DETERMINED BY THE COMMITTEE
AND REFLECTED IN THE UNDERLYING AWARD AGREEMENT, IN THE EVENT A HOLDER
TERMINATES EMPLOYMENT WITH THE COMPANY AND ALL SUBSIDIARIES DURING A RESTRICTED
PERIOD, THAT PORTION OF THE AWARD WITH RESPECT TO WHICH RESTRICTIONS HAVE NOT
EXPIRED ("NON-VESTED PORTION") SHALL BE TREATED AS FOLLOWS:

               Upon the voluntary resignation of a Participant or discharge by
                    the Company or a Subsidiary for Cause, the Non-Vested
                    Portion of the Award shall be completely forfeited.

               Upon Normal Termination, the Non-Vested Portion of the Award
                    shall be prorated for service during the Restricted Period
                    and shall be distributed free of all restrictions as soon as
                    practicable following termination.

               Upon death, the Non-Vested Portion of the Award shall be prorated
                    for service during the Restricted Period and shall be
                    distributed free of all restrictions to the Participant's
                    beneficiary as soon as practicable following death.

         DELIVERY OF RESTRICTED STOCK. UPON THE EXPIRATION OF THE RESTRICTED
PERIOD WITH RESPECT TO ANY SHARES OF STOCK COVERED BY A RESTRICTED STOCK AWARD,
THE RESTRICTIONS SET FORTH IN SECTION 8(b) AND THE AWARD AGREEMENT SHALL BE OF
NO FURTHER FORCE OR EFFECT WITH

                                       11
<Page>

RESPECT TO SHARES OF RESTRICTED STOCK WHICH HAVE NOT THEN BEEN FORFEITED. IF AN
ESCROW ARRANGEMENT IS USED, UPON SUCH EXPIRATION, THE COMPANY SHALL DELIVER TO
THE HOLDER, OR HIS BENEFICIARY, WITHOUT CHARGE, THE STOCK CERTIFICATE EVIDENCING
THE SHARES OF RESTRICTED STOCK WHICH HAVE NOT THEN BEEN FORFEITED AND WITH
RESPECT TO WHICH THE RESTRICTED PERIOD HAS EXPIRED (TO THE NEAREST FULL SHARE)
AND ANY CASH DIVIDENDS OR STOCK DIVIDENDS CREDITED TO THE HOLDER'S ACCOUNT WITH
RESPECT TO SUCH RESTRICTED STOCK AND THE INTEREST THEREON, IF ANY.

         STOCK RESTRICTIONS. EACH CERTIFICATE REPRESENTING RESTRICTED STOCK
AWARDED UNDER THE PLAN SHALL BEAR THE FOLLOWING LEGEND UNTIL THE END OF THE
RESTRICTED PERIOD WITH RESPECT TO SUCH STOCK:

                         "Transfer of this certificate and the shares
     represented hereby is restricted pursuant to the terms of a Restricted
     Stock Agreement, dated as of ____________, between P&F Industries, Inc. and
     ______________________. A copy of such Agreement is on file at the offices
     of P&F Industries, Inc."

Stop transfer orders shall be entered with the Company's transfer agent and
registrar against the transfer of any such legended securities.

OTHER STOCK-BASED AWARDS

   The Committee may grant any other cash, stock or stock-related Awards to any
eligible individual under this Plan that the Committee deems appropriate,
including, but not limited to, stock appreciation rights, limited stock
appreciation rights, phantom stock Awards, the bargain purchase of Stock and
Stock bonuses. Any such benefits and any related agreements shall contain such
terms and conditions as the Committee deems appropriate. Such Awards and
agreements need not be identical. With respect to any benefit under which shares
of Stock are or may in the future be issued for consideration other than prior
services, the amount of such consideration shall not be less than the amount
(such as the par value of such shares) required to be received by the Company in
order to comply with applicable state law.

