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Unassociated Document

    EXECUTION
      COPY

    

    EXECUTIVE
      EMPLOYMENT AGREEMENT

    

    THIS
      EXECUTIVE EMPLOYMENT AGREEMENT (this “Agreement”)
      is
      entered into as of June 8, 2007, by and between Haynes International, Inc.
      (the
“Company”),
      a
      Delaware corporation, and Francis J. Petro (the “Executive”).

    

    PRELIMINARY
      STATEMENTS

    

    WHEREAS,
      the Company and the Executive previously entered into that certain Amended
      and
      Restated Executive Employment Agreement, dated as of August 31, 2007 (the
“Prior
      Agreement”),
      which
      Prior Agreement shall terminate on September 30, 2007;

    

    WHEREAS,
      the Company desires to continue to employ the Executive, and the Executive
      desires to continue to be employed by the Company, on the terms and conditions
      set forth herein such that this Agreement shall supersede and replace the Prior
      Agreement effective as of October 1, 2007 (the “Effective
      Date”).

    

    NOW,
      THEREFORE, in consideration of the mutual promises, covenants and agreements
      contained herein and other good and valuable consideration, the receipt and
      sufficiency of which are hereby acknowledged, the parties hereto hereby agree
      as
      follows:

    

    AGREEMENT

    

    Section
      1. Employment.

    

    (a) Prior
      Agreements.
      Effective as of the Effective Date, the Executive’s employment with the Company
      and benefits upon a termination of employment shall be governed by this
      Agreement, which supersedes and replaces the Prior Agreement.

    

    (b) Offer
      and Acceptance.
      During
      the “Employment Term” (as defined in Section
      1(d)
      below),
      the Company agrees to employ the Executive in the position of President and
      Chief Executive Officer of the Company upon the terms and subject to the
      conditions set forth herein, and the Executive agrees to remain in the employ
      of
      the Company on such terms and conditions.

    

    (c) Duties.
      The
      Executive’s duties shall include those duties that are consistent with his
      position as President and Chief Executive Officer of the Company as well as
      those reasonably assigned to him from time to time, in good faith, by the Board
      of Directors of the Company (the “Board”).
      The
      Executive shall (i) devote his working hours, on a full-time basis, to his
      duties under this Agreement; (ii) faithfully, industriously and loyally serve
      the Company; (iii) comply in all material respects with the lawful and
      reasonable directions and instructions given to him by the Board; (iv) use
      his
      reasonable best efforts to promote and serve the interests of the Company;
      and
      (v) assist the Board with succession planning. The Executive shall comply in
      all
      material respects with all applicable laws, rules and regulations relating
      to
      the performance of the Executive’s duties and responsibilities hereunder. The
      Executive agrees to serve as (i) a member of the Board and on any of the board
      of directors of any subsidiary or affiliate of the Company, and (ii) as an
      officer of any subsidiary or affiliate of the Company, without any additional
      compensation while he is employed by the Company. Upon termination of the
      Executive’s employment by the Company for any reason, the Executive shall
      immediately resign from the Board and any other position as a member of the
      board of directors or as an officer of any such subsidiary or affiliate of
      the
      Company.

    
      
         

      

      
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    (d) Employment
      Term.
      The
      Executive’s employment by the Company under this Agreement shall commence on the
      Effective Date and shall continue thereafter and shall terminate on September
      30, 2008 (the “Employment
      Term”),
      unless renewed by a subsequent written agreement of the parties. The Executive’s
      employment by the Company shall be subject to termination at any time during
      the
      Employment Term as provided in subsection (f) of this Section
      1.
      As used
      herein, the term “Employment
      Term”
shall
      mean the actual period of time during which the Executive is employed by the
      Company under the terms and conditions of this Agreement.

    

    (e) Compensation
      and Benefits.
      During
      the Employment Term, the Company shall pay and provide the following
      compensation and other benefits to the Executive as full compensation for all
      services rendered by the Executive as an employee of the Company under the
      terms
      and conditions of this Agreement. All payments made to the Executive hereunder
      shall be subject to appropriate payroll deductions and other withholdings
      required by law.

    

    (i) Annual
      Salary.
      During
      the Employment Term, the Company shall pay to the Executive, in accordance
      with
      the then prevailing payroll practices of the Company, a base salary (the
“Annual
      Salary”)
      at the
      annual rate of Five Hundred Twenty Thousand Dollars ($520,000) per
      year.

    

    (ii) Bonuses.
      During
      the Employment Term, the Executive shall be eligible to receive an annual bonus
      based upon the achievement by the Company of specific performance requirements
      (e.g. earnings per share, EBITDA benchmarks and working capital targets) which
      shall be determined by the Compensation Committee of the Board (the
“Committee”)
      in its
      sole and absolute discretion prior to or at the commencement of the Employment
      Term (the “Bonus”).
      The
      target amount for the Bonus shall be eighty percent (80%) of the Annual Salary
      (the “Target
      Bonus”);
      provided, however, the Executive shall be eligible to receive a minimum Bonus
      in
      an amount equal to forty percent (40%) of the Annual Salary if threshold
      performance requirements are achieved and a maximum Bonus in an amount equal
      to
      one hundred twenty percent (120%) of the Annual Salary if maximum performance
      requirements are achieved. The Bonus, if any, shall be paid to the Executive
      by
      the Company no later than December 15, 2008.

    

    (iii) Benefits.
      During
      the Employment Term, the Executive shall be eligible to participate in all
      employee health and welfare benefit plans in which senior executives of the
      Company are entitled to participate, but participation shall be subject to
      all
      of the terms and conditions of such plans applicable to all such senior
      executives, including all waiting periods, eligibility requirements,
      contributions, exclusions and other similar conditions or limitations. In the
      case of any disability plan, the Company agrees that such plan will provide
      the
      benefits contemplated by Section
      1(e)(iv)
      or in
      lieu of such plan participation, the Company will provide to the Executive
      the
      disability insurance coverage contemplated by Section
      1(e)(iv).

    
      
         

      

      
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    (iv) Insurance.
      During
      the Employment Term, the Executive shall be entitled to receive long-term
      disability insurance coverage and the amount of the benefit payments under
      such
      insurance coverage shall be not less than sixty percent (60%) of the Annual
      Salary then in effect (the “Disability
      Insurance”).
      The
      Company shall pay all premiums related to the Disability Insurance as long
      as
      the Executive is employed by Company hereunder. In addition, the Company shall
      provide the Executive with a life insurance policy in a face amount equal to
      five (5) times the Annual Salary then in effect (the “Life
      Insurance”),
      which
      policy shall be convertible to an individual policy at the election of the
      Executive upon termination of the Executive’s employment by the Company. The
      Company shall be the owner of the Life Insurance and shall pay all premiums
      related thereto prior to termination of the Executive’s employment by the
      Company.

    

    (v) Expenses.
      The
      Company shall reimburse the Executive, in accordance with the then prevailing
      reimbursement practices of the Company, for all reasonable and customary
      business expenses incurred by the Executive in connection with his employment
      by
      the Company, including, but not limited to, all reasonable and customary
      travel-related expenses incurred in connection with periodic trips to Syracuse,
      New York, provided, in any case, that the Executive complies with the standard
      reporting and reimbursement policies as may be established by the Company from
      time to time.

    

    (vi). Vacation.
      The
      Executive shall be entitled to five (5) weeks of vacation, measured on a
      calendar year basis. The Executive shall schedule vacation periods at reasonable
      times in accordance with the Company’s vacation policy for senior executives.
      The Executive shall accrue and receive full compensation and benefits during
      his
      vacation periods. Unused vacation leave time shall not entitle the Executive
      to
      any additional compensation and may not be carried over to a subsequent calendar
      year.

    

    (vii) SERP.
      The
      Executive shall be entitled to participate in the Company’s Supplemental
      Executive Retirement Plan on the terms and conditions as set forth in the
      Participation Agreement entered into by and between the Executive and the
      Company dated December 13, 2002 as amended as of the date hereof (the
“SERP”).

    

    (viii) Company
      Car.
      During
      the Employment Term, the Company shall provide the Executive with the use of
      an
      automobile owned or leased by the Company at its expense for Company-related
      purposes (the “Company
      Car”).
      The
      Company shall pay or reimburse the Executive for all expenses incurred in
      connection with the Executive’s use of the Company Car, including, but not
      limited to, insurance, gasoline, registration taxes and maintenance. The Company
      Car shall be a Buick Lucerne or an automobile of a similar class. The Executive
      agrees that the use of the Company Car for personal-related matters will result
      in imputed income to the Executive and at the end of each calendar year, the
      Company and its accountants shall reasonably determine the amount of such income
      to be included in the Executive’s compensation in connection with the personal
      use of the Company Car and the Executive agrees that he shall be responsible
      for
      any and all taxes imposed on such imputed income.

    
 

    
      
         

      

      
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    (ix) Country
      Club Membership.
      During
      the Employment Term, the Company shall reimburse the Executive for all regular
      monthly membership dues and business-related charges incurred by the Executive
      in connection with his membership at a country club. The Executive agrees that
      he shall be responsible for any and all taxes imposed on the reimbursements
      made
      pursuant to the preceding sentence.

    

    (x) Options.
      On
      March 30, 2007, the Executive was granted options to acquire 24,000 shares
      of
      the Company’s common stock pursuant to the terms of the Company’s 2007 Stock
      Option Plan and the grant letter pursuant to which such options were
      granted.

    

    (xi) Death
      Benefit Plan.
      During
      the Employment Term, the Executive shall be eligible to participate in the
      Company’s Death Benefit Plan, as amended, pursuant to the terms and conditions
      set forth in such plan.

    

    (f) Termination
      of Employment.
      Subject
      to the terms of Section 1(g) below, the Executive’s employment by the Company
      may be terminated as follows:

    

    (i) Termination
      upon the Expiration of the Employment Term.
      The
      Executive’s employment shall terminate on September 30, 2008 unless terminated
      earlier pursuant to this Section
      1(f).
      In the
      event that the Executive’s employment terminates upon the expiration of the
      Employment Term, then the Executive shall be entitled to receive the
      compensation and benefits set forth in Section
      1(g)(i).
      

    

    (ii) Termination
      for Cause.
      The
      Company may immediately terminate, at any time, Executive’s employment by the
      Company for “Cause”. A termination for “Cause”
means
      a
      termination by reason of the Board’s good faith determination that the Executive
      (i) continually failed to substantially perform his duties with the Company
      (other than a failure resulting from the Executive’s medically documented
      incapacity due to physical or mental illness) including, without limitation,
      repeated refusal to follow the reasonable directions of the Board, knowing
      violation of the law in the course of performance of the Executive’s duties with
      the Company, repeated absences from work without a reasonable excuse, or
      intoxication with alcohol or illegal drugs while on the Company’s premises
      during regular business hours, (ii) engaged in conduct which constituted a
      material breach of Section
      2
      or
Section
      3
      of this
      Agreement, (iii) was indicted (or equivalent under applicable law), convicted
      of, or entered a plea of nolo contendere to the commission of a felony or crime
      involving dishonesty or moral turpitude, or (iv) engaged in conduct which is
      demonstrably and materially injurious to the financial condition, business
      reputation, or otherwise of the Company or its subsidiaries or affiliates,
      or
      (v) perpetuated a fraud or embezzlement against the Company or its subsidiaries
      or affiliates, and in each case the particular act or omission was not cured,
      if
      curable, in all material respects by the Executive within thirty (30) days
      after
      receipt of written notice from the Board which shall set forth in reasonable
      detail the nature of the facts and circumstances which constitute Cause.
      Notwithstanding the foregoing, the Executive shall not be deemed to have been
      terminated for Cause unless there shall have been delivered to the Executive
      a
      copy of a resolution duly adopted by the Board. If the Company has reasonable
      belief that the Executive has committed any of the acts described above, it
      may
      suspend the Executive (with or without pay) while it investigates whether it
      has
      or could have Cause to terminate the Executive. The Company may terminate the
      Executive for Cause prior to the completion of its investigation; provided,
      that, if it is ultimately determined that the Executive has not committed an
      act
      which would constitute Cause, the Executive shall be treated as if he were
      terminated without Cause.

