VARLEN CORP, 10-K405, 1995-04-25

VARLEN CORP
10-K405, 1995-04-25
METAL FORGINGS & STAMPINGS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended January 31, 1995

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from _______________ to ________________

Commission file number 0-5374

VARLEN CORPORATION
(Exact name of Registrant as specified in its charter)

DELAWARE 13-2651100
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

55 Shuman Boulevard
P.O. Box 3089
NAPERVILLE, ILLINOIS 60566-7089
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (708) 420-0400

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange
on which registered
NONE NONE

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, PAR VALUE $.10 PER SHARE
(Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of March 31, 1995, was $99,494,486.

The number of outstanding shares of the Registrant's Common Stock, par value
$.10 per share, as of the close of business on March 31, 1995, was 4,870,557
shares.

<PAGE>

DOCUMENTS INCORPORATED BY REFERENCE

1. The Registrant's 1994 Annual Report to Stockholders is incorporated herein
by reference to the following extent: Industry Segments and Officers into
Part I; and Quarterly Market and Dividend Information, Summary of
Operations, Summary of Financial Condition, Shares Listed, Management's
Discussion and Analysis of Financial Condition and Results of Operations,
and the Consolidated Balance Sheets, Consolidated Statements of Earnings,
Consolidated Statements of Stockholders' Equity and Consolidated Statements
of Cash Flows with related Notes and Independent Auditors' Report into Part
II.

2. The Registrant's Proxy Statement filed pursuant to Regulation 14A within
120 days after January 31, 1995, is incorporated herein by reference to the
following extent: The information set forth under the captions, Election
of Directors, Executive Compensation and Pension Plans, Certain
Relationships and Related Transactions and Security Ownership of Certain
Beneficial Owners and Management into Part III.

<PAGE>

PART I

Item I. BUSINESS

GENERAL

Varlen Corporation (the "Registrant") designs, manufactures and markets
engineered industrial products primarily for specialized applications in the
transportation and laboratory equipment markets. The Registrant's principal
business strategy is to employ its product development capabilities, advanced
manufacturing processes and marketing skills in market niches where the
Registrant can achieve a market leadership position. The Registrant's operations
are conducted primarily through subsidiaries and divisions that are relatively
autonomous, while its small corporate headquarters staff oversees financial
controls and provides strategic direction. Management continually emphasizes
improvements in quality, product performance and delivery time, cost reductions
and other value adding activities. Although many of the markets for the
Registrant's products are mature, the Registrant seeks growth opportunities
through technological and product improvement and by acquiring and developing
new products that can be sold through its existing distribution networks. In
addition, the Registrant's development efforts increasingly focus on new
products specifically designed for international markets.

DEVELOPMENT OF THE COMPANY

The Registrant was founded by The Dyson-Kissner-Moran Corporation ("DKM")
in 1969 for the purpose of acquiring and managing businesses which manufacture
products for industrial markets. The Registrant's original business produced
parts for the railroad industry; however, over the years the Registrant
diversified its operations to serve many markets. Since 1984, the Registrant has
sold or discontinued smaller businesses, heavily construction-related or bid
businesses and businesses manufacturing commodity products where the Registrant
could not apply its design, manufacturing or marketing skills to create a
competitive advantage. Businesses acquired since 1985 include the Registrant's
entire heavy duty truck component, automotive parts, laboratory appliance and
instrument businesses as well as additional domestic and foreign railroad
component businesses. Although each of these businesses presents unique design
and marketing challenges, they each employ basic manufacturing processes, such
as machining, forging, casting, metal forming, welding and plastic molding, that
have historically been at the core of the Registrant's operations. In January
1993, the Registrant purchased all of its outstanding stock owned by DKM.

The following table sets forth certain basic information with respect to
the Registrant's current businesses, which are divided into two industry
segments: transportation products and laboratory equipment.

PRODUCTS AND PRIMARY MARKETS

TRANSPORTATION PRODUCTS

- - TRUCK AND TRAILER HUBS, aluminum permanent mold and die castings, structural
molded plastic components and fuel water separators for Class 8 trucks and
over the road trailer manufacturers. The products are sold to predominantly
North American markets.

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- - PRECISION HIGH VOLUME STAMPED METAL COMPONENTS AND AUTOMATIC TRANSMISSION
REACTION PLATES for original equipment automotive manufacturers, tier 1
suppliers to the automotive industry and after-market transmission
rebuilders. The parts are found on cars, trucks and vans. The products are
sold to domestic markets.

- - RAILROAD FREIGHT CAR SHOCK ABSORPTION PRODUCTS including hydraulic cushioning,
draft gears and elastomeric pads, hopper car outlet gates and locomotive
components including heating, ventilating and air conditioning systems,
valves, toilets and refrigerators. Customers include locomotive and railcar
manufacturers, lessors, railroads and railcar maintenance facilities. The
products are sold to markets worldwide.

- - RAILROAD TRACK FASTENING SYSTEMS for railroads and track maintenance
contractors. The products are sold to markets worldwide.

LABORATORY EQUIPMENT

- - LABORATORY INSTRUMENTS for physical property analysis of petroleum products
used for quality control analysis by oil refineries, petro-chemical plants,
petroleum transporters and end users. The products are sold to markets
worldwide.

- - PROCESS INSTRUMENTS for physical property analysis of petroleum products used
for quality control and process analysis by oil refineries. The products are
sold to markets worldwide.

- - CONSTANT TEMPERATURE APPLIANCES including waterbaths, incubators, ovens and
autoclaves for industrial, governmental, educational and clinical research
and development laboratories. The products are sold to markets worldwide.

- - FABRICATED TUBULAR STEEL PRODUCTS for household, institutional and juvenile
furniture manufacturers, lawn and garden and toy manufacturers. The products
are sold to domestic markets.

TRANSPORTATION PRODUCTS

In the transportation products segment, the Registrant serves three basic
markets: the heavy duty truck and trailer industries, the automotive industry
and the railroad industry.

HEAVY DUTY TRUCKS AND TRAILERS

The Registrant designs, manufactures and markets lightweight components for
heavy duty over-the-road trucks and trailers. These include axle hubs, parts for
suspension systems and clutch housings using the permanent mold process, brake
components from die castings and truck interior parts using structural molded
plastic processes.

The Registrant's customer base in this area are original truck and trailer
manufacturers and tier 1 component manufacturers. The Registrant's cast aluminum
products offer weight savings over available cast iron without sacrificing
strength. For example, the Registrant's aluminum axle hubs are up to 320 pounds
lighter than iron hubs on an 18 wheel tractor-trailer. Due to U.S. highway
weight regulations, lightweight components can be an important

<PAGE>

consideration for heavy payload haulers. By saving on their truck weight,
haulers can carry an increased payload or, alternatively, increase fuel
efficiency.

The Registrant's truck component business has benefitted from its new product
development, its customer base expansion and increased penetration with key
customers, such as Freightliner and PACCAR, who have been increasing their
market share in this industry. With certain of these customers, the Registrant
has been able to establish itself as a sole source supplier of certain
components. A significant source of future growth in this business is expected
to be from structural molded plastic components for the interiors of heavy duty
trucks. During fiscal 1994, the Registrant received multi-year contracts from
Freightliner, its largest Class 8 truck customer, which could add as much as $30
million in incremental annual sales by 1998 at current industry production
levels. To meet the demand for these contracts, the Registrant purchased an
additional plant facility in March of 1995 which is expected to begin production
in late 1995. The cost of this facility and related equipment expenditures in
1995 are estimated at $6.7 million. The Registrant also was awarded two multi-
year contracts in 1994 from PACCAR to provide aluminum axle hubs and chassis
components that are expected to contribute approximately $13 million in annual
sales beginning in 1995.

The Registrant's heavy duty truck products compete with similar products on
quality, engineering expertise, delivery and price. These products compete with
products that are functionally similar but are manufactured from different
materials or using different industrial processes on those same factors and the
differences in such materials and processes. The Registrant believes that its
ability to offer products that are designed and engineered to solve customer
problems is a significant factor in establishing and maintaining these
customer relationships and enhancing its opportunities for expansion in export
markets.

AUTOMOTIVE

For the automotive industry, the Registrant produces precision stamped metal
components for use in engine, steering, transmission, brake, seating and
suspension systems. The Registrant's ability to design and engineer tight
tolerance components that can be manufactured in high volume with high quality
ratings has enabled it to become a direct supplier to original equipment
manufacturers, principally divisions of General Motors Corporation ("GM"),
Chrysler Corporation ("Chrysler") and Ford Motor Company ("Ford"). The
Registrant also sells automotive parts to both U.S. and foreign-owned
manufacturers that sell directly to GM, Ford, Chrysler and U.S. production
facilities of foreign-owned automobile manufacturers. While the Registrant
produces parts for all North American GM passenger vehicles, the principal GM
platforms for the Registrant's automotive products consist of light trucks,
vans, sport utility vehicles and rear-wheel drive passenger cars. Parts are also
produced for many Chrysler products including the "LH" and "Neon" programs and
the Cirrus and Stratus models, and for many Ford products, including the
Explorer and Ranger models and the CT-20 platform used in Ford's Escort and
Tracer models.

The Registrant's automotive business has been helped by increasing industry
sales and through providing parts for popular new models and platforms. Among
the Registrant's principal automotive products are steel reaction plates that
are primarily used in light truck transmissions, including

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mini-vans and sport utility vehicles whose sales have increased as a percentage
of the overall passenger vehicle market. The Registrant believes growth
opportunities should present themselves as newer vehicle models which utilize
components manufactured by the Registrant achieve market acceptance and the
Registrant's components receive further acceptance by foreign-owned automotive
related manufacturers.

Competition for the sale of these products is intense, coming from numerous
companies, including divisions of GM, Ford and Chrysler, which have comparable
facilities and greater financial and other resources than the Registrant. The
Registrant competes for sales of these products on quality, just-in-time
delivery and price.

RAIL

For the railroad industry, the Registrant's most extensive line of products
is its hydraulic cushioning and draft gear shock absorption devices, which are
designed to minimize or prevent the damage that locomotives and freight cars and
their cargo can incur during coupling and normal operations. The Registrant
believes that it is the only company which offers railroads a complete range of
such devices utilizing hydraulic, steel friction and synthetic elastomer
technologies. Hydraulic cushioning devices weigh between 400 and 1200 pounds and
are between three and five feet in length. Hydraulic cushioning is the preferred
method of protecting high value freight (such as automobiles, paper, and
construction products) from damage during shipment. The Registrant believes it
is the leading producer of hydraulic cushioning devices for North American
railroads. Draft gears weigh between 150 and 700 pounds and are between one and
three feet in length. The Registrant's draft gears are used on locomotives and
rail cars transporting less easily damaged goods (coal, ore, grains, etc.),
where such devices serve to protect the rail cars themselves from damage. The
Registrant provides shock absorption devices to builders of new freight cars and
locomotives and also refurbishes and retrofits devices already in service,
including models originally manufactured by others.

The Registrant is also a leading producer of rail anchors for North American
railroads and believes it offers the broadest range of styles and sizes of these
products. Rail anchors are precision, forged steel devices which are attached
directly to the rail track and are designed to prevent the rail from
longitudinal movement or buckling as a result of traffic and temperature
conditions. Approximately 5,000 to 8,000 rail anchors are used per mile of
track. Rail anchors are manufactured to customer orders, usually in large
numbers requiring careful production scheduling, and are required to meet
specifications of organizations such as the American Railway Engineering
Association. The Registrant also produces outlet gates designed to permit the
discharge of a commodity from a covered hopper car, and is a remanufacturer of
crankshafts, camshafts, gears and pistons for locomotives and large stationary
engines for North American railroads, locomotive rebuilders and marine and
industrial engine rebuilders.

Through ongoing product development, the Registrant is committed to expanding
its market share in both the North American and international railroad
industries. Currently, the Registrant is focusing on opportunities in Europe,
Asia, the former Soviet Union and other international markets. The Registrant
believes that its experience and technological leadership in the North American
railroad freight market can be successfully transferred to international
markets. As the European community opens its borders, European

<PAGE>

rail hauls are expected to become longer and to use heavier cars, requiring more
sophisticated shock absorption products. The Registrant has already developed
and obtained approval from the Union Internationale des Chemins de Fer (the
European railroads standards organization) for a product designed specifically
for use by European railroads. In addition, Acieries de Ploermel ("AP"),
acquired by the Registrant in mid-1994, improves the Registrant's access into
the European railroad market place. AP is a steel foundry located in northwest
France. This company manufactures buffer housings and assemblies for the
railroad industry and also produces machined castings for valve manufacture and,
to a lesser extent, for the auto industry. The company is an approved source
for most of the national railroads in Europe. This acquisition provides the
Registrant's Keystone Railway Equipment Company ("Keystone"), a leading
manufacturer in the North American market of rail car cushioning devices, with
an expedient way of bringing Keystone's advanced technology to the European rail
market.

North American railroads have been increasing their share of the freight
transportation market. The Registrant believes that this increase should create
demand for the Registrant's products as new locomotives and rail cars are built,
old locomotives and rail cars are refurbished and the railroads expend funds to
maintain and improve their tracks. In order to take full advantage of this
increased demand for railroad products, the Registrant acquired Prime
Manufacturing Corporation ("Prime") at the end of fiscal 1994. Prime is located
in suburban Milwaukee, Wisconsin and manufactures a wide range of engineered
products for railroad locomotives, including heating, ventilating and air
conditioning equipment, valves, toilets and refrigerators. As freight railroad
systems are expanded and updated throughout the world, the Registrant believes
that its wide-range of highly engineered products should be well positioned to
meet the growing demand.

In the rail products portion of its business, the Registrant's products
compete on engineering features, quality, service and price. There are a small
number of competitors in each of the above described markets. New competitors
in the Registrant's rail products markets have been discouraged from entering
these markets because of the relatively large capital investment required, the
time it takes to receive railroad approval of particular designs and products
and the relatively mature status of these markets. However, the existing
competitors in these markets continue to compete intensely.