                                       12
<Page>

GENERAL

         ADDITIONAL PROVISIONS OF AN AWARD. AWARDS UNDER THE PLAN ALSO MAY BE
SUBJECT TO SUCH OTHER PROVISIONS (WHETHER OR NOT APPLICABLE TO THE BENEFIT
AWARDED TO ANY OTHER PARTICIPANT) AS THE COMMITTEE DETERMINES APPROPRIATE
INCLUDING, WITHOUT LIMITATION, PROVISIONS TO ASSIST THE PARTICIPANT IN FINANCING
THE PURCHASE OF STOCK UPON THE EXERCISE OF OPTIONS, PROVISIONS FOR THE
FORFEITURE OF OR RESTRICTIONS ON RESALE OR OTHER DISPOSITION OF SHARES OF STOCK
ACQUIRED UNDER ANY AWARD, PROVISIONS GIVING THE COMPANY THE RIGHT TO REPURCHASE
SHARES OF STOCK ACQUIRED UNDER ANY AWARD IN THE EVENT THE PARTICIPANT ELECTS TO
DISPOSE OF SUCH SHARES, AND PROVISIONS TO COMPLY WITH FEDERAL AND STATE
SECURITIES LAWS AND FEDERAL AND STATE TAX WITHHOLDING REQUIREMENTS. ANY SUCH
PROVISIONS SHALL BE REFLECTED IN THE APPLICABLE AWARD AGREEMENT.

         PRIVILEGES OF STOCK OWNERSHIP. EXCEPT AS OTHERWISE SPECIFICALLY
PROVIDED IN THE PLAN, NO PERSON SHALL BE ENTITLED TO THE PRIVILEGES OF STOCK
OWNERSHIP IN RESPECT OF SHARES OF STOCK WHICH ARE SUBJECT TO AWARDS HEREUNDER
UNTIL SUCH SHARES HAVE BEEN ISSUED TO THAT PERSON.

         GOVERNMENT AND OTHER REGULATIONS. THE OBLIGATION OF THE COMPANY TO MAKE
PAYMENT OF AWARDS IN STOCK OR OTHERWISE SHALL BE SUBJECT TO ALL APPLICABLE LAWS,
RULES AND REGULATIONS, AND TO SUCH APPROVALS BY GOVERNMENTAL AGENCIES AS MAY BE
REQUIRED. NOTWITHSTANDING ANY TERMS OR CONDITIONS OF ANY AWARD TO THE CONTRARY,
THE COMPANY SHALL BE UNDER NO OBLIGATION TO OFFER TO SELL OR TO SELL AND SHALL
BE PROHIBITED FROM OFFERING TO SELL OR SELLING ANY SHARES OF STOCK PURSUANT TO
AN AWARD UNLESS SUCH SHARES HAVE BEEN PROPERLY REGISTERED FOR SALE PURSUANT TO
THE SECURITIES ACT WITH THE SECURITIES AND EXCHANGE COMMISSION OR UNLESS THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT
SUCH SHARES MAY BE OFFERED OR SOLD WITHOUT SUCH REGISTRATION PURSUANT TO AN
AVAILABLE EXEMPTION THEREFROM AND THE TERMS AND CONDITIONS OF SUCH EXEMPTION
HAVE BEEN FULLY COMPLIED WITH. THE COMPANY SHALL BE UNDER NO OBLIGATION TO
REGISTER FOR SALE UNDER THE SECURITIES ACT ANY OF THE SHARES OF STOCK TO BE
OFFERED OR SOLD UNDER THE PLAN. IF THE SHARES OF STOCK OFFERED FOR SALE OR SOLD
UNDER THE PLAN ARE OFFERED OR SOLD PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT, THE COMPANY MAY RESTRICT THE TRANSFER OF SUCH SHARES
AND MAY LEGEND THE STOCK CERTIFICATES REPRESENTING SUCH SHARES IN SUCH MANNER AS
IT DEEMS ADVISABLE TO ENSURE THE AVAILABILITY OF ANY SUCH EXEMPTION.

         TAX WITHHOLDING. NOTWITHSTANDING ANY OTHER PROVISION OF THE PLAN, THE
COMPANY OR A SUBSIDIARY, AS APPROPRIATE, SHALL HAVE THE RIGHT TO DEDUCT FROM ALL
AWARDS CASH AND/OR STOCK, VALUED AT FAIR MARKET VALUE ON THE DATE OF PAYMENT, IN
AN AMOUNT NECESSARY TO SATISFY ALL FEDERAL, STATE AND LOCAL TAXES AS REQUIRED BY
LAW TO BE WITHHELD WITH RESPECT TO SUCH AWARDS AND, IN THE CASE OF AWARDS PAID
IN STOCK, THE HOLDER OR OTHER PERSON RECEIVING SUCH STOCK MAY BE REQUIRED TO PAY
TO THE COMPANY OR A SUBSIDIARY, AS APPROPRIATE, PRIOR TO DELIVERY OF SUCH STOCK,
THE AMOUNT OF ANY SUCH TAXES, IF ANY, WHICH THE COMPANY OR SUBSIDIARY IS
REQUIRED TO WITHHOLD WITH RESPECT TO SUCH STOCK. SUBJECT IN PARTICULAR CASES TO
THE DISAPPROVAL OF THE COMMITTEE, THE COMPANY MAY ACCEPT SHARES OF STOCK OF
EQUIVALENT FAIR MARKET VALUE IN