    
      
         

      

      
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    (iii) Termination
      Without Cause.
      The
      Company, may, at any time, terminate the Executive’s employment by Company
      without Cause by providing prior written notice thereof to the
      Executive.

    

    (iv) Resignation
      for Good Reason.
      The
      Executive may terminate his employment by the Company for Good Reason (as
      defined below) by providing written notice thereof to the Company (the
“Resignation
      Notice”)
      at
      least forty-five (45) days prior to the effective date of the resignation,
      which
      notice shall set forth in reasonable detail the nature of the facts and
      circumstances which constitute Good Reason and the Company shall have thirty
      (30) days after receipt of the Resignation Notice to cure in all material
      respects the facts and circumstances which constitute Good Reason. For purposes
      of this Agreement, “Good
      Reason”
shall
      mean the occurrence, during the Employment Term, of any of the following actions
      or failures to act, but in each case only if it is not consented to by the
      Executive in writing: (a) a material adverse change in the Executive’s duties,
      reporting responsibilities, titles or elected or appointed offices as in effect
      immediately prior to the effective date of such change; (b) a material reduction
      by the Company in the Executive’s Base Salary or annual bonus opportunity in
      effect immediately prior to the effective date of such reduction, not including
      any reduction resulting from changes in the market value of securities or other
      instruments paid or payable to the Executive; or (c) any change of more than
      50
      miles in the location of the principal place of employment of the Executive
      immediately prior to the effective date of such change. For purposes of this
      definition, none of the actions described in clauses (a) and (b) above shall
      constitute “Good Reason” with respect to the Executive if it was an isolated and
      inadvertent action not taken in bad faith by the Company and if it is
remedied
      by the Company within thirty (30) days after receipt of written notice thereof
      given by the Executive (or, if the matter is not capable of remedy within thirty
      (30) days, then within a reasonable period of time following such thirty (30)
      day period, provided that the Company has commenced such remedy within said
      thirty (30) day period); provided that “Good Reason” shall cease to exist for
      any action described in clauses (a) and (b) above on the sixtieth
      (60th)
      day
      following the later of the occurrence of such action or the Executive’s
      knowledge thereof, unless the Executive has given the Company
      written notice thereof prior to such date.

    
      
         

      

      
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    (v) Resignation
      Without Good Reason.
      The
      Executive may, at any time, terminate the Executive’s employment by the Company
      without Good Reason by providing thirty (30) days’ prior written notice thereof
      to the Company.

    

    (vi) Death;
      Disability or Retirement.
      The
      Executive’s employment shall terminate immediately upon the Executive’s death,
      Disability, or Retirement (each as defined below). For purposes of this
      Agreement, “Disability”
means
      the Executive is totally and permanently disabled as defined in the Company’s
      Pension Plan and “Retirement”
means
      a
      resignation by the Executive after having reached age fifty-five (55), but
      in no
      event prior to September 30, 2008.

    

    (g) Effect
      of Termination

    

    (i) Termination
      upon the Expiration of the Employment Term.
      Upon
      the termination of the Executive’s employment pursuant to Section
      1(f)(i),
      the
      Executive will be entitled to (A) payment of that portion of the Executive’s
      then effective Annual Salary which has been earned but not yet paid through
      and
      including the last day of the Executive’s employment (the “Termination
      Date”);
      (B)
      payment of any Bonus earned by the Executive under the terms and conditions
      of
      this Agreement prior to the Termination Date that remains unpaid; (C)
      reimbursement of any reimbursable business expenses under Section
      1(e)(v),
      which
      were incurred by the Executive through and including the Termination Date;
      (D)
      continuation of benefits to which the Executive is entitled under Section
      1(e)(iii)
      and
Section
      1(e)(iv)
      through
      and including the Termination Date and; (E) the SERP that the Executive is
      entitled to under Section
      1(e)(vii)
      (collectively, the “Accrued
      Benefits”).

    

    (ii) Termination
      for Cause or Resignation Without Good Reason.
      Upon
      the Company’s termination of the Executive’s employment for Cause pursuant to
Section
      1(f)(ii)
      or the
      Executive’s resignation without Good Reason pursuant to Section
      1(f)(v),
      Executive will be entitled to the Accrued Benefits.

    

    Termination
      Without Cause or Resignation for Good Reason.
      Upon
      the Company’s termination of the Executive’s employment without Cause pursuant
      to Section
      1(f)(iii)
      or the
      Executive’s resignation for Good Reason pursuant to 

    Section
      1(f)(iv),
      the
      Executive shall be entitled to receive the Accrued Benefits and a lump sum
      payment equal to (A) the amount of the Annual Base Salary the Executive would
      have earned if he had continued to be employed with the Company during the
      period commencing on the day following the Termination Date and ending on the
      expiration of the Employment Term (the “Severance
      Period”)
      plus
      (B) the Target Bonus.

    

    The
      Executive shall also be entitled to receive continuation of medical and
      hospitalization benefits to which the Executive is entitled under Section
      1(e)(iii)
      during
      the Severance Period; provided, however, that such benefits shall terminate
      to
      the extent that the Executive obtains comparable benefits coverage from another
      employer during the Severance Period.

    
      
         

      

      
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    (iii) Death;
      Disability or Retirement.
      Upon
      termination of the Executive’s employment pursuant to Section
      1(f)(vi),
      the
      Executive or the Executive’s heirs, estate, personal representative or legal
      guardian, as appropriate, will be entitled to receive the Accrued
      Amounts.

    

    (iv) Timing
      of Payment and Release.
      As a
      condition of receiving from the Company the payments and benefits provided
      for
      under this Section
      1(g)
      which
      the Executive otherwise would not be entitled to receive, the Executive
      understands and agrees that, on the Termination Date, he will be required to
      execute (and not revoke) a release of all claims against the Company in
      substantially the form attached hereto as Exhibit 1 (the “Release”)
      as may
      be modified by the Company in good faith to reflect changes in law or its
      employment practices. The Executive acknowledges that he has been advised in
      writing to consult with an attorney prior to executing the Release. The
      Executive agrees that he will consult with his attorney prior to executing
      the
      Release.  The
      Executive and the Company agree that the Executive has a period of seven (7)
      days following the execution of the Release within which to revoke the Release.
      The parties also acknowledge and agree that the Release shall not be effective
      or enforceable until the seven (7) day revocation period expires. The date
      on
      which this seven (7) day period expires shall be the effective date of the
      Release (the “Release
      Effective Date”).
      The
      Company shall make all payments required under this Agreement, except to the
      extent that such payments are to be made over time, within five (5) business
      days following the Release Effective Date. In the event of a termination for
      Cause or by reason of the Executive’s death, the Company shall make any payments
      under this Section
      1(g)
      within
      five (5) business days of the Termination Date, except to the extent that such
      payments are to be made over time. The Executive understands that as used in
      this Section
      1(g)(iv),
      the
“Company” includes its past, present and future officers, directors, trustees,
      shareholders, employees, agents, subsidiaries, affiliates, distributors,
      successors, and assigns, any and all employee benefit plans (and any fiduciary
      of such plans) sponsored by the Company, and any other person related to the
      Company.

    

    Except
      as
      specifically provided in this Section
      1(g)
      or
      required under applicable law, the Executive will not be eligible to receive
      any
      salary, bonus or other compensation or benefits described in Section
      1(e)
      with
      respect to any future periods after the Termination Date; provided, however,
      the
      Executive shall have the right to receive all compensation and benefits to
      which
      he is entitled under any benefit plans of the Company to the extent he is fully
      vested as of the effective date of the termination of the Executive’s employment
      by the Company pursuant to the terms and conditions of such employee benefit
      plans.

    

    Section
      2. Confidentiality.
      For
      purposes of this Section
      2,
      the
      term “Company” shall include, in addition to the Company, its affiliates,
      subsidiaries and any of their respective predecessors, successors and assigns.
      The term “Company’s Business” shall mean the business of developing,
      manufacturing, selling or distributing high-performance alloys for service
      in
      severe corrosion and high temperature applications.

    

     

    
      
         

      

      
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    (a) Confidential
      Information.
      As used
      in this Agreement, “Confidential
      Information”
means
      any and all confidential, proprietary or other information, whether or not
      originated by the Executive or the Company, which is in any way related to
      the
      past or present Company’s Business and is either designated as
      confidential or not generally known by or available to the public. Confidential
      Information includes, but is not limited to (whether or not reduced to writing
      or designated as confidential) (i) information regarding the Company’s existing
      and potential customers and vendors; (ii) any contacts (including the existence
      and contents thereof and parties thereto) to which the Company is a party or
      is
      bound; (iii) information regarding products and services being purchased or
      leased by or provided to the Company; (iv) information received by the Company
      from third parties under an obligation of confidentiality, restricted,
      disclosure or restricted use; (v) personnel and financial information of the
      Company; (vi) information with respect to the Company’s products, services,
      facilities, business methods, systems, trade secrets, technical know-how, and
      other intellectual property; (vii) marketing and developmental plans and
      techniques, price and cost data, forecasts and forecast assumptions, and
      potential strategies of the Company; and (viii) any other information relating
      to the Company which was obtained by the Executive in connection with his
      employment by the Company, whether before, on or after the Effective
      Date.

    

    (b) Non-Disclosure
      and Non-Use of Confidential Information.
      The
      Executive acknowledges that the Confidential Information of the Company is
      a
      valuable, unique asset of the Company and the Executive’s unauthorized use or
      disclosure thereof could cause irreparable harm to the Company for which no
      remedy at law could be adequate. Accordingly, the Executive agrees that he
      shall
      hold all Confidential Information of the Company in strict confidence and solely
      for the benefit of the Company, and that, he shall not, directly or indirectly,
      disclose or use or authorize any third party to disclose or use any Confidential
      Information except (i) as required for the performance of the Executive’s duties
      hereunder, (ii) with the express written consent of the Company, (iii) to the
      extent that any such information is in or becomes in the public domain other
      than as a result of the Executive’s breach of any of his obligations hereunder,
      or (iv) where required to be disclosed by court order, subpoena or other
      government process and in such event, the Executive shall cooperate with the
      Company in attempting to keep such information confidential. The Executive
      shall
      follow all Company policies and procedures to protect all Confidential
      Information and take any additional precautions necessary to preserve and
      protect the use or disclosure of any Confidential Information at all times.
      The
      Company shall reimburse the Executive for all reasonable expenses and costs
      he
      may incur as a result of cooperating under this Section
      2(b),
      upon
      receipt of proper documentation.