OTHER INFORMATION

Marketing of the Registrant's transportation products is done through sales
personnel employed by the Registrant and independent sales representatives. Each
product group is sold through separate marketing and distribution channels to a
different customer base.

The primary materials used for the manufacture of products in the
transportation products segment are cold rolled and hot rolled steel, special
alloy steel, bar, castings, forgings, tubing and rod, aluminum ingots and
plastic resin. The Registrant has not experienced significant difficulties in
obtaining such materials, although long lead times exist for certain steel
products. The machinery and equipment used for the manufacturing of these
products, which management considers adequate for current operations, consist
primarily of heavy duty forging and heat-treating equipment, metal cutting
machine tools, heavy duty metal stamping equipment, welding equipment,

<PAGE>

injection molding presses, casting equipment, tools, dies, furnaces, molds,
painting and plating equipment.

Backlog for this industry segment was $68.3 million, $46.2 million and $44.2
million as of January 31, 1995, January 31, 1994 and January 31, 1993,
respectively. All of the current backlog is expected to be filled during the
current fiscal year.

Sales of transportation products to Freightliner and GM amounted to 15% and
10% of the Registrant's total sales in 1994, 14% and 11% in 1993 and 12% and 11%
in 1992, respectively. In addition, the Registrant's sales of shock absorption
devices and related parts for railroad freight cars and locomotive engines
accounted for 13%, 14% and 14% of the Registrant's total sales in 1994, 1993 and
1992, respectively, and the Registrant's sales of aluminum hubs and hub
assemblies accounted for 10%, 9% and 7% of the Registrant's total sales in 1994,
1993, and 1992, respectively.

LABORATORY EQUIPMENT

In the laboratory equipment segment, the Registrant produces the following
categories of products: petroleum analysis instruments and related services,
laboratory appliances and tubular steel components.

PETROLEUM ANALYSIS INSTRUMENTS AND RELATED SERVICES

The Registrant designs, manufactures and markets instruments which analyze
the physical properties of petroleum, such as freeze point, flash point, pour
point, viscosity and vapor pressure; engages in the testing of petroleum
products; and sells petroleum product reference samples. The instruments,
testing services and reference samples are used for quality assurance purposes
to test for compliance with industry standards and to enhance refinery
efficiency. These products and services are used in petroleum refineries and by
end-users of petroleum products. The instruments consist of on-line process
analyzers and automatic and manual laboratory analyzers. The on-line analyzers
are used to help control the refining process, by constantly sampling the stream
of petroleum products to provide data which assists in the fine-tuning of the
refining process. Testing services are provided at the Registrant's in-house
facility which tests customer's petroleum products for thermal stability and
viscosity. Petroleum reference samples are used to calibrate petroleum
analyzers to proper specifications.

The Registrant's petroleum analysis instruments are sold world-wide to
petroleum refiners (of which there are over 600) and to transporters,
governmental agencies, pipeline companies and large users of petroleum products
(airlines, railroads and the U.S. military). Although the number of U.S.
refineries is declining, the Registrant's sales to overseas refiners and to
existing refineries in the process of upgrading and automating their production
processes are expected to provide growth opportunities in these product lines.
The Registrant recently brought to market new instruments which are helping to
meet the petroleum industry's growing need for quality control and increased
process and laboratory productivity. The Registrant's ability to engineer
on-line analyzers for specific applications and to provide timely service at
their places of installation is of competitive importance. With manufacturing
facilities in the United States and Germany, and service and distribution
locations in key strategic domestic and international markets, the Registrant
believes it is well-positioned to maintain a leading position in this global
market. The Registrant's petroleum analysis instruments compete primarily on

<PAGE>

product quality, engineering features, reliability and service. There are a
small number of competitors in this limited market, some of which use alternate
technologies.

LABORATORY APPLIANCES

The Registrant designs, manufactures and markets laboratory appliances for
the life sciences industry, which include water baths, ovens, micro-biological
and cell biology incubators, autoclaves, safety refrigerators and vacuum pumps.
These products are designed primarily to provide constant temperature conditions
for organic research materials. These products are sold under well established
brand names, such as "Precision-TM-" and "NAPCO-TM-". The Registrant's
laboratory appliances are marketed domestically and internationally, primarily
through four major distributors (Fisher Scientific, VWR Scientific, Baxter
Scientific Products and Curtin Matheson Scientific, Inc.). This market consists
of industrial, educational, clinical and governmental laboratories. The
Registrant's marketing staff provides sales support to the Registrant's
distributors. Because laboratory appliances of the type produced by the
Registrant are primarily used by life sciences research projects, the level of
governmental and private sector spending for research affects sales of the
Registrant's laboratory appliances. The Registrant believes that a moderation in
pharmaceutical and biotechnology research in recent years has been an important
factor affecting sales of the Registrant's laboratory appliances.

Since the acquisition of the laboratory appliance business, the Registrant
has invested in re-engineering and updating its products and production
techniques in order to improve product quality, shorten production cycle time
and lower manufacturing costs. In recent years, emphasis has been placed on
international markets, including direct export sales and sales to U.S.
distributors for foreign end-users. The Registrant's laboratory appliance
business competes on product quality, features, reliability, delivery and price.
User brand preference and the ability to maintain strong relationships with its
distribution system and to provide customer service are of prime competitive
importance as there is significant worldwide competition from several companies
that specialize in the production of similar products in this fragmented
industry.

TUBULAR STEEL COMPONENTS

The Registrant is a leading integrated manufacturer of tubular steel
components for consumer products, primarily in the household, juvenile and
commercial furniture industries, but also for manufacturers of lawn and garden
equipment and toys. While these markets have weakened during recent years due to
competition from imports and a reduction in the number of potential customers,
the Registrant's tubular steel component business has remained profitable by
aggressively reducing costs, adding new products and new customers who can
benefit from the Registrant's ability to totally control engineering,
manufacturing, fabrication and chrome plating or painting at its facilities.
This business competes primarily on its overall ability to design products to
meet its customer's needs, delivery and price. It competes with numerous U.S.
manufacturers, including the in-house operations of existing and potential
customers, and its competitive position is affected by the import of finished
goods that compete with the products manufactured by its customers.

<PAGE>

OTHER INFORMATION

The primary materials used for the manufacture of the products in this
segment are stainless steel, cold rolled carbon steel and electronic components.
The Registrant has not experienced any difficulties in obtaining such materials.
Marketing of these products is done through company sales personnel, independent
sales representatives and distributors throughout the U.S. and international
markets. The machinery and equipment used for the manufacturing of these
products, which management considers adequate for current operations, consist
primarily of tube mills and metal forming, fabrication, welding, plating and
painting equipment, together with a complement of tools, dies, jigs and gauges.

Backlog for this industry segment was $11.6 million, $8.4 million and $7.8
million as of January 31, 1995, January 31, 1994 and January 31, 1993,
respectively. All of the current backlog is expected to be filled during the
current fiscal year. In addition, the Registrant's sales of petroleum analysis
instruments and related parts accounted for 10%, 10% and 11% of the Registrant's
total sales in 1994, 1993 and 1992, respectively.

RESEARCH AND DEVELOPMENT

In 1994, 1993 and 1992, the Registrant spent $4.4 million, $4.3 million and
$3.6 million, respectively, on research and development activities, all of which
was Registrant sponsored. Of these amounts, research and development spending on
new products was $2.1 million, $1.8 million and $1.5 million for 1994, 1993 and
1992, respectively.

PATENTS, TRADE NAMES AND TRADEMARKS

The Registrant applies for and maintains patents, trade names and trademarks
where the Registrant believes that such patents, trade names and trademarks are
reasonably required to protect the Registrant's rights in its products. The
Registrant does not believe that any single patent, trade name or trademark or
related group of such rights, other than the "ConMet", "Precision-TM-", "NAPCO-
TM-" and "Herzog" trade names and related trademarks, are materially important
to its businesses or its ability to compete. In many instances the Registrant's
technology is not patented but is maintained by the Registrant as proprietary.

SEASONALITY

In non-recessionary times, the Registrant's first quarter has historically
been the strongest quarter of the year. During the second and fourth quarters,
the Registrant traditionally encounters scheduled shutdowns and slowdowns at
customers' manufacturing plants and reduced sales in the laboratory equipment
segment. During the third and fourth quarters, the Registrant generally
experiences a slowing of railbed maintenance of way orders.

EMPLOYEES

As of January 31, 1995, the Registrant employed a total of 2,531 persons,
1,832 of whom were employed in its Transportation Products segment, 681 of whom
were employed in its Laboratory Equipment segment and 18 of whom were employed
at the Registrant's corporate headquarters. Of the employees employed by the
Transportation Products and Laboratory Equipment segments,

<PAGE>

705 and 387, respectively, are covered by collective bargaining agreements. The
Registrant believes it has a good working relationship with its employees.

ENVIRONMENTAL MATTERS

The Registrant's manufacturing operations are subject to federal, state,
local and foreign environmental laws and regulations which impose limitations on
the discharge of pollutants into the air and water and establish standards for
the treatment, storage and disposal of hazardous waste. The Registrant has
established a Company-wide environmental compliance program that stresses
periodic environmental audits and management review of compliance procedures
at the operating company level. The Registrant believes that it is in
substantial compliance with applicable environmental laws and regulations.

Compliance with these environmental laws and regulations has not had, nor is
it expected to have, a material effect on the Registrant's earnings, competitive
position or capital expenditures through fiscal 1996. The amount of capital
expenditures expected to be spent on environmental compliance costs in fiscal
1995 and 1996 are approximately $708,000 and $73,000, respectively.

<PAGE>

EXECUTIVE OFFICERS OF THE REGISTRANT

Reference is made to the information set forth under the caption "Officers" on
the inside back cover of the Registrant's 1994 Annual Report to Stockholders,
which information is hereby incorporated herein by reference.

Item 2. PROPERTIES

The following table sets forth certain information with respect to the principal
properties of the Registrant. The expiration date of each applicable lease is
given for leased properties; all other properties are owned. Unless otherwise
noted, all properties are manufacturing facilities.

Expiration Date Approximate
Approximate of Lease Capacity
Operation Square Feet (if applicable) Utilization(1)
- --------- ----------- --------------- --------------
<S> <C> <C> <C>
Executive Office 10,000(2) 10/15/97 N/A
Naperville, IL

Transportation Products
- -----------------------

Atchison, KS 60,000 N/A 37%
Camp Hill, PA 95,000 N/A 48%
McPherson, KS 94,000 N/A 48%
Saginaw, MI 77,000 N/A 90%
Melvindale, MI 45,000 N/A 90%
Vassar, MI 76,000 N/A 90%
Portland, OR 179,000 N/A 95%
Monroe, NC 81,000 N/A 90%
Clackamas, OR 55,000 N/A 85%
Cashiers, NC 80,000 N/A 85%
Chicago, IL 32,000 N/A 50%
Bell Gardens, CA 18,000 N/A 50%
Bryson City, NC 160,000 N/A N/A(3)
Oak Creek, WI 74,000 (4) 48%
Ploermel, France 70,000 N/A 60%

Laboratory Equipment
- --------------------

Aurora, IL 166,000 N/A 55%
Chicago, IL 125,000 9/15/97 50%
Bellwood, IL 35,000 5/31/96 30%
San Antonio, TX 28,000 4/30/99 65%
Lauda, Germany 24,000 N/A 35%(5)
Lauda, Germany 6,000 6/30/97 35%(5)
Joliet, IL 9,000 9/30/97 N/A

<FN>
(1) Full capacity being deemed a 24 hour day, 7 day week for this
purpose.
(2) Office space.
(3) Location purchased in March 1995. Currently in start-up phase.
(4) The Registrant is committed to purchase this property in the first half of
1995.
(5) Full capacity is based on German employment laws.
N/A Not applicable.

</TABLE>

<PAGE>

Item 3. LEGAL PROCEEDINGS

Not applicable

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable

PART II

Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

Reference is made to the information set forth under the captions "Quarterly
Market and Dividend Information" and "Shares Listed" in the Registrant's 1994
Annual Report to Stockholders, which information is hereby incorporated herein
by reference. Note: The information contained under the caption "Quarterly
Market and Dividend Information" in the Registrant's 1994 Annual Report includes
over-the-counter market quotations which reflect interdealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.

Item 6. SELECTED FINANCIAL DATA

Reference is made to the information set forth under the captions "Summary of
Operations" and "Summary of Financial Condition" in the Registrant's 1994 Annual
Report to Stockholders, which information is hereby incorporated herein by
reference.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Reference is made to the information set forth under the caption, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Registrant's 1994 Annual Report to Stockholders, which information is hereby
incorporated herein by reference.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to the information set forth under the captions "Consolidated
Balance Sheets", "Consolidated Statements of Earnings", "Consolidated Statements
of Stockholders' Equity", "Consolidated Statements of Cash Flows", "Notes to
Consolidated Financial Statements" and "Independent Auditors' Report" in the
Registrant's 1994 Annual Report to Stockholders, which information is hereby
incorporated herein by reference.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable

<PAGE>

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Reference is made to the information set forth under the caption "Election of
Directors" in the Registrant's Proxy Statement filed pursuant to Regulation 14A
within 120 days after January 31, 1995, which information is hereby incorporated
herein by reference, and to the information set forth under the caption
"Executive Officers of the Registrant", which appears as a separate item
immediately preceding Item 2 included in PART I hereof, which information is
hereby incorporated herein by reference.

None of the executive officers bear any family relationship to one another. The
executive officers of the Registrant are elected annually by the Board of
Directors.

Item 11. EXECUTIVE COMPENSATION

Reference is made to the information set forth under the caption "Executive
Compensation" in the Registrant's Proxy Statement filed pursuant to Regulation
14A within 120 days after January 31, 1995, which information is hereby
incorporated herein by reference.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Reference is made to the information set forth under the captions "Election of
Directors" and "Security Ownership of Certain Beneficial Owners and Management"
in the Registrant's Proxy Statement filed pursuant to Regulation 14A within 120
days after January 31, 1995, which information is hereby incorporated herein by
reference.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not applicable.

PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1),
(a)(2)
& (d) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

The consolidated financial statements, together with the related notes
and supporting schedule filed as part of this Form 10-K, are listed in
the accompanying Index to Consolidated Financial Statements and
Schedule.

(b) REPORTS ON FORM 8-K

None

<PAGE>

(a)(3)
& (c) EXHIBITS

Set forth below is a list of the Exhibits to this Form 10-K in
accordance with the requirements of Items 14(a)(3) and (c) of Form
10-K and Item 601 of Regulation S-K:

(3) (i) Registrant's Articles of Incorporation, as amended (incorporated
herein by reference to Exhibit (3)(a) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31, 1988).

(ii) Registrant's By-laws, as amended through April 3, 1995.

(4) (a) Revolving Credit Agreement by and among the Registrant, the Borrowing
Subsidiaries, the Lenders Party Thereto and The First National Bank of
Chicago, as Agent, dated as of December 6, 1993 (incorporated herein
by reference to Exhibit 4(a) to the Registrant's Annual Report on Form
10-K for the fiscal year ended January 31, 1994).

(10) (a) Registrant's 1980 Incentive Stock Option Plan, as amended
(incorporated herein by reference to Exhibit (10)(b) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1989) and as further amended on March 26, 1990
(incorporated herein by reference to Exhibit (10)(b) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1990).

(b) Varlen Corporation Profit Sharing and Retirement Savings Plan as
amended and restated generally effective July 1, 1994.

(c) Registrant's 1989 Incentive Stock Option Plan, (incorporated herein
by reference to Exhibit (10)(h) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31, 1989) and as further
amended on March 26, 1990 (incorporated herein by reference to Exhibit
(10)(g) to the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1990).

(d) Varlen Corporation Excess Benefits Plan (incorporated herein by
reference to Exhibit (10)(i) to the Registrant's Annual Report on Form
10-K for the fiscal year ended January 31, 1990).

(e) Varlen Corporation Supplemental Executive Retirement Plan
(incorporated herein by reference to Exhibit (10)(j) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1990).

(f) Trust Agreement Between Varlen Corporation and Fidelity Management
Trust Company dated November 30, 1992 (incorporated herein by
reference to Exhibit (10)(g) to the Registrant's Annual Report on Form
10-K for the fiscal year ended January 31, 1993).

<PAGE>

(g) Stock Purchase Agreement dated December 17, 1992 between The Dyson-
Kissner-Moran Corporation and the Registrant (incorporated herein by
reference to Exhibit 5(a) to the Registrant's Report on Form 8-K dated
January 8, 1993).

(h) Form of letter agreement between the Registrant and Richard L. Wellek
(incorporated herein by reference to Exhibit (10)(j) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1993).

(i) Form of letter agreement between the Registrant and each of Richard A.
Nunemaker, Raymond A. Jean and George W. Hoffman (incorporated herein
by reference to Exhibit (10)(k) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31, 1993).

(j) Trust Indenture for the Registrant's $69,000,000 6 1/2% Convertible
Subordinated Debentures Due 2003 from the Registrant to the Harris
Trust and Savings Bank (incorporated herein by reference to Exhibit
(4) to the Registrant's Report on Form 8-K dated May 27, 1993).

(k) Registrant's 1993 Incentive Stock Option Plan adopted May 25, 1993
(incorporated herein by reference to Exhibit (10)(k) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1994).

(l) Registrant's 1993 Directors Incentive Stock Grant Plan adopted May 25,
1993 (incorporated herein by reference to Exhibit (10)(l) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1994).

(m) Registrant's 1993 Deferred Incentive Stock Purchase Plan adopted May
25, 1993 (incorporated herein by reference to Exhibit (10)(m) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1994).

(n) Varlen Corporation Excess Benefit Plan Trust Agreement dated December
1, 1994.

(11) Computation of Per Share Earnings for the Fiscal Years Ended January
31, 1995, 1994 and 1993.

(13) 1994 Annual Report to Stockholders.

(21) List of Subsidiaries.

(23) Consent of Deloitte & Touche LLP.

(24) Board of Directors' power of attorney for the signing of Varlen
Corporation's 1994 Annual Report on Form 10-K.

(27) Financial Data Schedule.

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

VARLEN CORPORATION
(Registrant)

By /s/ Richard A. Nunemaker
---------------------------
Richard A. Nunemaker
Vice President, Finance and
Chief Financial Officer

Dated: April 25, 1995

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

SIGNATURE TITLE DATE

/s/ Richard L. Wellek President, Chief April 25, 1995
- ------------------------ Executive Officer
Richard L. Wellek and Director
(Principal Executive
Officer)

/s/ Richard A. Nunemaker Vice President, Finance April 25, 1995
- ------------------------ and Chief Financial
Richard A. Nunemaker Officer
(Principal Financial
Officer and Principal
Accounting Officer)

<PAGE>

SIGNATURE DATE

/s/ Richard A. Nunemaker April 25, 1995
- ----------------------------
Richard A. Nunemaker
as attorney-in-fact for
Rudolph Grua, Director

/s/ Richard A. Nunemaker April 25, 1995
- ----------------------------
Richard A. Nunemaker
as attorney-in-fact for
Ernest H. Lorch, Director

/s/ Richard A. Nunemaker April 25, 1995
- ----------------------------
Richard A. Nunemaker
as attorney-in-fact for
L. William Miles, Director

/s/ Richard A. Nunemaker April 25, 1995
- ----------------------------
Richard A. Nunemaker
as attorney-in-fact for
Greg A. Rosenbaum, Director

/s/ Richard A. Nunemaker April 25, 1995
- ----------------------------
Richard A. Nunemaker
as attorney-in-fact for
Joseph J. Ross, Director

/s/ Richard A. Nunemaker April 25, 1995
- ----------------------------
Richard A. Nunemaker
as attorney-in-fact for
Theodore A. Ruppert, Director

<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
Varlen Corporation
Naperville, Illinois

We have audited the consolidated financial statements of Varlen Corporation and
subsidiaries as of January 31, 1995 and 1994, and for each of the three years in
the period ended January 31, 1995, and have issued our report thereon, dated
March 6, 1995 (which includes an explanatory paragraph relating to the change in
method of accounting for postretirement benefits other than pensions); such
consolidated financial statements and report are included in your 1994 Annual
Report to Stockholders and are incorporated herein by reference. Our audits
also included the consolidated financial statement schedule of Varlen
Corporation and subsidiaries, listed in Item 14. This consolidated financial
statement schedule is the responsibility of the Corporation's management. Our
responsibility is to express an opinion based upon our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.

DELOITTE & TOUCHE LLP

March 6, 1995
Chicago, Illinois

<PAGE>

VARLEN CORPORATION
AND SUBSIDIARIES

Annual Report (Form 10-K)

Consolidated Financial Statements and Schedule

Submitted in Response to Item 14

Years ended January 31, 1995, 1994 and 1993

<PAGE>

VARLEN CORPORATION
AND SUBSIDIARIES

Index to Consolidated Financial Statements and Schedule

CONSOLIDATED FINANCIAL STATEMENTS
INCORPORATED BY REFERENCE

The consolidated balance sheets of the Registrant and subsidiaries as of January
31, 1995 and 1994, and the related consolidated statements of earnings,
consolidated statements of stockholders' equity and consolidated statements of
cash flows for each of the years in the three-year period ended January 31,
1995, together with the related notes and the report of Deloitte & Touche LLP,
independent auditors, all contained in the Registrant's 1994 Annual Report to
Stockholders, are incorporated herein by reference thereto. The following
additional consolidated financial information should be read in conjunction with
the consolidated financial statements in such 1994 Annual Report to
Stockholders. All other schedules are omitted as the required information is
inapplicable or the information is presented in the financial statements or
related notes.

ADDITIONAL CONSOLIDATED FINANCIAL INFORMATION

. Schedule:

. VIII - Valuation and Qualifying Accounts

<PAGE>

SCHEDULE VIII

VARLEN CORPORATION
AND SUBSIDIARIES

Valuation and Qualifying Accounts

Three years ended January 31, 1995
(in thousands)
<TABLE>
<CAPTION>

Additions
Balance at charged to Balance
beginning costs and at end
Description of Period expenses Deductions of period
----------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Valuation accounts
deducted from assets
to which they apply:

Allowance for
doubtful accounts
(deducted from
accounts receivable):

Year ended 1/31/95 $1,207 $ 371 $ 260(a) $1,318
Year ended 1/31/94 1,826 256 875(a) 1,207
Year ended 1/31/93 1,490 630 294(a) 1,826

Allowance related to
deferred tax assets:

Year ended 1/31/95 $1,465 $ 868(b)(d) $ 320(c)(d)$2,013
Year ended 1/31/94 1,423 42 --- 1,465
Year ended 1/31/93 1,423 --- --- 1,423

<FN>
(a) Write-offs, net of recoveries, foreign currency translation adjustments
and reserves related to certain companies disposed of during the period.

(b) Includes $748 related to acquired net operating losses.

(d) The amounts were offset against goodwill and not net earnings.

</TABLE>

<PAGE>

INDEX TO EXHIBIT

(ii) Registrant's By-laws, as amended through April 3, 1995.

(b) Varlen Corporation Profit Sharing and Retirement Savings Plan as
amended and restated generally effective July 1, 1994.

(d) Varlen Corporation Excess Benefits Plan (incorporated herein by
reference to Exhibit (10)(i) to the Registrant's Annual Report on Form
10-K for the fiscal year ended January 31, 1990).

<PAGE>

(n) Varlen Corporation Excess Benefit Plan Trust Agreement dated December
1, 1994.

(11) Computation of Per Share Earnings for the Fiscal Years Ended January
31, 1995, 1994 and 1993.

(13) 1994 Annual Report to Stockholders.

(21) List of Subsidiaries.

(23) Consent of Deloitte & Touche LLP.

(24) Board of Directors' power of attorney for the signing of Varlen
Corporation's 1994 Annual Report on Form 10-K.

(27) Financial Data Schedule.

<PAGE>

As amended through
April 3, 1995
BY-LAWS
OF
VARLEN CORPORATION

ARTICLE I

STOCKHOLDERS

SECTION 1. ANNUAL MEETINGS. Subject to change by resolution of the
Board of Directors, the annual meeting of the stockholders of the Corporation
for the purpose of electing directors and for the transaction of such other
business as may be brought before the meeting shall be held, on the fourth
Tuesday in May of each year, if not a legal holiday, and if a legal holiday,
then on the next succeeding day not a legal holiday. The meeting may be held
at such time and such place within or without the State of Delaware as shall be
fixed by the Board of Directors and stated in the notice of the meeting.

SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders may be
called at any time by the Board of Directors, by the Chairman of the Board,
by the President, or by any number of stockholders owning an aggregate of not
less than twenty-five percent of the number of outstanding shares of capital
stock entitled to vote. Special meetings shall be held on the date and at the
time and place either within or without the State of Delaware specified in
the notice thereof.

SECTION 3. NOTICE OF MEETINGS. Except as otherwise expressly required
by law or the Certificate of Incorporation of the Corporation, written notice
stating the place and time of the meeting, and in the case of a special
meeting, the purpose or purposes of such meeting, shall be given by the
Secretary to each stockholder entitled to vote thereat at his address as it
appears on the records of the Corporation not less than ten nor more than
fifty days prior to the meeting. No business other than that stated in the
notice shall be transacted at any special meeting. Notice of any meeting of
stockholders shall not be required to be given to any stockholder who shall
attend such meeting in person or by proxy; and if any stockholder shall, in
person or by attorney thereunto duly authorized, in writing or by telegraph,
able or wireless, waive notice of any meeting, whether before or after such
meeting be held, the notice thereof need not be given to him. Notice of any
adjourned meeting of stockholders need not be given except as provided in
SECTION 4 of this ARTICLE 1.

<PAGE>

SECTION 4. QUORUM. Subject to the provision of law in respect of the
vote that shall be required for a specific action, the number of shares the
holders of which shall be present or represented by proxy at any meeting of
stockholders in order to constitute a quorum for the transaction of any
business, shall be a majority of all the shares issued and outstanding and
entitled to vote at such meeting.

At any meeting of stockholders, whether or not there shall be a quorum
present, the holders of a majority of shares voting at the meeting, whether
present in person at the meeting or represent by proxy as the meeting may
adjourn the meeting from time to time without notice other than by
announcement at the meeting of the time and place of the adjourned meeting,
except that a new notice must be sent out if the adjournment is for more
than thirty days, or if a new record date for voting is fixed. At any
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
called.

SECTION 5. ORGANIZATION. The Chairman of the Board, or in his absence
or nonelection the President, or in the absence of both the foregoing
officers, the Executive Vice President, or in the absence of any of the
foregoing officers, a Vice President shall call meetings of the stockholders
to order, and shall act as Chairman of such meetings. In the absence of the
Chairman of the Board, the President, the Executive Vice President or a Vice
President, the holders of a majority in number of the shares of the capital
stock of the Corporation present in person or represented by proxy and
entitled to vote at such meeting shall elect a Chairman, who may be the
Secretary of the Corporation. The Secretary of the Corporation shall act as
secretary of all meetings of the stockholders; but in the absence of the
Secretary, the Chairman may appoint any person to act as secretary of the
meeting.

SECTION 6. VOTING. Each stockholder shall, except as otherwise provided
by law or by the Certificate of Incorporation, at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
capital stock entitled to vote held by such stockholder, but no proxy shall
be voted on after three years from its date, unless said proxy provides for a
longer period. Upon the demand of any stockholder, the vote for directors and
the vote upon any matter before the meeting, shall be by ballot. Except as
otherwise provided by law or by the Certificate of Incorporation or by these
By-laws, all elections for directors shall be decided by plurality vote; all
other matters shall be decided by votes cast thereon.