                                       13
<Page>

PAYMENT OF SUCH WITHHOLDING TAX OBLIGATIONS IF THE HOLDER OF THE AWARD ELECTS TO
MAKE PAYMENT IN SUCH MANNER.

         CLAIM TO AWARDS AND EMPLOYMENT RIGHTS. NO INDIVIDUAL SHALL HAVE ANY
CLAIM OR RIGHT TO BE GRANTED AN AWARD UNDER THE PLAN OR, HAVING BEEN SELECTED
FOR THE GRANT OF AN AWARD, TO BE SELECTED FOR A GRANT OF ANY OTHER AWARD.
NEITHER THE PLAN NOR ANY ACTION TAKEN HEREUNDER SHALL BE CONSTRUED AS GIVING ANY
INDIVIDUAL ANY RIGHT TO BE RETAINED IN THE EMPLOY OR SERVICE OF THE COMPANY OR A
SUBSIDIARY.

         DESIGNATION AND CHANGE OF BENEFICIARY. EACH PARTICIPANT MAY FILE WITH
THE COMMITTEE A WRITTEN DESIGNATION OF ONE OR MORE PERSONS AS THE BENEFICIARY
WHO SHALL BE ENTITLED TO RECEIVE THE RIGHTS OR AMOUNTS PAYABLE WITH RESPECT TO
AN AWARD DUE UNDER THE PLAN UPON HIS DEATH. A PARTICIPANT MAY, FROM TIME TO
TIME, REVOKE OR CHANGE HIS BENEFICIARY DESIGNATION WITHOUT THE CONSENT OF ANY
PRIOR BENEFICIARY BY FILING A NEW DESIGNATION WITH THE COMMITTEE. THE LAST SUCH
DESIGNATION RECEIVED BY THE COMMITTEE SHALL BE CONTROLLING; PROVIDED, HOWEVER,
THAT NO DESIGNATION, OR CHANGE OR REVOCATION THEREOF, SHALL BE EFFECTIVE UNLESS
RECEIVED BY THE COMMITTEE PRIOR TO THE PARTICIPANT'S DEATH, AND IN NO EVENT
SHALL IT BE EFFECTIVE AS OF A DATE PRIOR TO SUCH RECEIPT. IF NO BENEFICIARY
DESIGNATION IS FILED BY THE PARTICIPANT, THE BENEFICIARY SHALL BE DEEMED TO BE
HIS OR HER SPOUSE OR, IF THE PARTICIPANT IS UNMARRIED AT THE TIME OF DEATH, HIS
OR HER ESTATE.

         PAYMENTS TO PERSONS OTHER THAN PARTICIPANTS. IF THE COMMITTEE SHALL
FIND THAT ANY PERSON TO WHOM ANY AMOUNT IS PAYABLE UNDER THE PLAN IS UNABLE TO
CARE FOR HIS AFFAIRS BECAUSE OF ILLNESS OR ACCIDENT, OR IS A MINOR, OR HAS DIED,
THEN ANY PAYMENT DUE TO SUCH PERSON OR HIS ESTATE (UNLESS A PRIOR CLAIM THEREFOR
HAS BEEN MADE BY A DULY APPOINTED LEGAL REPRESENTATIVE) MAY, IF THE COMMITTEE SO
DIRECTS THE COMPANY, BE PAID TO HIS SPOUSE, CHILD, RELATIVE, AN INSTITUTION
MAINTAINING OR HAVING CUSTODY OF SUCH PERSON, OR ANY OTHER PERSON DEEMED BY THE
COMMITTEE TO BE A PROPER RECIPIENT ON BEHALF OF SUCH PERSON OTHERWISE ENTITLED
TO PAYMENT. ANY SUCH PAYMENT SHALL BE A COMPLETE DISCHARGE OF THE LIABILITY OF
THE COMMITTEE AND THE COMPANY THEREFOR.