    

    (c) Ownership
      of Confidential Information.
      The
      Executive acknowledges and agrees that all Confidential Information is and
      shall
      remain the exclusive property of the Company, whether or not prepared in whole
      or in part by the Executive and whether or not disclosed to or entrusted to
      the
      custody of the Executive. Upon the termination or resignation of his employment
      by the Company, or at any other time at the request of the Company, the
      Executive shall promptly deliver to the Company all documents, tapes, disks,
      or
      other storage media and any other materials, and all copies thereof in whatever
      form, in the possession of the Executive pertaining to the Company’s Business,
      including, but not limited to, any containing Confidential
      Information.

    

    (d) Survival.
      The
      Executive’s obligations set forth in this Section
      2,
      and the
      Company’s rights and remedies with respect hereto, shall indefinitely survive
      the termination of this Agreement and the Executive’s employment by the Company,
      regardless of the reason therefor.

    
      
         

      

      
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    Section
      3. Restricted
      Covenants.
      For
      purposes of this Section
      3,
      the
      term “Company” shall include, in addition to the Company, its affiliates,
      subsidiaries and any of their respective predecessors, successors and
      assigns.

    

    (a) Non-Competition.
      During
      the Restricted Period and within the Restricted Area (each as defined in
      subsection (c) below), the Executive shall not, directly or indirectly, perform
      on behalf of any Competitor (as defined in subsection (c) below) the same or
      similar services as those that the Executive performed for the Company during
      the Executive’s employment by the Company or otherwise. In addition, the
      Executive shall not, during the Restricted Period or within the Restricted
      Area,
      directly or indirectly engage in, own, manage, operate, join, control, lend
      money or other assistance to, or participate in or be connected with (as an
      officer, director, member, manager, partner, shareholder, consultant, employee,
      agent, or otherwise), any Competitor.

    

    (b) Non-Solicitation.
      During
      the Restricted Period, the Executive shall not, directly or indirectly, for
      himself or on behalf of any Person (as defined in subsection (c) below), (i)
      solicit or attempt to solicit any Customers (as defined in subsection (c) below)
      or prospective Customers with whom the Executive had contact at any time during
      the Executive’s employment by the Company; (ii) divert or attempt to divert any
      business of the Company to any other Person; (iii) solicit or attempt to solicit
      for employment, endeavor to entice away from the Company, recruit, hire, or
      otherwise interfere with the Company’s relationship with, any Person who is
      employed by or otherwise engaged to perform services for the Company (or was
      employed or otherwise engaged to perform services for the Company, as of any
      given time, within the immediately preceding twenty-four (24) month period);
      (iv) cause or assist, or attempt to cause or assist, any employee or other
      service provider to leave the Company; or (v) otherwise interfere in any manner
      with the employment or business relationships of the Company or the business
      or
      operations then being conducted by the Company.

    

    (c) Definitions.
      For
      purposes of this Section
      3,
      the
      following definitions have the following meanings:

    

    (i) “Competitor”
means
      any Person that engages in a business that is the same as, or similar to, the
      Company’s Business.

     

    (ii) “Customer”
means
      any Person which, as of any given date, used or purchased or contracted to
      use
      or purchase any services or products from Company within the immediately
      preceding twenty-four (24) month period.

    

    (iii) “Person”
means
      any individual, corporation, partnership, joint venture, association, limited
      liability company, joint-stock company, trust or unincorporated organization,
      or
      any governmental agency, officer, department, commission, board, bureau, or
      instrumentality thereof.

    

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    (iv) “Restricted
      Area”
means,
      because the market for the Company’s Business is global or has the potential of
      being global, and is not dependent upon the physical location or presence
      of the Company, the Executive, or any individual or entity that may be in
      violation of this Agreement, the broadest geographic region enforceable by
      law
      (excluding any location where this type of restriction is prohibited by law)
      as
      follows: (A) everywhere in the world that has access to the Company’s Business
      because of the availability of the Internet; (B) everywhere in the world that
      the Executive has the ability to compete with the Company’s Business through the
      Internet; (C) each state, commonwealth, territory, province and other political
      subdivision located in North America; (D) each state, commonwealth, territory
      and other political subdivision of the United States of America; (E) Indiana
      and
      any state in which the Executive has performed any services for the Company;
      (F)
      any geographical area in which the Company has performed any services or sold
      any products; (G) any geographical area in which the Company or any of its
      subsidiaries have engaged in the Company’s Business which has resulted in
      aggregate sales revenue of at least $25,000 during any year in the five (5)
      year
      period immediately preceding the commencement of the Restricted Period; (H)
      any
      state or other jurisdiction where the Company had an office at any time during
      the Executive’s employment by the Company; (I) within one hundred (100) miles of
      any location in which the Company had an office at any time during the
      Executive’s employment by the Company; and (J) within one hundred (100) miles of
      any location in which the Executive provided services for the
      Company.

    

    (v) “Restricted
      Period”
means
      the period of time during the Executive’s employment by the Company plus a
      period of twelve (12) months from the Termination Date. In the event of a breach
      of this Agreement by the Executive, the Restricted Period will be extended
      automatically by the period of the breach.

    

    (d) Survival.
      The
      Executive’s obligations set forth in this Section
      3,
      and the
      Company’s rights and remedies with respect thereto, will remain in full force
      and effect during the Restricted Period and until full resolution of any dispute
      related to the performance of the Executive’s obligations during the Restricted
      Period.

    

    (e) Public
      Company Exception.
      The
      prohibitions contained in this Section
      3
      do not
      prohibit the Executive’s ownership of stock which is publicly traded provided
      that (1) the investment is passive, (2) the Executive has no other involvement
      with the company, (3) the Executive’s interest is less than five percent (5%) of
      the shares of the company, and (4) the Executive makes full disclosure to the
      Company of the stock at the time that the Executive acquires the shares of
      stock.

    

    Section
      4. Assignment
      of Inventions.
      Any and
      all inventions, improvements, discoveries, designs, works of authorship,
      concepts or ideas, or expressions thereof; whether or not subject to patents,
      copyrights, trademarks or service mark protections, and whether or not reduced
      to practice, that are conceived or developed by the Executive while employed
      with the Company and which relate to or result from the actual or anticipated
      business, work, research or investigation of the Company (collectively,
“Inventions”),
      shall
      be the sole and exclusive property of the Company. The Executive shall do all
      things reasonably requested by the Company to assign to and vest in the Company
      the entire right, title and interest to any such Inventions and to obtain full
      protection therefor. Notwithstanding the foregoing, the provisions of this
      Agreement do not apply to an Invention for which no equipment, supplies,
      facility, or  Confidential Information of the Company was used and which
      was developed entirely on the Executive’s own time, unless (a) the Invention
      relates (i) to the Company’s Business, or (ii) or the Company’s actual or
      demonstrably anticipated research or development, or (b) the Invention results
      from any work performed by the Executive for the Company.

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    Section
      5. General

    

    (a) Reasonableness.
      The
      Executive has carefully considered the nature, extent and duration of the
      restrictions and obligations contained in this Agreement, including, without
      limitation, the geographical coverage contained in Section
      3,
      and the
      time periods contained in Section
      2
      and
Section
      3,
      and
      acknowledges and agrees that such restrictions are fair and reasonable in all
      respects to protect the legitimate interests of the Company and that these
      restrictions are designed for the reasonable protection of the Company’s
      Business.

    

    (b) Remedies.
      The
      Executive recognizes that any breach of this Agreement shall cause irreparable
      injury to the Company, inadequately compensable in monetary damages.
      Accordingly, in addition to any other legal or equitable remedies that may
      be
      available to the Company, the Executive agrees that the Company shall be able
      to
      seek and obtain injunctive relief in the form of a temporary restraining order,
      preliminary injunction, or permanent injunction, in each case without notice
      or
      bond, against the Executive to enforce this Agreement. The Company shall not
      be
      required to demonstrate actual injury or damage to obtain injunctive relief
      from
      the courts. To the extent that any damages are calculable resulting from the
      breach of this Agreement, the Company shall also be entitled to recover damages,
      including, but not limited to, any lost profits of the Company and/or its
      affiliates or subsidiaries. For purposes of this Agreement, lost profits of
      the
      Company shall be deemed to include all gross revenues resulting from any
      activity of the Executive in violation of this Agreement and all such revenues
      shall be held in trust for the benefit of the Company. Any recovery of damages
      by the Company shall be in addition to and not in lieu of the injunctive relief
      to which the Company is entitled. In no event will a damage recovery be
      considered a penalty in liquidated damages. In addition, in any action at law
      or
      in equity arising out of this Agreement, the prevailing party shall be entitled
      to recover, in addition to any damages caused by a breach of this Agreement,
      all
      costs and expenses, including, but not limited to, reasonable attorneys’ fees,
      expenses, and court costs incurred by such party in connection with such action
      or proceeding. Without limiting the Company’s rights under this Section
      5(b)
      or any
      other remedies of the Company, if a court of competent jurisdiction determines
      that the Executive breached any of the provisions of Section
      2
      or
Section
      3,
      Company
      will have the right to cease making any payments or providing any benefits
      otherwise due to the Executive under the terms and conditions of this
      Agreement.

    

    (c) Claims
      by Executive.
      The
      Executive acknowledges and agrees that any claim or cause of action by the
      Executive against the Company shall not constitute a defense to the enforcement
      of the restrictions and covenants set forth in this Agreement and shall not
      be
      used to prohibit injunctive relief.

    

    (d) Amendments.
      This
      Agreement may not be modified, amended, or waived in any manner except by an
      instrument in writing signed by both parties to this Agreement.

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    

    (e) Waiver.
      The
      waiver by either party of compliance by the other party with any provision
      of
      this Agreement shall not operate or be construed as a waiver of any other
      provision of this Agreement (whether or not similar), or a continuing waiver,
      or
      a waiver of any subsequent breach by a party of any provision of this
      Agreement.

    

    (f) Governing
      Law; Jurisdiction.
      The
      laws of the State of New York shall govern the validity, performance,
      enforcement, interpretation, and other aspects of this Agreement,
      notwithstanding any state’s choice of law provisions to the contrary. The
      parties intend the provisions of this Agreement to supplement but not displace,
      their respective obligations and responsibilities under the New York and Indiana
      Uniform Trade Secrets Act. Any proceeding to enforce, interpret, challenge
      the
      validity of, or recover for the breach of any provision of, this Agreement
      may
      be filed in the courts of the State of Indiana or the United States District
      Court sitting in Indianapolis, Indiana, and the parties hereto expressly waive
      any and all objections to personal jurisdiction, service of processor venue
      in
      connection therewith.