A complete list of the stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order, with

- 2 -

<PAGE>

the address of each, and the number of shares held by each, shall be open to
the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days
prior to the meeting, either at a place within the city where the meeting is
to be held, which place shall be specified in the notice of the meeting, or,
if not so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during
the whole time thereof, and may be inspected by any stockholder who is
present.

SECTION 7. INSPECTORS OF ELECTION. The Board of Directors may at any
time appoint two or more persons to serve as Inspectors of Election at the
next succeeding annual meeting of stockholders or at any other meeting or
meetings and the Board of Directors may at any time fill any vacancy in the
office of Inspector. If the Board of Directors fails to appoint Inspectors,
or if any Inspector appointed be absent or refuse to act, or if his office
becomes vacant and be not filled by the Board of Directors, the Chairman of
any meeting of the stockholders may appoint one or more temporary Inspectors
for such meeting. All proxies shall be filed with the Inspectors of Election
of the meeting before being voted upon.

ARTICLE II

BOARD OF DIRECTORS

SECTION 1. GENERAL POWERS. The property, affairs and business of the
Corporation shall be managed by the Board of Directors.

SECTION 2. NUMBER, QUALIFICATION AND TERM OF OFFICE. The number of
directors shall be such as the Board of Directors may by resolution direct,
but not less than three nor more than nine, except that where all the stock
of the Corporation is owned beneficially and of record by either one or two
stockholders, the number of directors may be less than three, but not less
than the number of stockholders. Directors need not be stockholders. Each
director shall hold office for the term for which he is appointed or elected
and until his successor shall have been elected and shall qualify, or until
his death or until he shall resign or shall have been removed in the manner
hereinafter provided. Directors need not be elected by ballot, except upon
demand of any stockholder.

SECTION 3. QUORUM AND MANNER OF ACTION. Except as otherwise provided
by statute or these By-laws, one-half of the whole Board of Directors (but
not less than two) shall be

- 3 -

<PAGE>

required to constitute a quorum for the transaction of business at any
meeting, and the act of a majority of the directors present and voting at any
meeting at which a quorum is present shall be the act of the Board of
Directors. In the absence of a quorum, a majority of the directors present may
adjourn any meeting from time to time until a quorum be had. Notice of any
adjourned meeting need not be given. The directors shall act only as a board
and individual directors shall have no power as such.

SECTION 4. PLACE OF MEETING, ETC. The Board of Directors may hold its
meetings, have one or more offices, and keep the books and records of the
Corporation, at such place or places within or without the State of Delaware,
as the Board may from time to time determine or as shall be specified or
fixed in the respective notices or waivers of notice thereof.

SECTION 5. REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held as soon as practicable after each annual meeting of
stockholders, for the election of officers and the transaction of other
business, and other regular meetings of said Board shall be held at such
times and places as said Board shall direct. No notice shall be required for
any regular meeting of the Board of Directors but a copy of every resolution
fixing or changing the time or place of regular meetings shall be mailed to
every director at least three days before the first meeting held in pursuance
thereof.

SECTION 6. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the President, the Executive Vice
President, a Vice President or any two Directors. The Secretary or an
Assistant Secretary shall give notice of the time and place of each special
meeting by mailing a written notice of the same to each Director at his last
known post office address at least two days before the meeting or by causing
the same to be delivered personally or to be transmitted by telegraph,
cable, wireless, telephone or verbally at least twenty-four hours before the
meeting to each Director.

SECTION 7. ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of the Board or of any committee thereof may be taken
without a meeting, if prior to such action a written consent thereto is
signed by all members of the Board or of such committee, as the case may be,
and such written consent is filed with the minutes of proceedings of the
Board or committee.

SECTION 8. ORGANIZATION. At each meeting of the Board of Directors, the
Chairman of the Board, or, in his absence or nonelection, the President, or,
in the absence of both of the foregoing officers, a director chosen by a
majority of the

- 4 -

<PAGE>

directors shall act as Chairman. The Secretary, or in his absence, an
Assistant Secretary, or in the absence of both the Secretary and Assistant
Secretaries, any person appointed by the Chairman shall act as Secretary of
the meeting.

SECTION 9. RESIGNATIONS. Any director of the Corporation may resign at
any time by giving written notice to the Board of Directors or to the
President or to the Secretary of the Corporation. The resignation of any
directors shall take effect at the time specified therein, and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.

SECTION 10. REMOVAL OF DIRECTORS. Any director may be removed, either
with or without cause, at any time by the affirmative vote of a majority in
interest of the holders of record of the stock having voting power at a
special meeting of the stockholders called for the purpose; and the vacancy
in the Board caused by any such removal may be filled by the stockholders at
such meeting.

SECTION 11. VACANCIES. Any vacancy in the Board of Directors caused by
death, resignation, removal, disqualification, an increase in the number of
directors, or any other cause may be filled by the majority vote of the
remaining directors at any meeting, or by the stockholders of the Corporation
at the next annual meeting or any special meeting called for the purpose and
each director so elected, shall hold office for the unexpired term or for
such lesser term as may be designated and until his death or until he shall
resign or shall have been removed in the manner herein provided. In case all
the directors shall die or resign or be removed or disqualified, any
stockholder having voting powers may call a special meeting of the
stockholders, upon notice given as herein provided for meetings of the
stockholders, at which directors for the unexpired term may be elected.

SECTION 12. COMPENSATION OF DIRECTORS. Directors shall receive such sum
for their services and expenses as may be directed by resolution of the
Board; provided that nothing herein contained shall be construed to preclude
any director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be
allowed like compensation of their services and expenses.

SECTION 13. COMMITTEES. By resolution or resolutions passed by a
majority of the whole Board at any meeting of the Board of Directors, the
directors may designate one or more committees, each committee to consist of
two or more directors, which, to the extent provided in said resolution or
resolutions, shall have and may exercise the powers of the Board of Directors

- 5 -

<PAGE>

in the management of the business and affairs of the Corporation, including
the power and authority to authorize the seal for the Corporation to be
affixed to all papers which may require it, to declare dividends and to
authorize the issuance of shares of capital stock of the Corporation.
Further, the Board of Directors may designate one or more directors as
alternate members of a committee who may replace an absent or disqualified
member at any meeting.

SECTION 14. EXECUTIVE COMMITTEE. The Board of Directors, by the
affirmative vote of a majority of the members of the Board at the time in
office, may appoint an Executive Committee, each of such members to be a
director. The number of members of the Executive Committee shall be such as
the Board of Directors by resolution directs, but not less than three nor
more than nine. The Executive Committee, except as limited from time to time
by the Board of Directors, shall have and may exercise, during the intervals
between the meetings of the directors, all of the powers vested in the Board
or committees generally, except to change the membership of the Executive
Committee; provided, however, that in the absence of disqualification of any
member of the Executive Committee, the member or members thereof present at
any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent of
disqualified member. The Executive Committee shall have power to authorize
the seal for the Corporation to be affixed to all papers which may require
it, to declare dividends and to authorize the issuance of shares of capital
stock of the Corporation. The Board shall have the power at any time to fill
vacancies in, to change the membership of, or to dissolve, the Executive
Committee. The Executive Committee may make rules for the conduct of its
business and may appoint such committees and assistants as it shall from time
to time deem necessary. One-third of the Executive Committee, but not less
than two, shall constitute a quorum for the transaction of business. Regular
meetings of the Executive Committee shall from time to time by resolution
determine. No notice shall be required for any regular meeting of the
Executive Committee but a copy of every resolution fixing or changing the
time or place of regular meetings shall be mailed to every member of the
Executive Committee at least three days before the first meeting held in
pursuance thereof. Special meetings of the Executive Committee may be called
by the Chairman of the Executive Committee or the Secretary of the Executive
Committee, or any two members thereof. The Secretary of the Corporation or
the Secretary of the Executive Committee shall give notice of the time and
place of each Special Meeting by mail at least two days before such meeting
or by telegraph, cable, wireless, telephone or verbally at least 24 hours
before the meeting to each member of the Executive Committee.

- 6 -

<PAGE>

ARTICLE III

OFFICERS

SECTION 1. NUMBER. The officers of the Corporation shall be a
President, a Treasurer, and a Secretary. In addition, the Board may elect a
Chairman of the Board, one or more Executive Vice Presidents, one or more
Vice Presidents, and such other officers as may be appointed in accordance
with the provisions of SECTION 3 of this ARTICLE. Any number of offices may
be held by the same person. The Chief Executive Officer of the Corporation
shall be either the Chairman of the Board or the President, as determined by
the Board.

SECTION 2. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The officers
shall be elected annually by the Board of Directors at their first meeting
after each annual meeting of the stockholders of the Corporation. Each
officer, except such officers as may be appointed in accordance with the
provisions of SECTION 3 of this ARTICLE, shall hold office until his
successor shall have been duly elected and qualified in his stead, or until
his death or until he shall have resigned or shall have been become
disqualified or shall have been removed in the manner hereinafter provided.
The Chairman of the Board shall be chosen from among the directors.

SECTION 3. SUBORDINATE OFFICERS. The Board of Directors or the
President may from time to time appoint such other officers, including one or
more Assistant Treasurers and one or more Assistant Secretaries, and such
agents and employees of the Corporation as may be deemed necessary or
desirable. Such officers, agents and employees shall hold office for
such period and upon such terms and conditions, have such authority and
perform such duties as in these By-laws provided or as the Board of Directors
or the President may from time to time prescribe. The Board of Directors or
the President may from time to time authorize any officer to appoint and
remove agents and employees and to prescribe the powers and duties thereof.

SECTION 4. REMOVAL. Any officer may be removed either with or without
cause, by the vote of a majority of the whole Board of Directors at a special
meeting called for the purpose, or except in case of any officer elected by
the Board of Directors, by any committee or superior officer upon whom the
power of removal may be confirmed by the Board of Directors or by these
By-laws.

SECTION 5. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall take effect at the date of receipt of
such notice or at any later

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<PAGE>

time specified therein; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.

SECTION 6. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled for
the unexpired portion of the term in the manner prescribed in these By-laws
for regular election or appointment to such office.

SECTION 7. [intentionally left blank]

SECTION 8. THE PRESIDENT. The President shall have general direction of
the affairs of the Corporation and general supervision over its several
officers, subject, however, to the control of the Board of Directors and, if
the Chairman of the Board be the Chief Executive Officer of the Corporation,
the Chairman of the Board. The President shall at each annual meeting and
from time to time report to the stockholders and to the Board of Directors
all matters within his knowledge which the interest of the Corporation require
to be brought to their notice; may sign with the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary any and all certificates
of stock for the Corporation; in the absence of the Chairman of the Board,
shall preside at all meetings of the stockholders; shall sign and execute in
the name of the Corporation all contracts, or other instruments authorized by
the Board of Director, except in cases where the signing and execution
thereof shall be expressly declared or permitted by the Board or by these
By-laws to some other officer or agent of the Corporation; and in general
shall perform all duties incident to the office of President and such other
duties as from time to time may be assigned to him by the Board of Directors
or as are presented by these By-laws.

SECTION 9. THE EXECUTIVE VICE PRESIDENT. The Executive Vice President,
if one be elected, shall at the request of the President, or in his absence
or disability, except as otherwise provided herein, perform the duties of the
President, and, when so acting, shall have all the powers of, and be subject
to all of the restrictions upon, the President; in the absence of the
Chairman of the Board and the President, shall preside at all meetings of the
stockholders; may sign with the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary any or all certificates of stock of the
Corporation; and shall perform such duties and have such powers as from time
to time may be assigned to him by the President or the Board of Directors or
prescribed by these By-laws.

SECTION 10. THE VICE PRESIDENTS. Each Vice President shall have such
powers and shall perform such duties as may from

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time to time be assigned to him by the Board of Directors or by the President. A
Vice President may also sign with the Treasurer or the Secretary or an Assistant
Secretary certificates of stock of the Corporation.

SECTION 11. THE SECRETARY. The Secretary shall keep or cause to be kept
in books provided for the purpose the minutes of the meetings of the
stockholders of the Board of Directors and of any committee when so required;
shall see that all notices are duly given in accordance with the provisions
of these By-laws and as required by law; shall be custodian of the records
and of the seal of the Corporation and see that the seal is affixed to all
documents, the execution of which on behalf of the Corporation under its seal
is duly authorized in accordance with the provisions of these By-laws; shall
keep or cause to be kept, a register of the post office address of each
stockholder; may sign with the President, the Executive Vice President or
Vice President certificates of stock of the Corporation; and in general, the
Secretary shall perform all duties incident to the office of Secretary and
such other duties as may, from time to time, be assigned to him by the Board
of Directors, or by the President.

SECTION 12. ASSISTANT SECRETARIES. At the request of the Secretary, or
in his absence or disability, the Assistant Secretaries shall perform the
duties of the Secretary and, when so acting, shall have all the powers of,
and be subject to all the restrictions upon, the Secretary. The Assistant
Secretaries shall perform such other duties as from time to time may be
assigned to them by the President, the Secretary of the Board of Directors.

SECTION 13. THE TREASURER. The Treasurer shall have charge and custody
of, and or responsible for, all funds and securities of the Corporation, and
deposit all such funds in the name of the Corporation in such banks, trust
companies or other depositories as shall be selected in accordance with the
provisions of these By-laws; at all reasonable times exhibit his books of
account and records, and cause to be exhibited the books of accounts and
records, of any corporation controlled by the Corporation, to any of the
Directors of the Corporation upon application during business hours at the
office of the Corporation, or such other corporation, where such books and
records are kept; render a statement of the condition of the finances of the
Corporation at all regular meetings of the Board of Directors and a full
financial report at the annual meeting of the stockholders; if called upon to
do so, receive, and give receipts for, moneys due and payable to the
Corporation from any source wherever; may sign with the President, the
Executive Vice President or Vice President certificates of stock of the
Corporation; and in general, perform all the duties incident to

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<PAGE>

the office of Treasurer and such other duties as from time to time may be
assigned to him by the Board of Directors.