         NO LIABILITY OF COMMITTEE MEMBERS. NO MEMBER OF THE COMMITTEE SHALL BE
PERSONALLY LIABLE BY REASON OF ANY CONTRACT OR OTHER INSTRUMENT EXECUTED BY SUCH
MEMBER OR ON HIS BEHALF IN HIS CAPACITY AS A MEMBER OF THE COMMITTEE NOR FOR ANY
MISTAKE OF JUDGMENT MADE IN GOOD FAITH, AND THE COMPANY SHALL INDEMNIFY AND HOLD
HARMLESS EACH MEMBER OF THE COMMITTEE AND EACH OTHER EMPLOYEE, OFFICER OR
DIRECTOR OF THE COMPANY TO WHOM ANY DUTY OR POWER RELATING TO THE ADMINISTRATION
OR INTERPRETATION OF THE PLAN MAY BE ALLOCATED OR DELEGATED, AGAINST ANY COST OR
EXPENSE (INCLUDING COUNSEL FEES) OR LIABILITY (INCLUDING ANY SUM PAID IN
SETTLEMENT OF A CLAIM) ARISING OUT OF ANY ACT OR OMISSION TO ACT IN CONNECTION
WITH THE PLAN UNLESS ARISING OUT OF SUCH PERSON'S OWN FRAUD OR WILLFUL BAD
FAITH; PROVIDED, HOWEVER, THAT APPROVAL OF THE BOARD SHALL BE REQUIRED FOR THE
PAYMENT OF ANY AMOUNT IN SETTLEMENT OF A CLAIM AGAINST ANY SUCH PERSON. THE
FOREGOING RIGHT OF INDEMNIFICATION SHALL NOT BE EXCLUSIVE OF ANY OTHER RIGHTS OF
INDEMNIFICATION TO WHICH SUCH PERSONS MAY BE ENTITLED UNDER THE

                                       14
<Page>

COMPANY'S ARTICLES OF INCORPORATION OR BY-LAWS, AS A MATTER OF LAW, OR
OTHERWISE, OR ANY POWER THAT THE COMPANY MAY HAVE TO INDEMNIFY THEM OR HOLD THEM
HARMLESS.

         GOVERNING LAW. THE PLAN SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF.

         FUNDING. NO PROVISION OF THE PLAN SHALL REQUIRE THE COMPANY, FOR THE
PURPOSE OF SATISFYING ANY OBLIGATIONS UNDER THE PLAN, TO PURCHASE ASSETS OR
PLACE ANY ASSETS IN A TRUST OR OTHER ENTITY TO WHICH CONTRIBUTIONS ARE MADE OR
OTHERWISE TO SEGREGATE ANY ASSETS, NOR SHALL THE COMPANY MAINTAIN SEPARATE BANK
ACCOUNTS, BOOKS, RECORDS OR OTHER EVIDENCE OF THE EXISTENCE OF A SEGREGATED OR
SEPARATELY MAINTAINED OR ADMINISTERED FUND FOR SUCH PURPOSES. HOLDERS SHALL HAVE
NO RIGHTS UNDER THE PLAN OTHER THAN AS UNSECURED GENERAL CREDITORS OF THE
COMPANY, EXCEPT THAT INSOFAR AS THEY MAY HAVE BECOME ENTITLED TO PAYMENT OF
ADDITIONAL COMPENSATION BY PERFORMANCE OF SERVICES, THEY SHALL HAVE THE SAME
RIGHTS AS OTHER EMPLOYEES UNDER GENERAL LAW.

         NONTRANSFERABILITY. A PERSON'S RIGHTS AND INTEREST UNDER THE PLAN,
INCLUDING AMOUNTS PAYABLE, MAY NOT BE SOLD, ASSIGNED, DONATED, TRANSFERRED OR
OTHERWISE DISPOSED OF, MORTGAGED, PLEDGED OR ENCUMBERED EXCEPT, IN THE EVENT OF
A HOLDER'S DEATH, TO A DESIGNATED BENEFICIARY TO THE EXTENT PERMITTED BY THE
PLAN, OR IN THE ABSENCE OF SUCH DESIGNATION, BY WILL OR THE LAWS OF DESCENT AND
DISTRIBUTION; PROVIDED, HOWEVER, THE COMMITTEE MAY, IN ITS SOLE DISCRETION,
ALLOW FOR TRANSFER OF AWARDS OTHER THAN INCENTIVE STOCK OPTIONS TO OTHER PERSONS
OR ENTITIES, SUBJECT TO SUCH CONDITIONS OR LIMITATIONS AS IT MAY ESTABLISH.