    

    (g) Complete
      Agreement; Release.
      This
      Agreement constitutes a complete and total integration of the understanding
      of
      the parties with respect to the subject matter hereof and thereof and supersedes
      all prior or contemporaneous negotiations, commitments, agreements, writings,
      and discussions with respect to the subject matter of this Agreement, including
      but not limited to the Prior Agreement. The Executive hereby unconditionally
      releases and discharges the Company from any and all claims, causes of action,
      demands, lawsuits or other charges whatsoever, known or unknown, directly or
      indirectly related to the Prior Agreement.

    

    (h) Severability.
      If a
      court having proper jurisdiction holds a particular provision of this Agreement
      unenforceable or invalid for any reason, that provision shall be modified only
      to the extent necessary in the opinion of such court to make it enforceable
      and
      valid and the remainder of this Agreement shall be deemed valid and enforceable
      and shall be enforced to the greatest extent possible under the then existing
      law. In the event the court determines such modification is not possible, the
      provision shall be deemed severable and deleted, and all other provisions of
      this Agreement shall remain unchanged and in full force and effect.

    

    (i) Enforceability
      in Jurisdictions.
      The
      parties hereto intend to and herby confer jurisdiction to enforce the covenants
      contained in Section
      2 and 3
      above
      upon the courts of any state within the geographical scope of such covenants.
      If
      the courts of any one or more of such states shall hold any of the previous
      covenants unenforceable by reason of the breadth of such scope or otherwise,
      it
      is the intention of the parties hereto that such determination not bar or in
      any
      way affect the Company’s rights to the relief provided above in the courts of
      any other states within the geographical scope of such covenants, as to breaches
      of such covenants in such other respective jurisdictions, the above covenants
      as
      they relate to each state being, for this purpose, severable into diverse and
      independent covenants.

    

    (j) Fair
      Dealing.
      The
      Executive acknowledges that the Company has negotiated this Agreement in good
      faith and has been fair in its dealing with the Executive. The Executive shall
      not raise any defense and expressly waives any defense against the Company
      based
      upon any alleged breach of good faith or fair dealing by the Company in
      connection with this Agreement.

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    

    (k) Counterparts.
      This
      Agreement may be executed in two (2) counterparts, each of which shall be deemed
      an original but both of which together shall constitute one and the same
      Agreement. Facsimile transmission of the executed version of this Agreement
      or
      any counterpart hereof shall have the same force and effect as the
      original.

    

    (l) Executive
      Warranties.
      The
      Executive warrants and represents to the Company that the execution and
      performance of this Agreement does not and shall not violate any express or
      implied obligations of the Executive to any other person and that all Executive
      shall inform any prospective employer about the existence of this Agreement
      before accepting employment by such employer.

    

    (m) Headings.
      The
      heads of the Sections of this Agreement are inserted for convenience only and
      shall not be deemed to constitute part of this Agreement or to affect the
      construction of this Agreement.

    

    (n) Third
      Party Beneficiaries.
      The
      Company’s affiliates and subsidiaries are expressly made third party
      beneficiaries of this Agreement.

    

    (o) Notices.
      Any
      notice required or permitted hereunder shall be personally delivered or mailed
      by certified mail, return receipt requested, to the addresses of the parties
      set
      out on the signature page hereto, or as changed from time to time by notice
      as
      provided herein.

    

    (p) Successors
      and Assigns.
      The
      Executive shall not assign or transfer any of his rights or obligations under
      this Agreement to any individual or entity. The Company may assign its rights
      hereunder to any of its affiliates or to any individual or entity who or that
      shall acquire or succeed to, by operation of law, or otherwise, all or
      substantially all of the assets of the Company or the Company’s Business. All
      provisions of this Agreement are binding upon, shall inure to the benefit of,
      and are enforceable by or against, the parties and their respective heirs,
      executors, administrators or other legal representatives and permitted
      successors and assigns.

    

    (q) OPPORTUNITY
      TO CONSUULT COUNSEL.
      THE
      EXECUTIVE ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT AND HAS BEEN
      GIVEN ADEQUATE OPPORTUNITY, AND HAS BEEN ENCOURAGED BY THE COMPANY, TO CONSULT
      WITH LEGAL COUNSEL OF HIS CHOICE CONCERNING THE TERMS HEREOF BEFORE EXECUTING
      THIS AGREEMENT.

    

    [SIGNATURE
      PAGE FOLLOWS].

    

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    

    IN
      WITNESS WHEREOF,
      the
      parties have entered into this Agreement as of the date first written
      above.

    

    
      	 	
              HAYNES
                INTERNATIONAL, INC.

            
	 	 	 
	 	 	 
	 	
              By:

            	
              /ss/
                John
                C. Corey

            
	 	
              Name:
                John C. Corey

              Title:
                Chairman, Board of Directors

            
	 
	 	 	 
	 	 	 
	 	
              EXECUTIVE
                

            
	 	 	 
	 	 	 
	 	
              By:

            	
              /ss/
                Francis
                J. Petro

            
	 	 	
              Francis
                J. Petro

            
	 	 	
              4957
                Belrush Road

            
	 	 	
              Syracuse,
                NY 13215

            

    

    

    
      
         

      

      
        14SOLITRON
      DEVICES, INC.

    2007
      STOCK INCENTIVE PLAN

     

    1.    ESTABLISHMENT,
      EFFECTIVE DATE AND TERM

     

    Solitron
      Devices, Inc., a Delaware corporation, hereby establishes the "Solitron Devices,
      Inc. 2007 Stock Incentive Plan." The effective date of the Plan shall be June
      4,
      2007; which is the date the Plan was approved and adopted by the Board. Unless
      earlier terminated pursuant to Section 13(k)
      hereof, the Plan shall terminate on the tenth anniversary of the Effective
      Date.

     

    2.    PURPOSE

     

    The
      purpose of the Plan is to enable the Company to attract, retain, reward and
      motivate Eligible Individuals by providing them with an opportunity to acquire
      or increase a proprietary interest in Solitron and to incentivize them to expend
      maximum effort for the growth and success of the Company, so as to strengthen
      the mutuality of the interests between the Eligible Individuals and the
      shareholders of Solitron. 

     

    3.    DEFINITIONS
      

     

    As
      used
      in the Plan, the following terms shall have the meanings set forth
      below: 

     

    (a) "Award"
      means any Common Stock, Option, Restricted Stock, Stock Appreciation Right
      or
      any other award granted pursuant to the Plan.

     

    (b) "Award
      Agreement" means a written agreement entered into by Solitron
      and
      a
      Participant setting forth the terms and conditions of the grant of an Award
      to
      such Participant.

     

    (c)
      "Board"
      means the board of directors of Solitron.

     

    (d) "Cause"
      means, with respect to a termination of employment or service with the Company,
      a termination of employment or service due to a Participant's dishonesty, fraud,
      insubordination, willful misconduct, refusal to perform services (for any reason
      other than illness or incapacity) or materially unsatisfactory performance
      of
      the Participant's duties for the Company; provided,
      however,
      that if
      the Participant and the Company have entered into an employment agreement or
      consulting agreement which defines the term Cause, the term Cause shall be
      defined in accordance with such agreement with respect to any Award granted
      to
      the Participant on or after the effective date of the respective employment
      or
      consulting agreement. The Committee shall determine in its sole and absolute
      discretion whether Cause exists for purposes of the Plan.

     

    (e)
      "Change
      in Control" means any change in control of Solitron of a nature which would
      be
      required to be reported (a) in response to Item 6(e) of Schedule 14A of
      Regulation 14A, as in effect on the date of an agreement, promulgated under
      the
      Securities Exchange Act of 1934, as amended (the "Exchange Act"), (b) in
      response to Item 5.01 of the Current Report on Form 8-K, as in effect on the
      date of an agreement, promulgated under the Exchange Act, or (c) in any filing
      by the Company with the Securities and Exchange Commission; provided, however,
      that without limitation, a Change of Control of the Company shall be deemed
      to
      have occurred if:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (i) Any
      "person" (as such term is defined in Sections 13(d)(3) and Section 14(d)(3)
      of
      the Exchange Act), other than the Company, any majority-owned subsidiary of
      the
      Company, or any compensation plan of the Company or any majority-owned
      subsidiary of the Company, becomes the "beneficial owner" (as such term is
      defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of
      securities of Solitron representing fifty percent (50%) or more of the combined
      voting power of Solitron;

     

    (ii) During
      any period of three consecutive years during the term of this Agreement, the
      directors who at the beginning of such period constitute the Board cease for
      any
      reason to constitute at least a majority of the Board, unless the election
      of
      each director who was not a director at the beginning of such period has been
      approved in advance by directors representing at least two-thirds of the
      directors then in office who were directors at the beginning of such period;
      or

     

    (iii) The
      shareholders of Solitron approve (1) a reorganization, merger, or consolidation
      with respect to which persons who were the shareholders of Solitron immediately
      prior to such reorganization, merger, or consolidation do not immediately
      thereafter own more than 50% of the combined voting power entitled to vote
      generally in the election of the directors of the reorganized, merged or
      consolidated entity; (2) a liquidation or dissolution of Solitron; or (3) the
      sale of all or substantially all of the assets of Solitron, or of a subsidiary
      of Solitron that accounts for 30% of the consolidated revenues of Solitron,
      but
      not including a reorganization, merger or consolidation of Solitron.

     

    However,
      to the extent that Section 409A of the Code would cause an adverse tax
      consequence to a Participant using the above definition, the term "Change in
      Control" shall have the meaning ascribed to the phrase "Change in the Ownership
      or Effective Control of a Corporation or in the Ownership of a Substantial
      Portion of the Assets of a Corporation" under Treasury Department Regulation
      1.409A-3(i)(5), as revised from time to time, and in the event that such
      regulations are withdrawn or such phrase (or a substantially similar phrase)
      ceases to be defined, as determined by the Committee.

     

    (f)
      "Change
      in Control Price" means the price per share of Common Stock paid in any
      transaction related to a Change in Control of Solitron.

     

    (g) "Code"
      means the Internal Revenue Code of 1986, as amended, and the regulations
      promulgated thereunder.

     

    (h) "Committee"
      means a committee or sub-committee of the Board consisting of two or more
      members of the Board, none of whom shall be an officer or other salaried
      employee of the Company, and each of whom shall qualify in all respects as
      a
      "non-employee director" as defined in Rule 16b-3 under the Exchange Act. If
      no
      Committee exists, the functions of the Committee will be exercised by the Board.
      Notwithstanding the foregoing, with respect to the grant of Awards to
      non-employee directors, the Committee shall be the Board.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (i) "Common
      Stock" means the common stock, $.01 par value per share, of
      Solitron. 

     

    (j) "Company"
      means Solitron and all entities whose financial statements are required to
      be
      consolidated with the financial statements of Solitron pursuant to United States
      generally accepted accounting principles and any other entity determined to
      be
      an affiliate as determined by the Committee in its sole and absolute
      discretion.

     

    (k) "Covered
      Individual" means any current or former member of the Committee, any current
      or
      former officer of the Company, or any individual designated pursuant to Section
      5(b). 