SECTION 14. ASSISTANT TREASURER. At the request of the Treasurer, or in
his absence or disability, the Assistant Treasurer shall perform the duties
of the Treasurer, and, when so acting, shall have all the powers of, and be
subject to all the restrictions upon, the Treasurer. The Assistant Treasurers
shall perform such duties as from time to time may be assigned to them by the
President, the Treasurer or the Board of Directors.

SECTION 15. SALARIES. The salaries of the officers shall be fixed from
time to time by the Board of Directors. No officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
Corporation.

ARTICLE IV

CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.

SECTION 1. CONTRACTS, ETC. HOW EXECUTED. The Board of Directors except
as in these By-laws otherwise provided, may authorize any officer or
officers, employee or employees or agent or agents of the Corporation to
enter into any contract or execute and deliver any instrument in the name of
and on behalf of the Corporation, and such authority may be general or
confined to specific instances; and, unless so authorized by the Board of
Directors or by such Committee or by these By-laws, no officer, employee or
agent shall have any power or authority to bind the Corporation by any
contract or arrangement or to pledge its credit or to render it liable
pecuniarily for any purpose or to any amount.

SECTION 2. CHECKS, DRAFT, ETC. All checks, drafts or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or officers,
employee or employees or agent or agents of the Corporation as shall from
time to time be determined by resolution of the Board of Directors.

SECTION 3. DEPOSITS. All funds of the Corporation shall be deposited
from time to time to the credit of the Corporation in such banks, trust
companies or other depositaries as the Board of Directors may from time to
time designate, or as may be designated by any officer or officers, employee
or employees or agent or agents of the Corporation to whom such power may be
delegated by the Board of Directors, and for the purpose of such deposit, any
officer or officers, employee or employees or agent or agents of the
Corporation as shall from time to time be determined by resolution of the
Board of

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<PAGE>
Directors, may endorse, assign and deliver checks, drafts and other orders
for the payment of money which are payable to the order of the Corporation.

SECTION 4. GENERAL AND SPECIAL BANK ACCOUNT. The Board of Directors may
from time to time authorize the opening and keeping with such banks, trust
companies or other depositaries as it may designate of general and special
bank accounts, and may make such special rules and regulations with respect
thereto, not inconsistent with the provisions of these By-laws, as it may
deem expedient.

SECTION 5. PROXIES. Except as otherwise in these By-laws or in the
Certificate of Incorporation of the Corporation provided, and unless
otherwise provided by resolution of the Board of Directors, the President may
from time to time appoint an attorney or attorneys, or agent or agents, of
the Corporation, in the name and on behalf of the Corporation, to cast the
votes which the Corporation may be entitled to cast as a stockholder or
otherwise in any other corporation any of whose stock or other securities may
be held by the Corporation, at meetings of the holders of the stock or other
securities of such other corporation, or to consent in writing to any action
by such other corporation, and may instruct the person or persons so
appointed as to the manner of casting such votes or giving such consent, and
may execute or cause to be executed in the name and on behalf of the
Corporation and under its corporate seal, or otherwise, all such written
proxies or other instruments as he may deem necessary or proper in the
premises.

ARTICLE V

SHARES AND THEIR TRANSFER

SECTION 1. CERTIFICATES OF STOCK. Certificates for shares of the capital
stock of the Corporation shall be in such form not inconsistent with law, as
shall be approved by the Board of Directors. They shall be numbered in order of
their issue, and shall be signed by the President, the Executive Vice President
or Vice President and the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary of the Corporation, and the seal of the Corporation
shall be affixed thereto, provided that where any such certificate is signed by
a transfer agent or an assistant transfer agent or by a transfer clerk acting on
behalf of the Corporation and by a registrar, if any, the signatures of any such
President, Executive Vice President, Vice President, Treasurer, Assistant
Treasurer, Secretary or Assistant Secretary and the seal of the Corporation upon
such certificate may be facsimiles. In case of any officer or officers who shall
have signed, or whose facsimile signature

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<PAGE>

or signatures shall have been used on any such certificate or certificates,
shall cease to be such officer or officers of the Corporation, whether because
of death, resignation or otherwise, before such certificate or certificates
shall have been delivered by the Corporation, such certificate or certificates
may nevertheless be adopted by the Corporation and be issued and delivered as
though the person or persons who signed such certificate or certificates or
whose facsimile signature shall have been used thereon had not ceased to be
such officer or officers of the Corporation.

SECTION 2. TRANSFER OF STOCK. Transfers of shares of the capital stock
of the Corporation shall be made only on the books of the Corporation by the
holder thereof, or by his attorney thereunto authorized by a power of attorney
duly executed and filed with the Secretary of the Corporation, or a transfer
agent of the Corporation, if any, and on surrender of the certificate or
certificates for such shares properly endorsed. A person in whose name shares of
stock stand on the books of the Corporation shall be deemed the owner thereof as
regards the Corporation and the Corporation shall not be bound to recognize any
equitable or other claim to, or interest in, such shares on the part of any
other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Delaware; provided that whenever any
transfer of shares shall be made for collateral security, and not absolutely,
such fact, if known to the Secretary or to said transfer agent, shall be so
expressed in the entry of transfer.

SECTION 3. ADDRESSES OF STOCKHOLDERS. Each stockholder shall designate
to the secretary of the Corporation an address at which notices of meetings
and all other corporate notices may be served or mailed to him, and if any
stockholder shall fail to designate such address, corporate notices may be
served upon him by mail directed to him at his last known post office address.

SECTION 4. LOST, DESTROYED AND MUTILATED CERTIFICATES. The holder or any
stock issued by the Corporation shall immediately notify the Corporation of
any loss, destruction or mutilation of the certificate therefor, or failing
to receive a certificate of stock issued by the Corporation, and the Board of
Directors or the Secretary of the Corporation may, in its or his discretion,
cause to be issued to him a new certificate or certificates of stock upon
compliance with such rules, regulations and/or procedure as may be
prescribed or have been prescribed by the Board of Directors with respect to
the issuance of new certificates in lieu of such lost, destroyed or mutilated
certificate or certificates of stock issued by the Corporation which are not
received.

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<PAGE>

SECTION 5. TRANSFER AGENT AND REGISTRAR; REGULATIONS. The Corporation
shall, if and whenever the Board of Directors shall so determine, maintain
one or more transfer offices or agencies, each in charge of a transfer agent
designated by the Board of Directors where the shares of the capital stock of
the Corporation shall be directly transferable, and also one or more registry
offices, each in charge of a registrar designated by the Board of Directors,
where such shares of stock shall be registered, and no certificate for shares
of the capital stock of the Corporation, in respect of which a Registrar
and/or Transfer Agent shall have been designated, shall be valid unless
countersigned by such Transfer Agent and registered by such Registrar, if
any. The Board of Directors shall also make such additional rules and
regulations as it may deem expedient concerning the issue, transfer and
registration of certificates for shares of the capital stock of the
Corporation.

SECTION 6. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In
order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
to express consent to corporation action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action, and such
stockholders and only such stockholders as shall be stockholders of record
on the date so fixed shall be entitled to such notice of, and to vote at,
such meeting and (except as provided in SECTION 4 of ARTICLE I hereof) any
adjournment therefor, or to express consent to any such corporate action, or
to receive payment of such dividend, or to receive such allotment of rights,
or to exercise such rights, as the case may be, notwithstanding any transfer
of any stock on the books of the Corporation after any such record date fixed
as aforesaid.

ARTICLE VI

SEAL

The Board of Directors shall provide a suitable seal containing the name
of the Corporation, which seal shall be in the charge of the Secretary and
which may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise. If and when so directed by the Board of
Directors a duplicate of the seal maybe kept and be used by any officer of
the Corporation designated by the Board.

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<PAGE>

ARTICLE VII

MISCELLANEOUS PROVISIONS

SECTION 1. FISCAL YEAR. The fiscal year of the Corporation shall end on
January 31 of each year unless otherwise provided by the Board of Directors
of the Corporation.

SECTION 2. WAIVERS OF NOTICE. Whenever any notice whatever is required to
be given by law, or under the provisions of the Certificate of Incorporation or
of these By-laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.

SECTION 3. QUALIFYING IN FOREIGN JURISDICTIONS. The directors shall have
the power at any time and from time to time to take or cause to be taken any and
all measures which they may deem necessary for qualification to do business as a
foreign corporation in any one or more foreign jurisdictions and for withdrawal
therefrom.

SECTION 4. INDEMNIFICATION. The Corporation shall, to the full extent
permitted by the General Corporation Law of Delaware and the Certificate of
Incorporation, in each case as amended from time to time, indemnify all persons
whom it has the power to indemnify pursuant thereto. Without limiting the
generality of the foregoing:

(a) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he
acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding
by judgement, order, settlement, conviction or upon a plea of NOLO
CONTENDERE or its equivalent, shall not, of itself, create a presumption
that person did not act in

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<PAGE>

good faith and in manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.

(b) The Corporation shall indemnify any person who was or is a party
or is threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably
entitled to indemnify for such expenses which the Court of Chancery or
such other court shall deem proper.

(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in paragraphs (a) and
(b), or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.

(d) Any indemnification under paragraphs (a) and (b) (unless ordered
by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has
met the applicable standard of conduct set forth in paragraphs (a) and
(b). Such determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties
to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors
so directs, by independent legal counsel in a written opinion, or (3) by
the stockholders.

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<PAGE>

(e) Expenses incurred by an officer or director is defending a civil
or criminal action, suit or proceeding shall be paid by the Corporation
in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that
he is not entitled to be indemnified by the Corporation as authorized in
this SECTION. Such expenses incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the Board of
Directors deems appropriate.

(f) The indemnification and advancement of expenses provided by or
granted pursuant to the paragraphs of this SECTION shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to
action in his official capacity and as to action in another capacity
while holding such office.

(g) The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by
him in any such capacity, or arising out of his status as such, whether
or not the Corporation would have the power to indemnify him against
such liability under the provisions of this SECTION.

(h) For purposes of this SECTION, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors,
officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or
is or was serving at the request of such constituent corporation as
a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in
the same position under the provisions of this SECTION with respect to
the resulting or surviving corporation as he would have with respect to
such constituent corporation if it separate existence had continued.

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<PAGE>

(i) For purposes of this SECTION, references to "other enterprises"
shall include employee benefit plans; reference to "fines" shall include
any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the
Corporation" shall include any service as a director, officer, employee
or agent of the Corporation which imposes duties on, or involves
services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a
person who acted in good faith and in a manner he reasonably believed to
be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to
the best interests of the Corporation" as referred to in this SECTION.

(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this SECTION shall, unless otherwise provided when
authorized or ratified, continue as to a person who had ceased to be a
director, officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such a person.

(k) No amendment to or repeal or modification of this Section 4 shall
adversely affect any right or protection of a director of a Corporation
existing at the time of such amendment, repeal or modification.

ARTICLE VIII

AMENDMENTS

All By-laws of the Corporation shall be subject to alteration or repeal,
and new By-laws not inconsistent with any provision of the Certificate of
Incorporation of the Corporation or any provision of law, may be made, either
by the affirmative vote of the holders of record of a majority of the
outstanding stock of the Corporation entitled to vote in respect thereof,
given at an annual meeting or at any special meeting, provided that notice of
the proposed alteration or repeal or of the proposed new By-laws be included
in the notice of such meeting, or by the Board of Directors at any regular or
special meeting.

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VARLEN CORPORATION

------------

VARLEN CORPORATION
PROFIT SHARING AND
RETIREMENT SAVINGS PLAN

------------

AS AMENDED AND RESTATED GENERALLY EFFECTIVE

JULY 1, 1994

<PAGE>

VARLEN CORPORATION PROFIT SHARING AND RETIREMENT SAVINGS PLAN
- -------------------------------------------------------------------------------

VARLEN CORPORATION established the VARLEN CORPORATION PROFIT SHARING AND
RETIREMENT SAVINGS PLAN (the "Plan") for the benefit of eligible employees of
the Company and its participating affiliates. The Plan is intended to
constitute a qualified profit sharing plan, as described in Code Section 401(a),
which includes a qualified cash or deferred arrangement, as described in Code
Section 401(k).

VARLEN CORPORATION originally established the Varlen Corporation Retirement
Security and Savings Plan and Trust effective as of January 1, 1986. Effective
December 1, 1992, the Varlen Corporation Retirement Security and Savings Plan
and Trust, the National Metalwares Profit Sharing Plan and Trust, the Precision
Scientific 401(k) Tax Deferred Savings Plan, the Precision Scientific Profit
Sharing Plan and the Consolidated Metco Profit Sharing and Retirement Savings
Plan were amended and restated into the VARLEN CORPORATION PROFIT SHARING AND
RETIREMENT SAVINGS PLAN and the VARLEN CORPORATION PROFIT SHARING AND RETIREMENT
SAVINGS TRUST. The Plan was also amended and restated effective August 1, 1993.

THE VARLEN CORPORATION PROFIT SHARING AND RETIREMENT SAVINGS PLAN, as set forth
in this document, is hereby generally effective as amended and restated as of
July 1, 1994, except to the extent that failure to retroactively make any
provision effective prior to July 1, 1994 would result in the VARLEN CORPORATION
PROFIT SHARING AND RETIREMENT SAVINGS PLAN (as it existed prior to July 1, 1994)
containing a disqualifying provision, as defined in Treas. Reg. SECTION 1.401
(b)-1(b)(2) (as modified by Rev. Proc. 89-65, Notice 90-73 and any other
subsequent publication modifying the term "disqualifying provision"), in which
case such provision (and any definitions pertinent to the application of such
provision) shall be retroactively effective to a date which will result in no
such disqualifying provision in the Plan prior to July 1, 1994.