         RELIANCE ON REPORTS. EACH MEMBER OF THE COMMITTEE AND EACH MEMBER OF
THE BOARD SHALL BE FULLY JUSTIFIED IN RELYING, ACTING OR FAILING TO ACT, AND
SHALL NOT BE LIABLE FOR HAVING SO RELIED, ACTED OR FAILED TO ACT IN GOOD FAITH,
UPON ANY REPORT MADE BY THE INDEPENDENT PUBLIC ACCOUNTANT OF THE COMPANY AND ITS
SUBSIDIARIES AND UPON ANY OTHER INFORMATION FURNISHED IN CONNECTION WITH THE
PLAN BY ANY PERSON OR PERSONS OTHER THAN HIMSELF.

         RELATIONSHIP TO OTHER BENEFITS. NO PAYMENT UNDER THE PLAN SHALL BE
TAKEN INTO ACCOUNT IN DETERMINING ANY BENEFITS UNDER ANY PENSION, RETIREMENT,
PROFIT SHARING, GROUP INSURANCE OR OTHER BENEFIT PLAN OF THE COMPANY OR ANY
SUBSIDIARY EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN SUCH OTHER PLAN.

         EXPENSES. THE EXPENSES OF ADMINISTERING THE PLAN SHALL BE BORNE BY THE
COMPANY AND ITS SUBSIDIARIES.

         PRONOUNS. MASCULINE PRONOUNS AND OTHER WORDS OF MASCULINE GENDER SHALL
REFER TO BOTH MEN AND WOMEN.

         TITLES AND HEADINGS. THE TITLES AND HEADINGS OF THE SECTIONS IN THE
PLAN ARE FOR CONVENIENCE OF REFERENCE ONLY, AND IN THE EVENT OF

                                       15
<Page>

ANY CONFLICT, THE TEXT OF THE PLAN, RATHER THAN SUCH TITLES OR HEADINGS, SHALL
CONTROL.

         TERMINATION OF EMPLOYMENT. FOR ALL PURPOSES HEREIN, A PERSON WHO
TRANSFERS FROM EMPLOYMENT OR SERVICE WITH THE COMPANY TO EMPLOYMENT OR SERVICE
WITH A SUBSIDIARY OR VICE VERSA SHALL NOT BE DEEMED TO HAVE TERMINATED
EMPLOYMENT OR SERVICE WITH THE COMPANY OR A SUBSIDIARY.

CHANGES IN CAPITAL STRUCTURE

   Awards granted under the Plan and any agreements evidencing such Awards, the
maximum number of shares of Stock subject to all Awards under the Plan, the
number of shares of Stock subject to outstanding Awards and the maximum number
of shares of Stock with respect to which any one person may be granted Options
or stock appreciation rights during any year may be subject to adjustment or
substitution, as determined by the Committee in its sole discretion, as to the
number, price or kind of a share of Stock or other consideration subject to such
Awards or as otherwise determined by the Committee to be equitable (i) in the
event of changes in the outstanding Stock or in the capital structure of the
Company by reason of stock dividends, stock splits, reverse stock splits,
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges, or other relevant changes in capitalization occurring after the Date
of Grant of any such Award or (ii) in the event of any change in applicable laws
or any change in circumstances which results in or would result in any
substantial dilution or enlargement of the rights granted to, or available for,
Participants in the Plan, or (iii) for any other reason which the Committee, in
its sole discretion, determines otherwise warrants equitable adjustment because
it interferes with the intended operation of the Plan. Any adjustment to
Incentive Stock Options under this Section 11 shall take into account that
adjustments which constitute a "modification" within the meaning of Section
424(h)(3) of the Code may have an adverse tax impact on such Incentive Stock
Options and the Committee may, in its sole discretion, provide for a different
adjustment or no adjustment in order to preserve the tax effects of Incentive
Stock Options. Unless otherwise determined by the Committee, in its sole
discretion, any adjustments or substitutions under this Section 11 shall be made
in a manner which does not adversely affect the exemption provided pursuant to
Rule 16b-3 under the Exchange Act. Further, with respect to Awards intended to
qualify as "performance-based compensation" under Section 162(m) of the Code,
such adjustments or substitutions shall, unless otherwise determined by the
Committee in its sole discretion, be made only to the extent that the Committee
determines that such adjustments or substitutions may be made without a loss of
deductibility for such Awards under Section 162(m) of the Code. The Company
shall give each Participant notice of an adjustment hereunder and, upon notice,
such adjustment shall be conclusive and binding for all purposes.