     

    (l) "Detrimental
      Activity" shall mean (i) the disclosure to anyone outside the Company, or the
      use in other than the Company's business, without written authorization from
      the
      Company, of any confidential information or proprietary information, relating
      to
      the business of the Company, acquired by a Participant prior to a termination
      of
      the Participant's employment or service with the Company; (ii) activity while
      employed or providing services that results, or if known could result, in the
      termination of the Participant's employment or service that is classified by
      the
      Company as a termination for Cause; (iii) any attempt, directly or indirectly,
      to solicit, induce or hire (or the identification for solicitation, inducement
      or hiring of) any non-clerical employee of the Company to be employed by, or
      to
      perform services for, the Participant or any person or entity with which the
      Participant is associated (including, but not limited to, due to the
      Participant's employment by, consultancy for, equity interest in, or creditor
      relationship with such person or entity) or any person or entity from which
      the
      Participant receives direct or indirect compensation or fees as a result of
      such
      solicitation, inducement or hire (or the identification for solicitation,
      inducement or hire) without, in all cases, written authorization from the
      Company; (iv) any attempt, directly or indirectly, to solicit in a competitive
      manner any current or prospective customer of the Company without, in all cases,
      written authorization from the Company; (v) the Participant's Disparagement,
      or
      inducement of others to do so, of the Company or their past and present
      officers, directors, employees or products; (vi) without written authorization
      from the Company, the rendering of services for any organization, or engaging,
      directly or indirectly, in any business, which is competitive with the Company,
      or which organization or business, or the rendering of services to such
      organization or business, is otherwise prejudicial to or in conflict with the
      interests of the Company; provided, however that competitive activities shall
      only be those competitive with any business unit of the Company with regard
      to
      which the Participant performed services at any time within the two (2) years
      prior to the termination of the Participant's employment or service; or (vii)
      any other conduct or act determined by the Committee, in its sole discretion,
      to
      be injurious, detrimental or prejudicial to any interest of the Company. For
      purposes of subparagraphs (i), (iii), (iv) and (vi) above, the Chief Executive
      Officer and the General Counsel of the Company shall each have authority to
      provide the Participant with written authorization to engage in the activities
      contemplated thereby and no other person shall have authority to provide the
      Participant with such authorization. 

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (m) "Disability"
      means a "permanent and total disability" within the meaning of Code
      Section 22(e)(3); provided,
      however,
      that if
      a Participant and the Company have entered into an employment or consulting
      agreement which defines the term Disability for purposes of such agreement,
      Disability shall be defined pursuant to the definition in such agreement with
      respect to any Award granted to the Participant on or after the effective date
      of the respective employment or consulting agreement. The Committee shall
      determine in its sole and absolute discretion whether a Disability exists for
      purposes of the Plan.

     

    (n) "Disparagement"
      means making any comments or statements to the press, the Company's employees
      or
      any individual or entity with whom the company has a business relationship
      which
      would adversely affect in any manner: (i) the conduct of the business of the
      Company (including, without limitation, any products or business plans or
      prospects), or (ii) the business reputation of the Company or any of its
      products, or its past or present officers, directors or employees.

     

    (o) "Dividend
      Equivalents" means an amount equal to the cash dividends paid by the Company
      upon one share of Common Stock subject to an Award granted to a Participant
      under the Plan. 

     

    (p) "Effective
      Date" shall mean June
      4,
      2007. 

     

    (q) "Eligible
      Individual" means any employee, officer, director (employee or non-employee
      director) of the Company and any Prospective Employee to whom Awards are granted
      in connection with an offer of future employment with the Company.

     

    (r) "Exchange
      Act" means the Securities Exchange Act of 1934, as amended. 

     

    (s) "Exercise
      Price" means the purchase price of each share of Common Stock subject to an
      Award.

     

    (t) "Fair
      Market Value" means, unless otherwise required by the Code, as of any date,
      the
      last sales price reported for the Common Stock on such date (i) as reported
      by
      the national securities exchange in the United States on which it is then traded
      or (ii) if not traded on any such national securities exchange, as quoted on
      an
      automated quotation system sponsored by the National Association of Securities
      Dealers, Inc., or if the Common Stock shall not have been reported or quoted
      on
      such date, on the first day prior thereto on which the Common Stock was reported
      or quoted; provided,
      however,
      that the
      Committee may modify the definition of Fair Market Value to reflect any changes
      in the trading practices of any exchange or automated system sponsored by the
      National Association of Securities Dealers, Inc. on which the Common Stock
      is
      listed or traded. If the Common Stock is not readily traded on a national
      securities exchange or any system sponsored by the National Association of
      Securities Dealers, Inc., the Fair Market Value shall be determined in good
      faith by the Committee.

     

    (u) "Grant
      Date" means the date on which the Committee approves the grant of an Award
      or
      such later date as is specified by the Committee and set forth in the applicable
      Award Agreement.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (v) "Non-Employee
      Director" means a director of Solitron
      who
      is
      not an active employee of the Company.

     

    (w) "Option"
      means a non-qualified option to purchase Common Stock granted pursuant to
      Section 7 of the Plan. 

     

    (x) "Participant"
      means any Eligible Individual who holds an Award under the Plan and any of
      such
      individual's successors or permitted assigns.

     

    (y) "Person"
      shall mean any person, corporation, partnership, limited liability company,
      joint venture or other entity or any group (as such term is defined for purposes
      of Section 13(d) of the Exchange Act), other than a parent or
      subsidiary.

     

    (z) "Plan"
      means this Solitron
      Devices, Inc
      2007
      Stock Incentive Plan.

     

    (aa) "Prospective
      Employee" means any individual who has committed to become an employee of the
      Company within sixty (60) days from the date an Award is granted to such
      individual.

     

    (bb) "Solitron"
      means Solitron Devices, Inc., a Delaware corporation.

     

    (cc) "Restricted
      Stock" means Common Stock subject to certain restrictions, as determined by
      the
      Committee, and granted pursuant to Section 9 hereunder. 

     

    (dd) "Restricted
      Stock Unit" means the right to receive to receive a fixed number of shares
      of
      Common Stock, or the cash equivalent, granted pursuant to Section 9
      hereunder.

     

    (ee) "Stock
      Appreciation Right" means the right to receive all or some portion of the
      increase in value of a fixed number of shares of Common Stock granted pursuant
      to Section 8 hereunder.

     

    (ff) "Transfer"
      means,
      as a
      noun, any direct or indirect, voluntary or involuntary, exchange, sale,
      bequeath, pledge, mortgage, hypothecation, encumbrance, distribution, transfer,
      gift, assignment or other disposition or attempted disposition of, and, as
      a
      verb, directly or indirectly, voluntarily or involuntarily, to exchange, sell,
      bequeath, pledge, mortgage, hypothecate, encumber, distribute, transfer, give,
      assign or in any other manner whatsoever dispose or attempt to dispose
      of.

     

    4.    ELIGIBILITY

     

    Awards
      may be granted under the Plan to any Eligible Individual as determined by the
      Committee from time to time on the basis of their importance to the business
      of
      the Company pursuant to the terms of the Plan. 

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    5.    ADMINISTRATION

     

    (a) Committee.
      The
      Plan shall be administered by the Committee, which shall have the full power
      and
      authority to take all actions, and to make all determinations not inconsistent
      with the specific terms and provisions of the Plan deemed by the Committee
      to be
      necessary or appropriate to the administration of the Plan, any Award granted
      or
      any Award Agreement entered into hereunder. The
      Committee shall have authority to issue Awards upon such terms (not inconsistent
      with the provisions of this Plan) as the Committee may consider appropriate.
      The
      terms of an Award may include (in addition to those contained in this Plan)
      such
      conditions and limitations as the Committee may consider appropriate in its
      sole
      discretion for the protection of the interests of the Company and its
      shareholders, including, without limitation, restrictions on exercisability,
      vesting or transferability, forfeiture provisions, and requirements for the
      disgorgement of gain. The
      Committee may correct any defect or supply any omission or reconcile any
      inconsistency in the Plan or in any Award Agreement in the manner and to the
      extent it shall deem expedient to carry the Plan into effect as it may determine
      in its sole discretion. The decisions by the Committee shall be final,
      conclusive and binding with respect to the interpretation and administration
      of
      the Plan, any Award or any Award Agreement entered into under the Plan.

     

    (b) Advisors
      to Committee.
      The
      Committee may designate employees of the Company and professional advisors
      to
      assist the Committee in the administration of the Plan. The Committee may grant
      authority to the Chief Executive Officer of the Company or any other employee
      of
      the Company to execute agreements or other documents on behalf of the Committee
      in connection with the grant of an Award or the administration of the Plan.
      The
      Committee may employ such legal counsel, consultants, and agents as it may
      deem
      desirable for the administration of the Plan and may rely upon any advice and
      any computation received from any such counsel, consultant, or agent. The
      Company shall pay all expenses and costs incurred by the Committee for the
      engagement of any such counsel, consultant, or agent. 

     

    (c) Participants
      Outside the U.S.
      In order
      to conform with the provisions of local laws and regulations in foreign
      countries in which the Company may operate, the Committee shall have the sole
      discretion to (i) modify the terms and conditions of the Awards granted under
      the Plan to Eligible Individuals located outside the United States; (ii)
      establish subplans with such modifications as may be necessary or advisable
      under the circumstances presented by local laws and regulations; and (iii)
      take
      any action which it deems advisable to comply with or otherwise reflect any
      necessary governmental regulatory procedures, or to obtain any exemptions or
      approvals necessary with respect to the Plan or any subplan established
      hereunder.  

     

    (d) Liability
      and Indemnification.
      No
      Covered Individual shall be liable for any action or determination made in
      good
      faith with respect to the Plan, any Award granted or any Award Agreement entered
      into hereunder. The Company shall, to the maximum extent permitted by applicable
      law and the Articles of Incorporation and Bylaws of Solitron, indemnify and
      hold
      harmless each Covered Individual against any cost or expense (including
      reasonable attorney fees reasonably acceptable to the Company) or liability
      (including any amount paid in settlement of a claim with the approval of the
      Company), and amounts advanced to such Covered Individual necessary to pay
      the
      foregoing at the earliest time and to the fullest extent permitted, arising
      out
      of any act or omission to act in connection with the Plan, any Award granted
      hereunder or any Award Agreement entered into hereunder. Such indemnification
      shall be in addition to any rights of indemnification such individuals may
      have
      under applicable law or under the Articles of Incorporation or Bylaws of
      Solitron. Notwithstanding anything else herein, this indemnification will not
      apply to the actions or determinations made by a Covered Individual with regard
      to Awards granted to such Covered Individual under the Plan or arising out
      of
      such Covered Individual's own fraud or bad faith.

     

    
      
        
        

      

      
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    6.    COMMON
      STOCK

     

    (a) Shares
      Available for Awards.
      The
      Common Stock that may be issued pursuant to Awards granted under the Plan shall
      be treasury shares or authorized but unissued shares of the Common Stock. The
      total number of shares of Common Stock that may be issued pursuant to Awards
      granted under the Plan shall be 700,000 shares.

     

    (b)
      Reduction
      of Shares Available for Awards.
      Upon
      the granting of an Award, the number of shares of Common Stock available under
      this Section hereof for the granting of further Awards shall be reduced as
      follows:

     

    (i) In
      connection with the granting of an Award that is settled in Common Stock, the
      number of shares of Common Stock shall be reduced by the number of shares of
      Common Stock subject to the Option or Stock Appreciation Right. 