- -C-Katten Muchin & Zavis 1994

<PAGE>

TABLE OF CONTENTS
- -------------------------------------------------------------------------------

PAGE

ARTICLE I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.1 "ACCOUNTING PERIOD". . . . . . . . . . . . . . . . . . . . 1

1.2 "ACCOUNTS" . . . . . . . . . . . . . . . . . . . . . . . . 1

1.3 "ACCRUED BENEFIT". . . . . . . . . . . . . . . . . . . . . 3

1.4 "APPENDIX" . . . . . . . . . . . . . . . . . . . . . . . . 3

1.5 "AUTHORIZED LEAVE OF ABSENCE". . . . . . . . . . . . . . . 3

1.6 "BENEFICIARY". . . . . . . . . . . . . . . . . . . . . . . 4

1.7 "BOARD OF DIRECTORS" OR "BOARD". . . . . . . . . . . . . . 4

1.8 "BREAK IN SERVICE" . . . . . . . . . . . . . . . . . . . . 4

1.9 "CHANGE DATE". . . . . . . . . . . . . . . . . . . . . . . 4

1.10 "COMMITTEE". . . . . . . . . . . . . . . . . . . . . . . . 4

1.11 "COMMONLY CONTROLLED ENTITY" . . . . . . . . . . . . . . . 4

1.12 "COMPANY". . . . . . . . . . . . . . . . . . . . . . . . . 4

1.13 "COMPANY STOCK". . . . . . . . . . . . . . . . . . . . . . 4

1.14 "COMPENSATION" . . . . . . . . . . . . . . . . . . . . . . 5

1.15 "COMPUTATION PERIOD" . . . . . . . . . . . . . . . . . . . 6

1.16 "CONTINUOUS SERVICE" . . . . . . . . . . . . . . . . . . . 6

1.17 "CONTRIBUTIONS". . . . . . . . . . . . . . . . . . . . . . 6

1.18 "CONTRIBUTION DOLLAR LIMIT". . . . . . . . . . . . . . . . 6

1.19 "CONTRIBUTION ELECTION" OR "ELECTION". . . . . . . . . . . 6

1.20 "CONTRIBUTION PERCENTAGE". . . . . . . . . . . . . . . . . 6

1.21 "CONVERSION ELECTION". . . . . . . . . . . . . . . . . . . 7

1.22 "CUSTODIAL AGREEMENT". . . . . . . . . . . . . . . . . . . 7

1.23 "CUSTODIAN". . . . . . . . . . . . . . . . . . . . . . . . 7

1.24 "DIRECT ROLLOVER". . . . . . . . . . . . . . . . . . . . . 7

1.25 "DISABILITY" OR "DISABLED" . . . . . . . . . . . . . . . . 7

1.26 "DISTRIBUTEE". . . . . . . . . . . . . . . . . . . . . . . 7

1.27 "EFFECTIVE DATE" . . . . . . . . . . . . . . . . . . . . . 7

1.28 "ELECTIVE DEFERRAL". . . . . . . . . . . . . . . . . . . . 7

1.29 "ELIGIBLE EMPLOYEE". . . . . . . . . . . . . . . . . . . . 7

1.30 "ELIGIBLE RETIREMENT PLAN" . . . . . . . . . . . . . . . . 8

1.31 "ELIGIBLE ROLLOVER DISTRIBUTION" . . . . . . . . . . . . . 8

1.32 "EMPLOYEE" . . . . . . . . . . . . . . . . . . . . . . . . 8

1.33 "EMPLOYER" . . . . . . . . . . . . . . . . . . . . . . . . 8

1.34 "EMPLOYMENT DATE". . . . . . . . . . . . . . . . . . . . . 8

1.35 "ERISA". . . . . . . . . . . . . . . . . . . . . . . . . . 8

1.36 "FAIR MARKET VALUE". . . . . . . . . . . . . . . . . . . . 9

1.37 "FAMILY MEMBER". . . . . . . . . . . . . . . . . . . . . . 9

1.38 "FORFEITURE" . . . . . . . . . . . . . . . . . . . . . . . 9

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1.39 "FORFEITURE ACCOUNT" . . . . . . . . . . . . . . . . . . . 9

1.40 "HIGHLY COMPENSATED ELIGIBLE EMPLOYEE" OR "HCE". . . . . . 9

1.41 "HOUR OF SERVICE". . . . . . . . . . . . . . . . . . . . . 11

1.42 "INTERNAL REVENUE CODE" OR "CODE". . . . . . . . . . . . . 12

1.43 "INVESTMENT ELECTION". . . . . . . . . . . . . . . . . . . 12

1.44 "INVESTMENT FUND" OR "FUND". . . . . . . . . . . . . . . . 12

1.45 "LIMITED DEFERRALS". . . . . . . . . . . . . . . . . . . . 12

1.46 "MATERNITY/PATERNITY ABSENCE". . . . . . . . . . . . . . . 12

1.47 "NAMED FIDUCIARY". . . . . . . . . . . . . . . . . . . . . 13

1.48 "NON-HIGHLY COMPENSATED EMPLOYEE" OR "NHCE". . . . . . . . 13

1.49 "NORMAL RETIREMENT DATE" . . . . . . . . . . . . . . . . . 13

1.50 "NOTICE DATE". . . . . . . . . . . . . . . . . . . . . . . 13

1.51 "PARTICIPANT". . . . . . . . . . . . . . . . . . . . . . . 13

1.52 "PAYMENT DATE" . . . . . . . . . . . . . . . . . . . . . . 13

1.53 "PERIOD OF SEVERANCE". . . . . . . . . . . . . . . . . . . 14

1.54 "PLAN" . . . . . . . . . . . . . . . . . . . . . . . . . . 14

1.55 "PLAN YEAR". . . . . . . . . . . . . . . . . . . . . . . . 14

1.56 "QDRO" . . . . . . . . . . . . . . . . . . . . . . . . . . 14

1.57 "QUALIFIED MATCHING CONTRIBUTION". . . . . . . . . . . . . 14

1.58 "RELATED PLAN" . . . . . . . . . . . . . . . . . . . . . . 14

1.59 "ROLLOVER CONTRIBUTION". . . . . . . . . . . . . . . . . . 14

1.60 "SETTLEMENT DATE". . . . . . . . . . . . . . . . . . . . . 14

1.61 "SPOUSAL CONSENT". . . . . . . . . . . . . . . . . . . . . 15

1.62 "SPOUSE" . . . . . . . . . . . . . . . . . . . . . . . . . 15

1.63 "SWEEP DATE" . . . . . . . . . . . . . . . . . . . . . . . 15

1.64 "TERMINATION OF EMPLOYMENT". . . . . . . . . . . . . . . . 15

1.65 "TRADE DATE" . . . . . . . . . . . . . . . . . . . . . . . 16

1.66 "TRUST". . . . . . . . . . . . . . . . . . . . . . . . . . 16

1.67 "TRUST AGREEMENT". . . . . . . . . . . . . . . . . . . . . 16

1.68 "TRUST FUND" . . . . . . . . . . . . . . . . . . . . . . . 16

1.69 "TRUSTEE". . . . . . . . . . . . . . . . . . . . . . . . . 16

1.70 "TRUSTEE TRANSFER" . . . . . . . . . . . . . . . . . . . . 16

1.71 "VALUATION DATE" . . . . . . . . . . . . . . . . . . . . . 16

1.72 "VESTING SERVICE". . . . . . . . . . . . . . . . . . . . . 16

1.73 "YEAR OF SERVICE". . . . . . . . . . . . . . . . . . . . . 17

ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

2.1 ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . . 18

2.2 REEMPLOYMENT . . . . . . . . . . . . . . . . . . . . . . . 18

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2.3 PARTICIPATION UPON CHANGE OF JOB STATUS. . . . . . . . . . 18

ARTICLE III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

PARTICIPANT CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . 19

3.1 PRO-TAX CONTRIBUTION ELECTION. . . . . . . . . . . . . . . 19

3.2 ELECTION PROCEDURES. . . . . . . . . . . . . . . . . . . . 19

3.3 LIMITATION OF ELECTIVE DEFERRALS FOR ALL PARTICIPANTS. . . 20

ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

EMPLOYER CONTRIBUTIONS AND ALLOCATIONS. . . . . . . . . . . . . . . 22

4.1 PRE-TAX CONTRIBUTIONS. . . . . . . . . . . . . . . . . . . 22

4.2 MATCHING CONTRIBUTIONS . . . . . . . . . . . . . . . . . . 22

4.3 SPECIAL CONTRIBUTIONS. . . . . . . . . . . . . . . . . . . 23

4.4 PROFIT SHARING CONTRIBUTIONS . . . . . . . . . . . . . . . 23

4.5 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . 24

ARTICLE V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

ROLLOVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

5.1 ROLLOVERS. . . . . . . . . . . . . . . . . . . . . . . . . 26

ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

ACCOUNTING FOR PARTICIPANTS'

ACCOUNTS AND FOR INVESTMENT FUNDS . . . . . . . . . . . . . . . . . 27

6.1 INDIVIDUAL PARTICIPANT ACCOUNTING. . . . . . . . . . . . . 27

6.2 ACCOUNTING FOR INVESTMENT FUNDS. . . . . . . . . . . . . . 28

6.3 ACCOUNTS FOR QDRO BENEFICIARIES. . . . . . . . . . . . . . 29

6.4 SPECIAL ACCOUNTING DURING CONVERSION PERIOD. . . . . . . . 30

ARTICLE VII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

INVESTMENT FUNDS AND ELECTIONS. . . . . . . . . . . . . . . . . . . 31

7.1 INVESTMENT FUNDS . . . . . . . . . . . . . . . . . . . . . 31

7.2 INVESTMENT OF CONTRIBUTIONS. . . . . . . . . . . . . . . . 31

7.3 INVESTMENT OF ACCOUNTS . . . . . . . . . . . . . . . . . . 32

7.4 ESTABLISHMENT OF INVESTMENT FUNDS. . . . . . . . . . . . . 32

7.5 TRANSITION RULES . . . . . . . . . . . . . . . . . . . . . 32

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ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

VESTING AND FORFEITURES . . . . . . . . . . . . . . . . . . . . . . 34

8.1 FULLY VESTED CONTRIBUTION ACCOUNTS . . . . . . . . . . . . 34

8.2 VESTING: PAYMENT OF ACCRUED BENEFIT ON OR AFTER

RETIREMENT OR DISABILITY . . . . . . . . . . . . . . . . . 34

8.3 VESTING SCHEDULE AND FORFEITURES . . . . . . . . . . . . . 34

8.4 FORFEITURES. . . . . . . . . . . . . . . . . . . . . . . . 35

8.5 FORFEITURE ACCOUNT . . . . . . . . . . . . . . . . . . . . 36

ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

PARTICIPANT LOANS . . . . . . . . . . . . . . . . . . . . . . . . . 37

9.1 PARTICIPANT LOANS PERMITTED. . . . . . . . . . . . . . . . 37

9.2 LOAN FUNDING LIMITS. . . . . . . . . . . . . . . . . . . . 37

9.3 MAXIMUM NUMBER OF LOANS. . . . . . . . . . . . . . . . . . 38

9.4 SOURCE OF LOAN FUNDING . . . . . . . . . . . . . . . . . . 38

9 5 INTEREST RATE. . . . . . . . . . . . . . . . . . . . . . . 38

9.6 REPAYMENT. . . . . . . . . . . . . . . . . . . . . . . . . 38

9.7 REPAYMENT HIERARCHY. . . . . . . . . . . . . . . . . . . . 38

9.8 LOAN APPLICATION, NOTE AND SECURITY. . . . . . . . . . . . 38

9.9 DEFAULT, SUSPENSION AND ACCELERATION . . . . . . . . . . . 39

ARTICLE X. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

IN-SERVICE WITHDRAWALS. . . . . . . . . . . . . . . . . . . . . . . 40

10.1 WITHDRAWALS FOR 401(k) HARDSHIP. . . . . . . . . . . . . . 40

10.2 ROLLOVER ACCOUNT WITHDRAWALS . . . . . . . . . . . . . . . 42

10.3 WITHDRAWALS FOR PARTICIPANTS OVER AGE 59 1/2 . . . . . . . 42

10.4 WITHDRAWAL PROCESSING. . . . . . . . . . . . . . . . . . . 42

ARTICLE XI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

DISTRIBUTIONS ON AND AFTER

TERMINATION OF EMPLOYMENT . . . . . . . . . . . . . . . . . . . . . 44

11.1 REQUEST FOR DISTRIBUTION OF BENEFITS . . . . . . . . . . . 44

11.2 DEADLINE FOR DISTRIBUTION. . . . . . . . . . . . . . . . . 44

11.3 PAYMENT FORM AND MEDIUM. . . . . . . . . . . . . . . . . . 45

11.4 SMALL AMOUNTS PAID IMMEDIATELY . . . . . . . . . . . . . . 45

11.5 PAYMENT WITHIN LIFE EXPECTANCY . . . . . . . . . . . . . . 45

11.6 INCIDENTAL BENEFIT RULE. . . . . . . . . . . . . . . . . . 45

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11.7 QJSA AND QPSA INFORMATION AND ELECTIONS. . . . . . . . . . 45