   Notwithstanding the above, in the event of any of the following:

         A.    The Company is merged or consolidated with another corporation or
entity;
         B.    All or substantially all of the assets of the Company or the
Common Stock are acquired by another person or entity;

                                       16
<Page>

         C.    The reorganization or liquidation of the Company; or
         D.    The Company shall enter into a written agreement to undergo an
event described in clauses A, B or C above, then the Committee may, in its
discretion and upon at least 10 day's advance notice to the affected persons,
cancel any outstanding Awards and pay to the Holders thereof, in cash or Stock,
the value of such Awards based upon the price per share of Stock received or to
be received by other stockholders of the Company in the event. The terms of this
Section 11 may be varied by the Committee in any particular Award agreement.

EFFECT OF CHANGE IN CONTROL

   Except to the extent reflected in a particular Award agreement:

         IN THE EVENT OF A CHANGE IN CONTROL, NOTWITHSTANDING ANY VESTING
SCHEDULE WITH RESPECT TO AN AWARD OF OPTIONS OR RESTRICTED STOCK, SUCH OPTION
SHALL BECOME IMMEDIATELY EXERCISABLE WITH RESPECT TO 100% OF THE SHARES SUBJECT
TO SUCH OPTION, AND THE RESTRICTED PERIOD SHALL EXPIRE IMMEDIATELY WITH RESPECT
TO 100% OF SUCH SHARES OF RESTRICTED STOCK.

         IN THE EVENT OF A CHANGE IN CONTROL, ALL OTHER AWARDS SHALL BECOME
FULLY VESTED AND OR PAYABLE TO THE FULLEST EXTENT OF ANY AWARD OR PORTION
THEREOF THAT HAS NOT THEN EXPIRED AND ANY RESTRICTIONS WITH RESPECT THERETO
SHALL EXPIRE. THE COMMITTEE SHALL HAVE FULL AUTHORITY AND DISCRETION TO
INTERPRET THIS SECTION 12 AND TO IMPLEMENT ANY COURSE OF ACTION WITH RESPECT TO
ANY AWARD SO AS TO SATISFY THE INTENT OF THIS PROVISION.

         THE OBLIGATIONS OF THE COMPANY UNDER THE PLAN SHALL BE BINDING UPON ANY
SUCCESSOR CORPORATION OR ORGANIZATION RESULTING FROM THE MERGER, CONSOLIDATION
OR OTHER REORGANIZATION OF THE COMPANY, OR UPON ANY SUCCESSOR CORPORATION OR
ORGANIZATION SUCCEEDING TO SUBSTANTIALLY ALL OF THE ASSETS AND BUSINESS OF THE
COMPANY.

NONEXCLUSIVITY OF THE PLAN

   Neither the adoption of this Plan by the Board nor the submission of this
Plan to the stockholders of the Company for approval shall be construed as
creating any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options otherwise than under this Plan, and such arrangements
may be either applicable generally or only in specific cases.

AMENDMENTS AND TERMINATION

   The Board may at any time terminate the Plan. Subject to Section 11, with the
express written consent of an individual Participant, the

                                       17
<Page>

Board or the Committee may cancel or reduce or otherwise alter outstanding
Awards if, in its judgment, the tax, accounting, or other effects of the Plan or
potential payouts thereunder would not be in the best interest of the Company.
The Board or the Committee may, at any time, or from time to time, amend or
suspend and, if suspended, reinstate, the Plan in whole or in part; PROVIDED,
HOWEVER, that without further stockholder approval neither the Board nor the
Committee shall make any amendment to the Plan which would:

         MATERIALLY INCREASE THE MAXIMUM NUMBER OF SHARES OF STOCK WHICH MAY BE
ISSUED PURSUANT TO AWARDS, EXCEPT AS PROVIDED IN SECTION 11;

         EXTEND THE MAXIMUM OPTION PERIOD;

         EXTEND THE TERMINATION DATE OF THE PLAN; OR

         CHANGE THE CLASS OF PERSONS ELIGIBLE TO RECEIVE AWARDS UNDER THE PLAN.

                                     *  *  *

As adopted by the Board of Directors
of P&F Industries, Inc. as of April 18, 2002

By:
    ---------------------------
Title:
       ------------------------

                                       18