     

    (ii) Awards
      settled in cash shall not count against the total number of shares of Common
      Stock available to be granted pursuant to the Plan.

     

    (c) Cancelled,
      Forfeited, or Surrendered Awards.
      Notwithstanding anything to the contrary in this Plan, if any Award is
      cancelled, forfeited or terminated for any reason prior to exercise or becoming
      vested in full, the shares of Common Stock that were subject to such Award
      shall
      to the extent cancelled, forfeited or terminated, immediately be available
      for
      future Awards granted under the Plan as if said Award had never been granted;
      provided, however, that any shares of Common Stock subject to an Award, other
      than a Stock Appreciation Right, which is cancelled, forfeited or terminated
      in
      order to pay the Exercise Price, purchase price or any taxes or tax withholdings
      on an Award shall not be available for future Awards granted under the Plan.
      Any
      Common Stock subject to a Stock Appreciation Right which is not issued upon
      settling such Stock Appreciation Right shall be available for future Awards
      granted under the Plan.

     

    (d) Recapitalization.
      If the
      outstanding shares of Common Stock are increased or decreased or changed into
      or
      exchanged for a different number or kind of shares or other securities of
      Solitron by reason of any recapitalization, reclassification, reorganization,
      stock split, reverse split, combination of shares, exchange of shares, stock
      dividend
      or other
      distribution payable in capital stock of Solitron or other increase or decrease
      in such shares effected without receipt of consideration by Solitron occurring
      after the Effective Date, an appropriate and proportionate adjustment shall
      be
      made by the Committee to (i) the aggregate number and kind of shares of Common
      Stock available under the Plan; (ii) the calculation of the reduction of shares
      of Common Stock available under the Plan; and/or (iii) the number and kind
      of
      shares of Common Stock issuable upon exercise (or vesting) of outstanding Awards
      granted under the Plan; (vi) the Exercise Price of outstanding Options granted
      under the Plan. No fractional shares of Common Stock or units of other
      securities shall be issued pursuant to any such adjustment under this Section
      6(d), and any fractions resulting from any such adjustment shall be eliminated
      in each case by rounding downward to the nearest whole share or unit.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    7.    OPTIONS

     

    (a) Grant
      of Options. Subject
      to the terms and conditions of the Plan, the Committee may grant to such
      Eligible Individuals as the Committee may determine, Options to purchase such
      number of shares of Common Stock and on such terms and conditions as the
      Committee shall determine in its sole and absolute discretion. Each
      grant of an Option shall satisfy the requirements set forth in this
      Section.

     

    (b) Exercise
      Price.
      The
      Exercise Price of an Option shall be fixed by the Committee and stated in the
      respective Award Agreement, provided that the Exercise Price of the shares
      of
      Common Stock subject to such Option may not be less than Fair Market Value
      of
      such Common Stock on the Grant Date, or if greater, the par value of the Common
      Stock.

     

    (c) Limitation
      on Option Period.
      Options
      granted under the Plan and all rights to purchase Common Stock thereunder shall
      terminate no later than the tenth anniversary of the Grant Date of such Options,
      or on such earlier date as may be stated in the Award Agreement relating to
      such
      Option. In the case of Options expiring prior to the tenth anniversary of the
      Grant Date, the Committee may in its discretion, at any time prior to the
      expiration or termination of said Options, extend the term of any such Options
      for such additional period as it may determine, but in no event beyond the
      tenth
      anniversary of the Grant Date thereof.

     

    (d) Vesting
      Schedule and Conditions.
      No
      Options may be exercised prior to the satisfaction of the conditions and vesting
      schedule provided for in the Award Agreement relating thereto. 

     

    (e) Exercise.
      When
      the conditions to the exercise of an Option have been satisfied, the Participant
      may exercise the Option only in accordance with the following provisions. The
      Participant shall deliver to Solitron a written notice stating that the
      Participant is exercising the Option and specifying the number of shares of
      Common Stock which are to be purchased pursuant to the Option, and such notice
      shall be accompanied by payment in full of the Exercise Price of the shares
      for
      which the Option is being exercised, by one or more of the methods provided
      for
      in the Plan. Said notice must be delivered to Solitron at its principal office
      and addressed to the attention of Shevach Saraf, Chief Executive Officer. The
      minimum number of shares of Common Stock with respect to which an Option may
      be
      exercised, in whole or in part, at any time shall be the lesser of 700,000
      shares or the maximum number of shares available for purchase under the Option
      at the time of exercise. An attempt to exercise any Option granted hereunder
      other than as set forth in the Plan shall be invalid and of no force and effect.
      

     

    (f)
      Payment.
      Payment
      of the Exercise Price for the shares of Common Stock purchased pursuant to
      the
      exercise of an Option shall be made by one of the following
      methods:

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (i) by
      cash,
      certified or cashier’s check, bank draft or money order; or 

     

    (ii) through
      the delivery to Solitron of shares of Common Stock which have been previously
      owned by the Participant for the requisite period necessary to avoid a charge
      to
      Solitron's earnings for financial reporting purposes; such shares shall be
      valued, for purposes of determining the extent to which the Exercise Price
      has
      been paid thereby, at their Fair Market Value on the date of exercise; without
      limiting the foregoing, the Committee may require the Participant to furnish
      an
      opinion of counsel acceptable to the Committee to the effect that such delivery
      would not result in Solitron incurring any liability under Section 16(b) of
      the
      Exchange Act; or

     

    (iii) by
      any
      other method which the Committee in its sole and absolute discretion and to
      the
      extent permitted by applicable law, may permit including but not limited to
      a
      "cashless exercise sale and remittance procedure" pursuant to which the
      Participant shall concurrently provide irrevocable instructions (A) to a
      brokerage firm approved by the Committee to effect the immediate sale of the
      purchased shares and remit to Solitron, out of the sale proceeds available
      on
      the settlement date, sufficient funds to cover the aggregate Exercise Price
      payable for the purchased shares plus all applicable federal, state and local
      income, employment, excise, foreign and other taxes required to be withheld
      by
      the Company by reason of such exercise and (B) to Solitron to deliver the
      certificates for the purchased shares directly to such brokerage firm in order
      to complete the sale.

     

    (g) Termination
      of Employment, Disability or Death.
      Unless
      otherwise provided in an Award Agreement, upon the termination of the employment
      or other service of a Participant with the Company for any reason, all of the
      Participant's outstanding Options (whether vested or unvested) shall be subject
      to the rules of this paragraph. Upon such termination, the Participant's
      unvested Options shall expire. Notwithstanding anything in this Plan to the
      contrary, the Committee may provide, in its sole and absolute discretion, that
      following the termination of employment or other service of a Participant with
      the Company for any reason (i) any unvested Options held by the Participant
      that
      vest solely upon a future service requirement shall vest in whole or in part,
      at
      any time subsequent to such termination of employment or other service, and
      or
      (ii) a Participant or the Participant's estate, devisee or heir at law
      (whichever is applicable), may exercise an Option, in whole or in part, at
      any
      time subsequent to such termination of employment or other service and prior
      to
      the termination of the Option pursuant to its terms. Unless otherwise determined
      by the Committee, temporary absence from employment because of illness,
      vacation, approved leaves of absence or military service shall not constitute
      a
      termination of employment or other service. 

     

    (i) Termination
      for Reason Other Than Cause, Disability or Death.
      If a
      Participant's termination of employment or other service is for any reason
      other
      than death, Disability, Cause, or a voluntary termination within ninety (90)
      days after occurrence of an event which would be grounds for termination of
      employment or other service by the Company for Cause, any Option held by such
      Participant, may be exercised, to the extent exercisable at termination, by
      the
      Participant at any time within a period not to exceed ninety (90) days from
      the
      date of such termination, but in no event after the termination of the Option
      pursuant to its terms.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (ii) Disability.
      If a
      Participant's termination of employment or other service with the Company is
      by
      reason of a Disability of such Participant, the Participant shall have the
      right
      at any time within a period not to exceed one (1) year after such termination,
      but in no event after the termination of the Option pursuant to its terms,
      to
      exercise, in whole or in part, any vested portion of the Option held by such
      Participant at the date of such termination; provided,
      however,
      that if
      the Participant dies within such period, any vested Option held by such
      Participant upon death shall be exercisable by the Participant's estate, devisee
      or heir at law (whichever is applicable) for a period not to exceed one (1)
      year
      after the Participant's death, but in no event after the termination of the
      Option pursuant to its terms.

     

    (iii) Death.
      If a
      Participant dies while in the employment or other service of the Company, the
      Participant's estate or the devisee named in the Participant's valid last will
      and testament or the Participant's heir at law who inherits the Option has
      the
      right, at any time within a period not to exceed one (1) year after the date
      of
      such Participant's death, but in no event after the termination of the Option
      pursuant to its terms, to exercise, in whole or in part, any portion of the
      vested Option held by such Participant at the date of such Participant's death.
      

     

    (iv) Termination
      for Cause.
      In the
      event the termination is for Cause or is a voluntary termination within ninety
      (90) days after occurrence of an event which would be grounds for termination
      of
      employment or other service by the Company for Cause (without regard to any
      notice or cure period requirement), any Option held by the Participant at the
      time of such termination shall be deemed to have terminated and expired upon
      the
      date of such termination.

     

    
      
        8.    STOCK
          APPRECIATION RIGHTS

      

    

     

    (a)  Grant
      of Stock Appreciation Rights.
      Subject
      to the terms and conditions of the Plan, the Committee may grant to such
      Eligible Individuals as the Committee may determine, Stock Appreciation Rights,
      in such amounts, and on such terms and conditions as the Committee shall
      determine in its sole and absolute discretion. Each grant of a Stock
      Appreciation Right shall satisfy the requirements as set forth in this
      Section.

     

    (b)  Terms
      and Conditions of Stock Appreciation Rights.
      Unless
      otherwise provided in an Award Agreement, the terms and conditions (including,
      without limitation, the limitations on the Exercise Price, exercise period,
      repricing and termination) of the Stock Appreciation Right shall be
      substantially identical (to the extent possible taking into account the
      differences related to the character of the Stock Appreciation Right) to the
      terms and conditions that would have been applicable under Section 7 above
      were the grant of the Stock Appreciation Rights a grant of an Option.

     

    (c)  Exercise
      of Stock Appreciation Rights.
      Stock
      Appreciation Rights shall be exercised by a Participant only by written notice
      delivered to Solitron, specifying the number of shares of Common Stock with
      respect to which the Stock Appreciation Right is being exercised. 

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (d)  Payment
      of Stock Appreciation Right.
      Unless
      otherwise provided in an Award Agreement, upon exercise of a Stock Appreciation
      Right, the Participant or Participant's estate, devisee or heir at law
      (whichever is applicable) shall be entitled to receive payment, in cash, in
      shares of Common Stock, or in a combination thereof, as determined by the
      Committee in its sole and absolute discretion. The amount of such payment shall
      be determined by multiplying the excess, if any, of the Fair Market Value of
      a
      share of Common Stock on the date of exercise over the Fair Market Value of
      a
      share of Common Stock on the Grant Date, by the number of shares of Common
      Stock
      with respect to which the Stock Appreciation Rights are then being exercised.
      Notwithstanding the foregoing, the Committee may limit in any manner the amount
      payable with respect to a Stock Appreciation Right by including such limitation
      in the Award Agreement.