11.8 CONTINUED PAYMENT OF AMOUNTS IN PAYMENT STATUS ON

JANUARY 1, 1992. . . . . . . . . . . . . . . . . . . . . . 47

11.9 TEFRA TRANSITIONAL RULE. . . . . . . . . . . . . . . . . . 47

11.10 DIRECT ROLLOVER. . . . . . . . . . . . . . . . . . . . . . 48

ARTICLE XII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

DISTRIBUTION OF ACCRUED BENEFITS ON DEATH . . . . . . . . . . . . . 49

12.1 PAYMENT TO BENEFICIARY . . . . . . . . . . . . . . . . . . 49

12.2 BENEFICIARY DESIGNATION. . . . . . . . . . . . . . . . . . 49

12.3 BENEFIT ELECTION . . . . . . . . . . . . . . . . . . . . . 49

12.4 PAYMENT FORM . . . . . . . . . . . . . . . . . . . . . . . 50

12.5 TIME LIMIT FOR PAYMENT TO BENEFICIARY. . . . . . . . . . . 50

12.6 DIRECT ROLLOVER. . . . . . . . . . . . . . . . . . . . . . 51

12.7 QPSA INFORMATION AND ELECTION. . . . . . . . . . . . . . . 51

12.8 SMALL AMOUNTS PAID IMMEDIATELY . . . . . . . . . . . . . . 51

ARTICLE XIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

MAXIMUM CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . 52

13.1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . 52

13.2 AVOIDING AN ANNUAL EXCESS. . . . . . . . . . . . . . . . . 53

13.3 CORRECTING AN ANNUAL EXCESS. . . . . . . . . . . . . . . . 53

13.4 CORRECTING A MULTIPLE PLAN EXCESS. . . . . . . . . . . . . 54

13.5 TWO-PLAN LIMIT . . . . . . . . . . . . . . . . . . . . . . 54

13.6 SHORT PLAN YEAR. . . . . . . . . . . . . . . . . . . . . . 55

13.7 GRANDFATHERING OF APPLICABLE LIMITATIONS . . . . . . . . . 55

ARTICLE XIV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

ADP AND ACP TESTS . . . . . . . . . . . . . . . . . . . . . . . . . 56

14.1 CONTRIBUTION LIMITATION DEFINITIONS. . . . . . . . . . . . 56

14.2 ADP AND ACP TESTS. . . . . . . . . . . . . . . . . . . . . 57

14.3 CORRECTION OF ADP AND ACP TESTS. . . . . . . . . . . . . . 58

14.4 METHOD OF CALCULATION. . . . . . . . . . . . . . . . . . . 59

14.5 MULTIPLE USE TEST. . . . . . . . . . . . . . . . . . . . . 59

14.6 ADJUSTMENT FOR INVESTMENT GAIN OR LOSS . . . . . . . . . . 60

14.7 REQUIRED RECORDS . . . . . . . . . . . . . . . . . . . . . 60

14.8 INCORPORATION BY REFERENCE . . . . . . . . . . . . . . . . 61

14.9 COLLECTIVELY BARGAINED EMPLOYEES . . . . . . . . . . . . . 61

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14.10 QSLOB. . . . . . . . . . . . . . . . . . . . . . . . . . . 61

ARTICLE XV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

CUSTODIAL ARRANGEMENTS. . . . . . . . . . . . . . . . . . . . . . . 62

15.1 CUSTODIAL AGREEMENT. . . . . . . . . . . . . . . . . . . . 62

15.2 SELECTION OF CUSTODIAN . . . . . . . . . . . . . . . . . . 62

15.3 CUSTODIAN'S DUTIES . . . . . . . . . . . . . . . . . . . . 62

15.4 SEPARATE ENTITY. . . . . . . . . . . . . . . . . . . . . . 62

15.5 PLAN ASSET VALUATION . . . . . . . . . . . . . . . . . . . 63

15.6 RIGHT OF EMPLOYERS TO PLAN ASSETS. . . . . . . . . . . . . 63

ARTICLE XVI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

ADMINISTRATION AND INVESTMENT MANAGEMENT. . . . . . . . . . . . . . 64

16.1 AUTHORITY AND RESPONSIBILITY OF THE BOARD OF DIRECTORS . . 64

16 2 COMMITTEE MEMBERSHIP . . . . . . . . . . . . . . . . . . . 64

16.3 COMMITTEE STRUCTURE. . . . . . . . . . . . . . . . . . . . 64

16.4 COMMITTEE ACTIONS. . . . . . . . . . . . . . . . . . . . . 64

16.5 COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . 65

16.6 RESPONSIBILITY AND AUTHORITY OF THE COMMITTEE

REGARDING ADMINISTRATION OF THE PLAN . . . . . . . . . . . 65

16.7 ALLOCATIONS AND DELEGATIONS OF RESPONSIBILITY. . . . . . . 66

16.8 COMMITTEE BONDING. . . . . . . . . . . . . . . . . . . . . 66

16.9 INFORMATION TO BE SUPPLIED BY EMPLOYER . . . . . . . . . . 66

16.10 RECORDS. . . . . . . . . . . . . . . . . . . . . . . . . . 67

16.11 PLAN EXPENSES. . . . . . . . . . . . . . . . . . . . . . . 67

16.12 FIDUCIARY CAPACITY . . . . . . . . . . . . . . . . . . . . 67

16.13 EMPLOYER'S AGENT . . . . . . . . . . . . . . . . . . . . . 67

16.14 PLAN ADMINISTRATOR . . . . . . . . . . . . . . . . . . . . 67

16.15 APPOINTMENT OF RECORD-KEEPER . . . . . . . . . . . . . . . 67

16.16 PLAN ADMINISTRATOR DUTIES AND AUTHORITY. . . . . . . . . . 68

16.17 COMMITTEE DECISIONS FINAL. . . . . . . . . . . . . . . . . 69

ARTICLE XVII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

CLAIMS PROCEDURE. . . . . . . . . . . . . . . . . . . . . . . . . . 70

17.1 INITIAL CLAIM FOR BENEFITS . . . . . . . . . . . . . . . . 70

17.2 REVIEW OF CLAIM DENIAL . . . . . . . . . . . . . . . . . . 70

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ARTICLE XVIII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

ADOPTION AND WITHDRAWAL FROM PLAN . . . . . . . . . . . . . . . . . 72

18.1 PROCEDURE FOR ADOPTION . . . . . . . . . . . . . . . . . . 72

18.2 PROCEDURE FOR WITHDRAWAL . . . . . . . . . . . . . . . . . 72

ARTICLE XIX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

AMENDMENT, TERMINATION AND MERGER . . . . . . . . . . . . . . . . . 73

19.1 AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . 73

19.2 PLAN TERMINATION . . . . . . . . . . . . . . . . . . . . . 74

19.3 PLAN MERGER. . . . . . . . . . . . . . . . . . . . . . . . 75

ARTICLE XX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

SPECIAL TOP-HEAVY RULES . . . . . . . . . . . . . . . . . . . . . . 76

20.1 APPLICATION. . . . . . . . . . . . . . . . . . . . . . . . 76

20.2 SPECIAL TERMS. . . . . . . . . . . . . . . . . . . . . . . 76

20.3 MINIMUM CONTRIBUTION . . . . . . . . . . . . . . . . . . . 80

20.4 MAXIMUM BENEFIT ACCRUAL. . . . . . . . . . . . . . . . . . 80

ARTICLE XXI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . . . . . 81

21.1 ASSIGNMENT AND ALIENATION. . . . . . . . . . . . . . . . . 81

21.2 PROTECTED BENEFITS . . . . . . . . . . . . . . . . . . . . 81

21.3 PLAN DOES NOT AFFECT EMPLOYMENT RIGHTS . . . . . . . . . . 81

21.4 DEDUCTION OF TAXES FROM AMOUNTS PAYABLE. . . . . . . . . . 81

21.5 FACILITY OF PAYMENT. . . . . . . . . . . . . . . . . . . . 81

21.6 SOURCE OF BENEFITS . . . . . . . . . . . . . . . . . . . . 82

21.7 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . 82

21.8 REDUCTION FOR OVERPAYMENT. . . . . . . . . . . . . . . . . 82

21.9 LIMITATION ON LIABILITY. . . . . . . . . . . . . . . . . . 82

21.10 COMPANY MERGER . . . . . . . . . . . . . . . . . . . . . . 82

21.11 EMPLOYEES' TRUST . . . . . . . . . . . . . . . . . . . . . 82

21.12 GENDER AND NUMBER. . . . . . . . . . . . . . . . . . . . . 83

21.13 INVALIDITY OF CERTAIN PROVISIONS . . . . . . . . . . . . . 83

21.14 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . 83

21.15 UNIFORM AND NONDISCRIMINATORY TREATMENT. . . . . . . . . . 83

21.16 LAW GOVERNING. . . . . . . . . . . . . . . . . . . . . . . 83

21.17 NOTICE AND INFORMATION REQUIREMENTS. . . . . . . . . . . . 83

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ARTICLE I
- -------------------------------------------------------------------------------

DEFINITIONS

The following sections of this Article I provide basic definitions of terms
used throughout the Plan, and whenever used herein in a capitalized form,
except as otherwise expressly provided, the terms shall be deemed to have the
following meanings:

1.1 "ACCOUNTING PERIOD" means the periods designated by the Committee
with respect to each Investment Fund not to exceed one year in duration.

1.2 "ACCOUNTS" means the record of a Participant's interest in the Plan's
assets represented by his or her:

(a) "MATCHING ACCOUNT" which means a Participant's interest in the
Plan's assets composed of Matching Contributions allocated on or after July
1, 1994 to the Participant under the Plan, the amount allocated under the
VARLEN CORPORATION PROFIT SHARING AND RETIREMENT SAVINGS PLAN or the
NATIONAL METALWARES PROFIT SHARING PLAN AND TRUST, THE PRECISION SCIENTIFIC
401(k) TAX DEFERRED SAVINGS PLAN, THE PRECISION SCIENTIFIC PROFIT SHARING
PLAN, THE MEANS STAMPING INDUSTRIES, INC. RETIREMENT PLAN OR THE
CONSOLIDATED METCO PROFIT SHARING AND RETIREMENT SAVINGS PLAN prior to
July 1, 1994, if any, under the former provisions of the Plan or the
NATIONAL METALWARES PROFIT SHARING PLAN AND TRUST, THE PRECISION SCIENTIFIC
401(k) TAX DEFERRED SAVINGS PLAN, THE PRECISION SCIENTIFIC PROFIT SHARING
PLAN, THE MEANS STAMPING INDUSTRIES, INC. RETIREMENT PLAN OR THE
CONSOLIDATED METCO PROFIT SHARING AND RETIREMENT SAVINGS PLAN (as
identified by the Committee) which continue to be accounted for under the
Plan, plus all income and gains credited to, and minus all losses,
expenses, withdrawals and distributions charged to, such Account.

(b) "EMPLOYER ACCOUNT" which means a Participant's interest in the
Plan's assets composed of Profit Sharing Contributions allocated on or
after July 1, 1994 to the Participant under the Plan, the amount allocated
under the VARLEN CORPORATION PROFIT SHARING AND RETIREMENT SAVINGS PLAN or
the NATIONAL METALWARES PROFIT SHARING PLAN AND TRUST, THE PRECISION
SCIENTIFIC 401(k) TAX DEFERRED SAVINGS PLAN, THE PRECISION SCIENTIFIC
PROFIT SHARING PLAN, THE MEANS STAMPING INDUSTRIES, INC. RETIREMENT PLAN OR
THE CONSOLIDATED METCO PROFIT SHARING AND RETIREMENT SAVINGS PLAN prior to
July 1, 1994, if any, under the former provisions of the Plan or the
NATIONAL METALWARES PROFIT SHARING PLAN AND TRUST, THE PRECISION SCIENTIFIC
401(k) TAX DEFERRED SAVINGS PLAN, THE PRECISION SCIENTIFIC PROFIT SHARING
PLAN, THE MEANS STAMPING INDUSTRIES, INC. RETIREMENT PLAN OR THE
CONSOLIDATED METCO PROFIT SHARING AND RETIREMENT SAVINGS PLAN (as

- 1 -

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identified by the Committee) which continue to be accounted for under the
Plan, plus all income and gains credited to, and minus all losses,
expenses, withdrawals and distributions charged to, such Account.

(c) "POST-TAX ACCOUNT" which means a Participant's interest in the
Plan's assets composed of post-tax contributions allocated under the VARLEN
CORPORATION PROFIT SHARING AND RETIREMENT SAVINGS PLAN OR THE NATIONAL
METALWARES PROFIT SHARING PLAN AND TRUST, THE PRECISION SCIENTIFIC 401(k)
TAX DEFERRED SAVINGS PLAN, THE PRECISION SCIENTIFIC PROFIT SHARING PLAN,
THE MEANS, STAMPING INDUSTRIES, INC. RETIREMENT PLAN OR THE CONSOLIDATED
METCO PROFIT SHARING AND RETIREMENT SAVINGS PLAN prior to July 1, 1994, if
any, under the former provisions of the Plan or the NATIONAL METALWARES
PROFIT SHARING PLAN AND TRUST, THE PRECISION SCIENTIFIC 401(k) TAX DEFERRED
SAVINGS PLAN, THE PRECISION SCIENTIFIC PROFIT SHARING PLAN, THE MEANS
STAMPING INDUSTRIES, INC. RETIREMENT PLAN OR THE CONSOLIDATED METCO PROFIT
SHARING AND RETIREMENT SAVINGS PLAN (as identified by the Committee) which
continue to be accounted for under the Plan, plus all income and gains
credited to, and minus all losses, expenses, withdrawals and distributions
charged to, such Account.

(d) "PRE-TAX ACCOUNT" which means a Participant's interest in the
Plan's assets composed of Pre-Tax Contributions allocated on or after July
1, 1994 to the Participant under The Plan, the amount allocated under the
VARLEN CORPORATION PROFIT SHARING AND RETIREMENT SAVINGS PLAN OR THE
NATIONAL METALWARES PROFIT SHARING PLAN AND TRUST, THE PRECISION SCIENTIFIC
401(k) TAX DEFERRED SAVINGS PLAN, THE PRECISION SCIENTIFIC PROFIT SHARING
PLAN, THE MEANS STAMPING INDUSTRIES, INC. RETIREMENT PLAN OR THE
CONSOLIDATED METCO PROFIT SHARING AND RETIREMENT SAVINGS PLAN prior to July
1, 1994, if any, under the former provisions of the Plan or the NATIONAL
METALWARES PROFIT SHARING PLAN AND TRUST, THE PRECISION SCIENTIFIC 401(k)
TAX DEFERRED SAVINGS PLAN, THE PRECISION SCIENTIFIC PROFIT SHARING PLAN,
THE MEANS STAMPING INDUSTRIES, INC. RETIREMENT PLAN OR THE CONSOLIDATED
METCO PROFIT SHARING AND RETIREMENT SAVINGS PLAN (as identified by the
Committee) which continue to be accounted for under the Plan, plus all
income and gains credited to, and minus all losses, expenses, withdrawals
and distributions charged to, such Account.

