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                               VARLEN CORPORATION
                        1998 CONTINGENT STOCK AWARD PLAN
                          (Effective February 2, 1998,
                            as amended May 14, 1999)

The 1998 Contingent Stock Award Plan (the "Plan"), effective as of February 2,
1998, is established to promote the long-term growth and profitability of Varlen
Corporation and its subsidiaries (the "Company") by enabling the Company to
attract, retain, motivate and reward employees of superior ability, training and
experience in positions of substantial responsibilities.

1.    Administration

      The Plan shall be administered by the Compensation Committee of the Board
      (the "Committee"), or any successor as shall be determined by the Board of
      Directors. The Committee is authorized, subject to the provisions of the
      Plan, to establish such rules as it deems necessary for the proper
      administration of the Plan, and to make such determinations and to take
      such action in connection therewith as it deems necessary or advisable,
      consistent with the Plan.

2.    Eligibility

      Subject to the provisions of the Plan, the Committee shall have exclusive
      power (i) to select the employees of the Company (each a "Participant")
      entitled to participate in the Plan and to receive one or more awards, as
      deferred and conditional incentive compensation under the Plan, of
      contingent shares payable in cash and tracking the performance of the
      Common Stock, $.10 par value per share (the "Common Stock"), of the
      Company (each a share of "Contingent Stock"); (ii) to determine the size
      of the grant to be made to each Participant; and (iii) to determine the
      time or times when grants shall be made.

3.    Shares Available for Awards

            (a) The number of shares of Contingent Stock that may be awarded
            under the Plan shall not exceed an aggregate of 500,000 shares. If
            any shares of Contingent Stock granted under the Plan shall expire,
            terminate or be canceled, such shares may again be awarded pursuant
            to the Plan. Nothing in this Plan shall be construed to require the
            Committee to grant all shares of Contingent Stock reserved hereunder
            or any other number of shares of Contingent Stock.

            (b) In the event of a reorganization, recapitalization, stock split,
            stock dividend, combination of shares, merger, consolidation, rights
            offering or any other change in the corporate structure or capital
            stock of the

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            Company, the Committee shall make such adjustment, if any, as it may
            deem appropriate in the number of shares of Contingent Stock
            authorized by the Plan or granted to Participants or in the Initial
            Value (as defined below) of such shares on the award date.

4.    Terms and Conditions for Contingent Stock Awards

      Each share of Contingent Stock awarded under this Plan shall be subject to
      the following terms and conditions and such other terms and conditions as
      the Committee may prescribe:

                  (a) Subject to Section 8 below, the period of each award of
                  Contingent Stock shall be five years from the date of such
                  award, except as otherwise provided by the Committee.

                  (b) Each award shall be evidenced by a written instrument
                  specifying to the Participant the number of shares of
                  Contingent Stock awarded and the terms and conditions of such
                  award.

                  (c) No award of Contingent Stock may be transferred. During a
                  Participant's lifetime, an award shall be redeemable for cash
                  only by such Participant, except as otherwise provided herein,
                  or by such Participant's guardian or legal representative.

5.    Contingent Stock Initial Value

      The "Initial Value" per share with respect to each share of Contingent
      Stock awarded shall be 100% of the fair market value of the Common Stock
      as of the date on which the Contingent Stock award is granted (determined
      as the average of the last reported sale prices on each of the five
      trading days prior to and including such date of the Common Stock on the
      NASDAQ National Market System or, if then inapplicable, by such other
      means as the Committee shall reasonably determine).

6.    Contingent Stock Redemption Value

      The "Redemption Value" per share with respect to each share of Contingent
      Stock awarded shall be 100% of the fair market value of the Common Stock
      as of the Redemption Date (determined as the average of the last reported
      sale prices on each of the five trading days prior to and including such
      Redemption Date of the Common Stock on the NASDAQ National Market System
      or, if then inapplicable, by such other means as the Committee shall
      reasonably determine).


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7.    Contingent Stock Award Payments

      The difference between the Initial Value of any Contingent Stock award and
      the Redemption Value of such award shall be the redemption amount paid for
      such award. The Participant will receive the full payment of Contingent
      Stock awards in one lump sum in cash within 30 days of the Redemption
      Date. All payments under the Plan shall be net of an amount sufficient to
      satisfy withholding tax requirements of any government or governmental
      unit having tax jurisdiction over the payment.

8.    Mandatory Redemption of Contingent Stock Awards

                  (a) Upon the termination of a Participant's employment with
                  the Company for Cause, prior to the scheduled Redemption Date
                  of any Contingent Stock award previously granted to such
                  Participant, such Participant shall forfeit all rights to
                  Contingent Stock awards granted to such Participant and all
                  rights under the Plan shall be void.

            (b)   Upon the termination of a Participant's employment with the
                  Company, for a reason other than Cause, prior to the scheduled
                  Redemption Date of any Contingent Stock Award previously
                  granted to such Participant, the Participant shall be entitled
                  automatically to redeem any Contingent Stock awards previously
                  granted at a Redemption Value determined by the Committee and
                  calculated as of the date of such termination of employment
                  based on the fair market value of the Common Stock as of such
                  date prorated in accordance with (i) the number of days
                  elapsed from the date of grant to such date over (ii) the
                  number of days from the date of grant to the scheduled
                  Redemption Date.

            (c)   For purposes of this Section 8, the term "Cause shall mean:
                  (i) with respect to Raymond A. Jean, "Cause" as defined in
                  Section 1(a) of the Change of Control Agreement between the
                  Company and Mr. Jean dated April 8, 1999; (ii) with respect to
                  Richard A. Nunemaker, "Cause" as defined in Section 1(a) of
                  the Change in Control Agreement between the Company and Mr.
                  Nunemaker dated May 14, 1999; and (iii) with respect to any
                  other Participant, "Cause," as defined in the Varlen
                  Corporation 1998 Long-Term Equity Incentive Plan.

            (d)   So long as the Participant shall continue to be an employee of
                  the Company, the Contingent Stock held by such Participant
                  shall not be affected by any change of duties or position or
                  change in control


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                  of the Company. Nothing in the Plan shall confer upon any
                  employee any right to continue in the employ of the Company or
                  interfere with the right of the Company to terminate his/her
                  employment at any time for any reason whatsoever.

9.    Amendment, Suspension or Termination of the Plan

      The Committee may at any time terminate, suspend or amend this Plan;
      provided, however, that no amendment, suspension or termination of this
      Plan shall affect shares of Contingent Stock already awarded to a
      Participant unless mutually agreed by such Participant and the Committee,
      which agreement must be in writing and signed by such Participant and the
      Company.

10.   Effective Date and Duration of the Plan

      The Plan shall become effective as of February 2, 1998. Unless previously
      terminated upon the adoption of a resolution of the Committee terminating
      the Plan, the Plan shall terminate at the close of business on February 2,
      2008.

11.   Governing Law

      The Plan shall be governed by the corporate laws of the State of Delaware,
      without giving effect to any choice of law provisions.

This Plan was adopted by the Compensation Committee and the Board of Directors
of Varlen Corporation on February 2, 1998.


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