     

    9.    RESTRICTED
      STOCK

     

    (a) Grant
      of Restricted Stock.
      Subject
      to the terms and conditions of the Plan, the Committee may grant to such
      Eligible Individuals as the Committee may determine, Restricted Stock, in such
      amounts and on such terms and conditions as the Committee shall determine in
      its
      sole and absolute discretion. Each grant of Restricted Stock shall satisfy
      the
      requirements as set forth in this Section.

     

    (b) Restrictions.
      The
      Committee shall impose such restrictions on any Restricted Stock granted
      pursuant to the Plan as it may deem advisable including, without limitation;
      time based vesting restrictions, or the attainment of performance goals.

     

    (c) Certificates
      and Certificate Legend.
      With
      respect to a grant of Restricted Stock, the Company may issue a certificate
      evidencing such Restricted Stock to the Participant or issue and hold such
      shares of Restricted Stock for the benefit of the Participant until the
      applicable restrictions expire. The Company may legend the certificate
      representing Restricted Stock to give appropriate notice of such restrictions.
      In addition to any such legends, each certificate representing shares of
      Restricted Stock granted
      pursuant to the Plan shall bear the following legend:

     

    "The
      sale
      or other transfer of the shares of stock represented by this certificate,
      whether voluntary, involuntary, or by operation of law, are subject to certain
      terms, conditions, and restrictions on transfer as set forth in the Solitron
      Devices, Inc.
      2007
      Stock Incentive Plan (the "Plan"), and in an Agreement entered into by and
      between the registered owner of such shares and Solitron Devices, Inc. (the
      "Company"), dated June 4, 2007 (the "Award Agreement"). A copy of the Plan
      and
      the Award Agreement may be obtained from the Secretary of the
      Company."

     

    (d) Removal
      of Restrictions.
      Except
      as otherwise provided in the Plan, shares of Restricted Stock shall become
      freely transferable by the Participant upon the lapse of the applicable
      restrictions. Once the shares of Restricted Stock are released from the
      restrictions, the Participant shall be entitled to have the legend required
      by
      paragraph (c) above removed from the share certificate evidencing such
      Restricted Stock and the Company shall pay or distribute to the Participant
      all
      dividends and distributions held in escrow by the Company with respect to such
      Restricted Stock.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    (e) Shareholder
      Rights.
      Unless
      otherwise provided in an Award Agreement, until the expiration of all applicable
      restrictions, (i) the Restricted Stock shall be treated as outstanding, (ii)
      the
      Participant holding shares of Restricted Stock may exercise full voting rights
      with respect to such shares, and (iii) the Participant holding shares of
      Restricted Stock shall be entitled to receive all dividends and other
      distributions paid with respect to such shares while they are so held. If any
      such dividends or distributions are paid in shares of Common Stock, such shares
      shall be subject to the same restrictions on transferability and forfeitability
      as the shares of Restricted Stock with respect to which they were paid.
      Notwithstanding anything to the contrary, at the discretion of the Committee,
      all such dividends and distributions may be held in escrow by the Company
      (subject to the same restrictions on forfeitability) until all restrictions
      on
      the respective Restricted Stock have lapsed.

     

    (f) Termination
      of Service.
      Unless
      otherwise provided in a Award Agreement, if a Participant’s employment or other
      service with the Company terminates for any reason, all unvested shares of
      Restricted Stock held by the Participant and any dividends or distributions
      held
      in escrow by Solitron with respect to such Restricted Stock shall be forfeited
      immediately and returned to the Company. Notwithstanding anything in this Plan
      to the contrary, the Committee may provide, in its sole and absolute discretion,
      that following the termination of employment or other service of a Participant
      with the Company for any reason, any unvested shares of Restricted Stock held
      by
      the Participant that vest solely upon a future service requirement shall vest
      in
      whole or in part, at any time subsequent to such termination of employment
      or
      other service.

     

    
      
        10.    CHANGE
          IN CONTROL

      

    

     

    Unless
      otherwise provided in an Award Agreement, all Awards shall immediately
      become exercisable or vested, without regard to any limitation imposed pursuant
      to this Plan.
      Prior
      to a Change in Control of
      Solitron, the Committee may in its sole and absolute discretion, provide on
      a
      case by case basis that (i) all Awards shall terminate, provided that
      Participants shall have the right, immediately prior to the occurrence of such
      Change in Control and during such reasonable period as the Committee in its
      sole
      discretion shall determine and designate, to exercise Awards in whole or in
      part, (ii)  all Awards shall terminate provided that Participants shall be
      entitled to a cash payment equal to the Change in Control Price with respect
      to
      shares subject to the Award net
      of
      the Exercise Price thereof (if
      applicable), (iv)
      provide
      that, in connection with a liquidation or dissolution of Solitron, Awards shall
      convert into the right to receive liquidation proceeds net of the Exercise
      Price
      (if applicable) and (v) any combination of the foregoing; provided,
      however, that all Awards shall be treated as immediately exercisable and vested.
      The Committee shall not take any action permitted by this Section unless
      counsel for Solitron determines that such action will not result in adverse
      tax
      consequences to a Participant under Section 409A of the Code.
      In
      the event that the Committee does not terminate or convert an Award upon a
      Change in Control of Solitron, then the Award shall
      be
      assumed, or substantially equivalent Awards shall be substituted, by the
      acquiring, or succeeding corporation (or an affiliate thereof).

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    
      
        11.    CHANGE
          IN STATUS OF PARENT OR SUBSIDIARY

      

    

     

    Unless
      otherwise provided in an Award Agreement or otherwise determined by the
      Committee, in the event that an entity which was previously a part of the
      Company is no longer a part of the Company, as determined by the Committee
      in
      its sole discretion, the Committee may, in its sole and absolute discretion
      (i)
      provide on a case by case basis that some or all outstanding Awards held by
      a
      Participant employed by or performing service for such entity may become
      immediately exercisable or vested, without regard to any limitation imposed
      pursuant to this Plan; (ii) provide on a case by case basis that some or all
      outstanding Awards held by a Participant employed by or performing service
      for
      such entity or business unit may remain outstanding, may continue to vest,
      and/or may remain exercisable for a period not exceeding one (1) year, subject
      to the terms of the Award Agreement and this Plan; and/or (iii) treat the
      employment or other services of a Participant employed by such entity as
      terminated if such Participant is not employed by Solitron or any entity that
      is
      a part of the Company immediately after such event.

     

    12.    REQUIREMENTS
      OF LAW

     

    (a) Violations
      of Law.
      The
      Company shall not be required to sell or issue any shares of Common Stock under
      any Award if the sale or issuance of such shares would constitute a violation
      by
      the individual exercising the Award, the Participant or the Company of any
      provisions of any law or regulation of any governmental authority, including
      without limitation any provisions of the Sarbanes-Oxley Act, and any other
      federal or state securities laws or regulations. Any determination in this
      connection by the Committee shall be final, binding, and conclusive. The Company
      shall not be obligated to take any affirmative action in order to cause the
      exercise of an Award, the issuance of shares pursuant thereto or the grant
      of an
      Award to comply with any law or regulation of any governmental
      authority.

     

    (b) Registration.
      At the
      time of any exercise or receipt of any Award, the Company may, if it shall
      determine it necessary or desirable for any reason, require the Participant
      (or
      Participant’s heirs, legatees or legal representative, as the case may be), as a
      condition to the exercise or grant thereof, to deliver to the Company a written
      representation of present intention to hold the shares for their own account
      as
      an investment and not with a view to, or for sale in connection with, the
      distribution of such shares, except in compliance with applicable federal and
      state securities laws with respect thereto. In the event such representation
      is
      required to be delivered, an appropriate legend may be placed upon each
      certificate delivered to the Participant (or Participant’s heirs, legatees or
      legal representative, as the case may be) upon the Participant's exercise of
      part or all of the Award or receipt of an Award and a stop transfer order may
      be
      placed with the transfer agent. Each Award shall also be subject to the
      requirement that, if at any time the Company determines, in its discretion,
      that
      the listing, registration or qualification of the shares subject to the Award
      upon any securities exchange or under any state or federal law, or the consent
      or approval of any governmental regulatory body is necessary or desirable as
      a
      condition of or in connection with, the issuance or purchase of the shares
      thereunder, the Award may not be exercised in whole or in part and the
      restrictions on an Award may not be removed unless such listing, registration,
      qualification, consent or approval shall have been effected or obtained free
      of
      any conditions not acceptable to the Company in its sole discretion. The
      Participant shall provide the Company with any certificates, representations
      and
      information that the Company requests and shall otherwise cooperate with the
      Company in obtaining any listing, registration, qualification, consent or
      approval that the Company deems necessary or appropriate. The Company shall
      not
      be obligated to take any affirmative action in order to cause the exercisability
      or vesting of an Award, to cause the exercise of an Award or the issuance of
      shares pursuant thereto, or to cause the grant of Award to comply with any
      law
      or regulation of any governmental authority.

     

    
      
        
        

      

      
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    (c) Withholding
      for Taxes; Set-Off for Debt.
      Whenever
      the Company proposes or is required to issue or transfer shares of Common Stock
      to a Participant under the Plan, the Company shall have the right to require
      the
      Participant to remit to the Company an amount sufficient to satisfy all federal,
      state and local withholding tax requirements prior to the delivery of any
      certificate or certificates for such shares. If such certificates have been
      delivered prior to the time a withholding obligation arises, the Company shall
      have the right to require the Participant to remit to the Company an amount
      sufficient to satisfy all federal, state or local withholding tax requirements
      at the time such obligation arises and to withhold from other amounts payable
      to
      the Participant, as compensation or otherwise, as necessary. Whenever payments
      under the Plan are to be made to a Participant in cash, such payments shall
      be
      net of any amounts sufficient to satisfy all federal, state and local
      withholding tax requirements. In lieu of requiring a Participant to make a
      payment to the Company in an amount related to the withholding tax requirement,
      the Committee may, in its discretion, provide that at the Participant’s
      election, the tax withholding obligation shall be satisfied by the Company’s
      withholding a portion of the shares otherwise distributable to the Participant,
      such shares being valued at their fair market value at the date of exercise,
      or
      by the Participant’s delivering to the Company a portion of the shares
      previously delivered by the Company, such shares being valued at their fair
      market value as of the date of delivery of such shares by the Participant to
      the
      Company.

     

    In
      addition, the Company shall have the right of set-off for debt to the Company
      (Employee Debt) incurred by a Participant whose employment has terminated but
      who exercises options subject to the Plan. In such instance, the Company may
      withhold payment or portion of the shares otherwise distributable to the
      Participant, such shares being valued at their fair market value at the date
      of
      the exercise, in an amount equal to such Employee Debt (which may include,
      but
      is not limited to, amounts owed the Company for breaches of any security
      agreement, relocation expense agreement or other indebtedness). 

     

    (d) Governing
      Law.
      The
      Plan shall be governed by, and construed and enforced in accordance with, the
      laws of the State of Delaware.

     

    13.    GENERAL
      PROVISIONS

     

    (a) Award
      Agreements.
      All
      Awards granted pursuant to the Plan shall be evidenced by an Award Agreement.
      Each Award Agreement shall specify the terms and conditions of the Award granted
      and shall contain any additional provisions, as the Committee shall deem
      appropriate, in its sole and absolute discretion (including, to the extent
      that
      the Committee deems appropriate, provisions relating to confidentiality,
      non-competition, non-solicitation and similar matters). The terms of each Award
      Agreement need not be identical for Eligible Individuals provided that all
      Award
      Agreements comply with the terms of the Plan.

     

    
      
        
        

      

      
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    (b) Purchase
      Price.
      To the
      extent the purchase price of any Award granted hereunder is less than par value
      of a share of Common Stock and such purchase price is not permitted by
      applicable law, the per share purchase price shall be deemed to be equal to
      the
      par value of a share of Common Stock.

     

    (c) Dividends
      and Dividend Equivalents.
      Except
      as provided by the Committee in its sole and absolute discretion or as otherwise
      provided in this Plan, a Participant shall not be entitled to receive, currently
      or on a deferred basis, cash or stock dividends, Dividend Equivalents, or cash
      payments in amounts equivalent to cash or stock dividends on shares of Commons
      Stock covered by an Award which has not vested or an Option.
      The
      Committee in its absolute and sole discretion may credit a Participant's Award
      with Dividend Equivalents with respect to any Awards. To the extent that
      dividends and distributions relating to an Award are held in escrow by the
      Company, or Dividend Equivalents are credited to an Award, a Participant shall
      not be entitled to any interest on any such amounts. 

     

    (d) Deferral
      of Awards.
      The
      Committee may from time to time establish procedures pursuant to which a
      Participant may elect to defer, until a time or times later than the vesting
      of
      an Award, receipt of all or a portion of the shares of Common Stock or cash
      subject to such Award and to receive Common Stock or cash at such later time
      or
      times, all on such terms and conditions as the Committee shall determine. The
      Committee shall not permit the deferral of an Award unless
      counsel for Solitron determines that such action will not result in adverse
      tax
      consequences to a Participant under Section 409A of the Code.
      If any
      such deferrals are permitted, then notwithstanding anything to the contrary
      herein, a Participant who elects to defer receipt of Common Stock shall not
      have
      any rights as a shareholder with respect to deferred shares of Common Stock
      unless and until shares of Common Stock are actually delivered to the
      Participant with respect thereto, except to the extent otherwise determined
      by
      the Committee.

     

    (e) Prospective
      Employees.
      Notwithstanding anything to the contrary, any Award granted to a Prospective
      Employee shall
      not become vested prior to the date the Prospective Employee first becomes
      an
      employee of the Company.

     

    (f) Issuance
      of Certificates; Shareholder's Rights.
      Solitron
      shall
      deliver to the Participant a certificate evidencing the Participant's ownership
      of shares of Common Stock issued pursuant to the exercise of an Award as soon
      as
      administratively practicable after satisfaction of all conditions relating
      to
      the issuance of such shares. A Participant shall not have any of the rights
      of a
      shareholder with respect to such Common Stock prior to satisfaction of all
      conditions relating to the issuance of such Common Stock, and, except as
      expressly provided in the Plan, no adjustment shall be made for dividends,
      distributions or other rights of any kind for which the record date is prior
      to
      the date on which all such conditions have been satisfied. 

     

    (g) Transferability
      of Awards.
      A
      Participant may not Transfer an Award other than by will or the laws of descent
      and distribution. Awards may be exercised during the Participant's lifetime
      only
      by the Participant. No Award shall be liable for or subject to the debts,
      contracts, or liabilities of any Participant, nor shall any Award be subject
      to
      legal process or attachment for or against such person. Any purported Transfer
      of an Award in contravention of the provisions of the Plan shall have no force
      or effect and shall be null and void, and the purported transferee of such
      Award
      shall not acquire any rights with respect to such Award. Notwithstanding
      anything to the contrary, the Committee may in its sole and absolute discretion
      permit the Transfer of an Award to a Participant's "family member" as such
      term
      is defined in the Form S-8 Registration Statement under the Securities Act
      of
      1933, as amended, under such terms and conditions as specified by the Committee.
      In such case, such Award shall be exercisable only by the transferee approved
      of
      by the Committee. 

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    (h) Buyout
      and Settlement Provisions.
      Except
      as otherwise prohibited in the Plan, the Committee may at any time on behalf
      of
Solitron
      offer
      to
      buy out any Awards previously granted based on such terms and conditions as
      the
      Committee shall determine which shall be communicated to the Participants at
      the
      time such offer is made.

     

    (i) Use
      of
      Proceeds.
      The
      proceeds received by Solitron
      from
      the
      issuance of Common Stock pursuant to Awards granted under the Plan shall
      constitute general funds of Solitron.

     

    (j) Modification
      or Substitution of an Award.
      Subject
      to the terms and conditions of the Plan, the Committee may modify outstanding
      Awards. Notwithstanding the following, no modification of an Award shall
      adversely affect any rights or obligations of the Participant under the
      applicable Award Agreement without the Participant's consent. The Committee
      in
      its sole and absolute discretion may rescind, modify, or waive any vesting
      requirements or other conditions applicable to an Award. 

     

    (k) Amendment
      and Termination of Plan.
      The
      Board may, at any time and from time to time, amend, suspend or terminate the
      Plan as to any shares of Common Stock as to which Awards have not been granted.
      Except as otherwise provided for in the Plan, no amendment, suspension or
      termination of the Plan shall, without the consent of the holder of an Award,
      alter or impair rights or obligations under any Award theretofore granted under
      the Plan. Awards granted prior to the termination of the Plan may extend beyond
      the date the Plan is terminated and shall continue subject to the terms of
      the
      Plan as in effect on the date the Plan is terminated 

     

    (l) Section
      409A of the Code.
      With
      respect to Awards subject to Section 409A of the Code, this Plan is intended
      to
      comply with the requirements of such Section, and the provisions hereof shall
      be
      interpreted in a manner that satisfies the requirements of such Section and
      the
      related regulations, and the Plan shall be operated accordingly. If any
      provision of this Plan or any term or condition of any Award would otherwise
      frustrate or conflict with this intent, the provision, term or condition will
      be
      interpreted and deemed amended so as to avoid this conflict.

     

    (m) Notification
      of 83(b) Election.
      If in
      connection with the grant of any Award any Participant makes an election
      permitted under Code Section 83(b), such Participant must notify the Company
      in
      writing of such election within ten (10) days of filing such election with
      the
      Internal Revenue Service.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    (n) Detrimental
      Activity.
      All
      Awards shall be subject to cancellation by the Committee in accordance with
      the
      terms of this Section 13(n) if the Participant engages in any Detrimental
      Activity. To the extent that a Participant engages in any Detrimental Activity
      at any time prior to, or during the one year period after, any exercise or
      vesting of an Award but prior to a Change in Control, the Company shall, upon
      the recommendation of the Committee, in its sole and absolute discretion, be
      entitled to (i) immediately terminate and cancel any Awards held by the
      Participant that have not yet been exercised, and/or (ii) with respect to Awards
      of the Participant that have been previously exercised, recover from the
      Participant at any time within two (2) years after such exercise but prior
      to a
      Change in Control (and the Participant shall be obligated to pay over to the
      Company with respect to any such Award previously held by such Participant):
      (A)
      with respect to any Options exercised, an amount equal to the excess of the
      Fair
      Market Value of the Common Stock for which any Option was exercised over the
      Exercise Price paid (regardless of the form by which payment was made) with
      respect to such Option; (B) with respect to any Award other than an Option,
      any
      shares of Common Stock granted and vested pursuant to such Award, and if such
      shares are not still owned by the Participant, the Fair Market Value of such
      shares on the date they were issued, or if later, the date all vesting
      restrictions were satisfied; and (C) any cash or other property (other than
      Common Stock) received by the Participant from the Company pursuant to an Award.
      Without limiting the generality of the foregoing, in the event that a
      Participant engages in any Detrimental Activity at any time prior to any
      exercise of an Award and the Company exercises its remedies pursuant to this
      Section 13(n) following the exercise of such Award, such exercise shall be
      treated as having been null and void, provided that the Company will
      nevertheless be entitled to recover the amounts referenced above. 

     

    (o) Disclaimer
      of Rights.
      No
      provision in the Plan, any Award granted or any Award Agreement entered into
      pursuant to the Plan shall be construed to confer upon any individual the right
      to remain in the employ of or other service with the Company or to interfere
      in
      any way with the right and authority of the Company either to increase or
      decrease the compensation of any individual, including any holder of an Award,
      at any time, or to terminate any employment or other relationship between any
      individual and the Company. The grant of an Award pursuant to the Plan shall
      not
      affect or limit in any way the right or power of the Company to make
      adjustments, reclassifications, reorganizations or changes of its capital or
      business structure or to merge, consolidate, dissolve or liquidate, or to sell
      or transfer all or any part of its business or assets. 

     

    (p) Unfunded
      Status of Plan.
      The
      Plan is intended to constitute an "unfunded" plan for incentive and deferred
      compensation. With respect to any payments as to which a Participant has a
      fixed
      and vested interest but which are not yet made to such Participant by the
      Company, nothing contained herein shall give any such Participant any rights
      that are greater than those of a general creditor of the Company.

     

    (q) Nonexclusivity
      of Plan.
      The
      adoption of the Plan shall not be construed as creating any limitations upon
      the
      right and authority of the Board to adopt such other incentive compensation
      arrangements (which arrangements may be applicable either generally to a class
      or classes of individuals or specifically to a particular individual or
      individuals) as the Board in its discretion determines desirable.

     

    (r) Other
      Benefits.
      No
      Award payment under the Plan shall be deemed compensation for purposes of
      computing benefits under any retirement plan of the Company or any agreement
      between a Participant and the Company, nor affect any benefits under any other
      benefit plan of the Company now or subsequently in effect under which benefits
      are based upon a Participant's level of compensation. 

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    (s) Headings.
      The
      section headings in the Plan are for convenience only; they form no part of
      this
      Agreement and shall not affect its interpretation.

     

    (t) Pronouns.
      The use of any gender in the Plan shall be deemed to include all genders, and
      the use of the singular shall be deemed to include the plural and vice versa,
      wherever it appears appropriate from the context. 

     

    (u) Successors
      and Assigns.
      The
      Plan shall be binding on all successors of the Company and all successors and
      permitted assigns of a Participant, including, but not limited to, a
      Participant's estate, devisee, or heir at law.

     

    (v) Severability.
      If any
      provision of the Plan or any Award Agreement shall be determined to be illegal
      or unenforceable by any court of law in any jurisdiction, the remaining
      provisions hereof and thereof shall be severable and enforceable in accordance
      with their terms, and all provisions shall remain enforceable in any other
      jurisdiction.

     

    (w) Notices.
      Any
      communication or notice required or permitted to be given under the Plan shall
      be in writing, and mailed by registered or certified mail or delivered by hand,
      to Solitron,
      to its
      principal place of business, attention: Shevach Saraf, Chief Executive Officer
      and if to the holder of an Award, to the address as appearing on the records
      of
      the Company.

     

    
      
        
        

      

      
        18

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