(e) "ROLLOVER ACCOUNT" which means a Participant's interest in the
Plan's assets composed of Rollover Contributions allocated on or after July
1, 1994 allocated to the Participant under the Plan, the amount allocated
under the VARLEN CORPORATION PROFIT SHARING AND RETIREMENT SAVINGS PLAN OR
THE NATIONAL METALWARES PROFIT SHARING PLAN AND TRUST, THE PRECISION
SCIENTIFIC 401(k) TAX DEFERRED SAVINGS PLAN, THE PRECISION SCIENTIFIC
PROFIT SHARING PLAN, THE MEANS STAMPING INDUSTRIES, INC. RETIREMENT PLAN OR
THE CONSOLIDATED METCO PROFIT SHARING AND RETIREMENT SAVINGS PLAN prior to
July 1, 1994, if any, under the former provisions of the Plan or the
NATIONAL METALWARES PROFIT SHARING PLAN

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AND TRUST, THE PRECISION SCIENTIFIC 401(k) TAX DEFERRED SAVINGS PLAN, THE
PRECISION SCIENTIFIC PROFIT SHARING PLAN, THE MEANS STAMPING INDUSTRIES,
INC. RETIREMENT PLAN OR THE CONSOLIDATED METCO PROFIT SHARING AND
RETIREMENT SAVINGS PLAN (as identified by the Committee) which continue to
be accounted for under the Plan, plus all income and gains credited to, and
minus all losses, expenses, withdrawals and distributions charged to, such
Account.

(f) "SPECIAL ACCOUNT" which means a Participant's interest in the
Plan's assets composed of Special Contributions allocated on or after July
1, 1994 allocated to the Participant under the Plan, the amount allocated
under the VARLEN CORPORATION PROFIT SHARING AND RETIREMENT SAVINGS PLAN OR
THE NATIONAL METALWARES PROFIT SHARING PLAN AND TRUST, THE PRECISION
SCIENTIFIC 401(k) TAX DEFERRED SAVINGS PLAN, THE PRECISION SCIENTIFIC
PROFIT SHARING PLAN, THE MEANS STAMPING INDUSTRIES, INC. RETIREMENT PLAN OR
THE CONSOLIDATED METCO PROFIT SHARING AND RETIREMENT SAVINGS PLAN prior to
July 1, 1994, if any, under the former provisions of the Plan or the
NATIONAL METALWARES PROFIT SHARING PLAN AND TRUST, THE PRECISION SCIENTIFIC
401(k) TAX DEFERRED SAVINGS PLAN, THE PRECISION SCIENTIFIC PROFIT SHARING
PLAN, THE MEANS STAMPING INDUSTRIES, INC. RETIREMENT PLAN OR THE
CONSOLIDATED METCO PROFIT SHARING AND RETIREMENT SAVINGS PLAN (as
identified by the Committee) which continue to be accounted for under the
Plan, plus all income and gains credited to, and minus all losses,
expenses, withdrawals and distributions charged to, such Account.

1.3 "ACCRUED BENEFIT" means the shares held in or posted to Accounts on
the Settlement Date.

1.4 "APPENDIX" means a written supplement attached to this Plan and made
a part hereof which has been added in accordance with the provisions of the
Plan.

1.5 "AUTHORIZED LEAVE OF ABSENCE" means an absence, with or without
Compensation, authorized on a nondiscriminatory basis by a Commonly Controlled
Entity under its standard personnel practices applicable to the Employee,
including any period of Time during which such person is covered by a short-term
disability plan of his or her Employer. An Employee who leaves the service of a
Commonly Controlled Entity to enter the Armed Forces of the United States of
America and who reenters the service of the Commonly Controlled Entity with
reemployment rights under any statute granting reemployment rights to persons in
the Armed Forces shall be deemed to have been on an Authorized Leave of Absence.
The date that an Employee's Authorized Leave of Absence ends shall be determined
in accordance with the personnel policies of such Commonly Controlled Entity,
which ending date shall be no earlier than the date That the Authorized Leave of
Absence is scheduled to end, unless the Employee communicates to such Commonly
Controlled Entity That he or she is to have a Termination of Employment as of an
earlier date.

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1.6 "BENEFICIARY" means any person designated by a Participant to receive
any benefits which shall be payable with respect to the death of a Participant
under ' the Plan or as a result of a QDRO.

1.7 "BOARD OF DIRECTORS" OR "BOARD" means the board of directors of the
Company.

1.8 "BREAK IN SERVICE" means:

(a) with respect to Continuous Service, the fifth anniversary (or sixth
anniversary if absence from employment was due to a Maternity/Paternity Absence)
of the date of the Participant's termination of employment; and

(b) with respect to Computation Periods, the end of 5 consecutive
Computation Periods (or 6 consecutive Computation Periods if absence from
employment was due to a Maternity/Paternity Absence) for which a Participant is
credited with less than 501 Hours of Service.

1.9 "CHANGE DATE" means the one or more dates during the Plan Year
designated by the Committee as the dates available for implementing or changing
a Participant's Contribution Election.

1.10 "COMMITTEE" means the committee appointed pursuant to the terms of
the Plan to manage and control the operation and administration of the Plan.

1.11 "COMMONLY CONTROLLED ENTITY" means (1) an Employer and any
corporation, trade or business, but only for so long as it and the Employer are
members of a controlled group of corporations as defined in Section 414(b) of
the Code or under common control as defined in Section 414(c) of the Code;
provided, however, that solely for purposes of the limitations of Code Section
415, the standard of control under Sections 414(b) and 414(c) of the Code shall
be deemed to be "more than 50%" rather than "at least 80%," (2) an Employer and
an organization, but only for so long as it and the Employer are, on and after
the Effective Date, members of an affiliated service group as defined in Section
414(m) of the Code, (3) an Employer and an organization, but only for so long as
the employees of it and the Employer are required to be aggregated, on and after
the Effective Date, under Section 414(o) of the Code, or (4) any other
organization designated as such by the Committee.

1.12 "COMPANY" means VARLEN CORPORATION or any successor corporation by
merger, consolidation, purchase, or otherwise, which elects to adopt the Plan
and the Trust.

1.13 "COMPANY STOCK" means common stock issued by VARLEN CORPORATION.

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1.14 "COMPENSATION" means:

(a) for purposes of allocating Contributions, base pay, overtime,
shift differential, commissions, bonuses and short-term disability
payments; But excluding reimbursements or other expense allowances and
fringe benefits paid to an Eligible Employee by an Employer;

(b) for purposes of applying Section 415 of the Code to the Plan and
its Participants for any limitation year, such compensation as determined
by the CommiTtee and satisfying the definition of compensation under
Section 415 of the Code; and

(c) for any determination period with respect to an applicable
provision of the Code other than Section 415, such compensation as
determined by the CommiTtee and which satisfies the requirements of Section
414(s) of the Code.

Notwithstanding the foregoing provisions, Compensation shall include elective
amounts excludible from gross income under Code Sections 125 and 402(e)(3).

In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not-exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding
twelve (12) months, over which Compensation is determined (determination period)
beginning in such calendar year. If a determination period consists of fewer
than twelve (12) months, the OBRA '93 annual compensation limit will be
multiplied by a fraction, the numerator of which is the number of months in the
determination period, and the denominator of which is 12.

For Plan Years beginning on or after January 1, 1994, any reference in this
Plan to the limitation under section 401(a)(17) of the Code shall mean the OBRA
'93 annual compensation limit set forth in this provision.

If Compensation for any prior determination period is taken into account in
determining an Employee's benefits accruing in the current Plan Year, the
Compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.

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1.15 "COMPUTATION PERIOD" means with respect to Vesting Service and any
Break in Service with respect to Vesting Service, the twelve (12) consecutive
month period commencing with the Employee's Employment Date and anniversaries of
his Employment Date (or if Vesting Service is disregarded due to the occurrence
of a Break in Service, the Employment Date thereafter).

1.16 "CONTINUOUS SERVICE" means the sum of the years (and fractions of
years) measured from an Employee's Employment Date to his or her date of
Termination of Employment first to occur after his or her Employment Date;
provided, that if an Employee has a Period of Severance of less than twelve (12)
consecutive months after a Termination of Employment, such Termination of
Employment shall be disregarded and such Employee's Continuous Service shall
include such period when he or she is not employed by a Commonly Controlled
Entity.

1.17 "CONTRIBUTIONS" means amounts contributed to the Plan by the Employer
on behalf of a Participant. Specific types of contributions include:

(a) "MATCHING". An amount contributed by the Employer based upon
the amount contributed by the eligible Participant.

(b) "PRE-TAX". An amount contributed on a pre-tax basis in
conjunction with a Participant's Code Section 401(k) salary
deferral agreement.

(d) "SPECIAL". An amount contributed by the Employer to avoid
prohibited discrimination under Section 401 (a)(4) of the Code.

1.18 "CONTRIBUTION DOLLAR LIMIT" means the annual limit imposed on each
Participant pursuant to Section 402(g) of the Code, which shall be seven
thousand dollars ($7,000) per calendar year (as indexed for cost of living
adjustments pursuant to Code Section 402(g)(5) and 415(d)).

1.19 "CONTRIBUTION ELECTION" OR "ELECTION" means the election made by a
Participant to reduce his or her Compensation by an amount equal to the product
of his or her Contribution Percentage and such Compensation subject to the
Contribution Election.

1.20 "CONTRIBUTION PERCENTAGE" means the percentage of a Participant's
Compensation which is to be contributed to the Plan by his or her Employer as a
Contribution.

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1.21 "CONVERSION ELECTION" means an election by a Participant to change
the investment of all or some specified portion of such Participant's Accounts
by voice response to the telephone number provided by the Named Fiduciary to
whom it is spoken, or on such form that may be required by the Named Fiduciary
to whom it is delivered. No Conversion Election shall be deemed to have been
given to the Named Fiduciary unless it is complete and delivered in accordance
with the procedures established by such Named Fiduciary for this purpose.

1.22 "CUSTODIAL AGREEMENT" means the Trust Agreement or an insurance
contract to provide for the holding of the assets of the Plan.

1.23 "CUSTODIAN" means the Trustee or an insurance company if the contract
issued by such company is not held by the Trustee.

1.24 "DIRECT ROLLOVER" means a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.

1.25 "DISABILITY" OR "DISABLED" means permanent and total disability
within the meaning of Section 22(e)(3) of the Code.

1.26 "DISTRIBUTEE" includes an Employee or former Employee. In addition,
the Employee's or former Employee's surviving Spouse and the Employee's or
former Employee's Spouse or former Spouse who is the alternate payee under a
QDRO are Distributees with regard to the interest of the Spouse or former
Spouse.

1.27 "EFFECTIVE DATE" means July 1, 1994, the date upon which the
provisions of this document become effective. In general, the provisions of
this document only apply to Participants who are Employees on or after the
Effective Date. However, investment and distribution provisions apply to all
Participants with Account balances to be invested or distributed after the
Effective Date.

1.28 "ELECTIVE DEFERRAL" means amounts subject to the Contribution Dollar
Limit.

1.29 "ELIGIBLE EMPLOYEE" means any Employee (including an Employee on an
Authorized Leave of Absence) of an Employer on and after the Effective Date of
the adoption of this Plan by the Employer, excluding any Employee:

(a) who is a member of a group of Employees represented by a
collective bargaining representative, unless a currently effective
collective bargaining agreement between his or her Employer and the
collective bargaining representative of the group of Employees of which he
or she is a member provides for coverage by the Plan or is included in
Appendix B; and

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<PAGE>

(b) who is considered an Employee solely because of the application
of Section 414(n) of the Code.

1.30 "ELIGIBLE RETIREMENT PLAN" means an individual retirement account
described in section 408(a) of the Code, an individual retirement annuity
described in section 408(b) of the Code, an annuity plan described in section
403(a) of the Code, or a qualified trust described in section 401(a) of the
Code, that accepts the Distributee's Eligible Rollover Distribution. However,
in the case of an Eligible Rollover Distribution to the surviving Spouse, an
Eligible Retirement Plan is an individual, retirement account or individual
retirement annuity.

1.31 "ELIGIBLE ROLLOVER DISTRIBUTION" means any distribution of all or any
portion of the balance to the credit of the Distributee, except that an eligible
rollover distribution does not include any distribution that is one of a series
of substantially equal periodic payments (not less frequently than annually)
made for the life (or life expectancy) of the Distributee or the joint lives (or
joint life expectancies) of the Distributee and the Distributee's designated
Beneficiary, or for a specified period of ten years or more; any distribution to
the extent such distribution is required under section 401(a)(9) of the Code;
and the portion any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized appreciation with
respect to employer securities).

1.32 "EMPLOYEE" means any person who rendered services as a common law
employee to a Commonly Controlled Entity or is on an Authorized Leave of
Absence, including the period of time before which the trade or business became
a Commonly Controlled Entity, but excluding the period of time after which it
ceases to be a Commonly Controlled Entity. Any individual considered an
Employee of a Commonly Controlled Entity under Section 414(n) of the Code shall
be deemed employed by the Commonly Controlled Entity for which the individual
performed services.

1.33 "EMPLOYER" means the Company and any Commonly Controlled Entity which
has adopted the Plan; provided, that an entity will cease to be an Employer when
it ceases to be a Commonly Controlled Entity.

1.34 "EMPLOYMENT DATE" means the day an Employee first earns an Hour of
Service; provided, however, with respect to an Employee who incurs a Period of
Severance on or after December 1, 1992 of twelve (12) consecutive months or
more, the Employment Date for such Employee shall be adjusted forward in time by
a period of days equal to the number of days in the Period of Severance.

1.35 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended. Reference to any specific section shall include such section, any valid
regulation promulgated thereunder, and any comparable provision of any future
legislation amending, supplementing or superseding such section.

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<PAGE>

1.36 "FAIR MARKET VALUE" means:

(a) with respect to a security for which there is a generally
recognized market, the price of the security prevailing on a national
securities exchange which is registered under Section 6 of the Securities
Act of 1934;

(b) unless determined otherwise by the Committee, with respect to
any guaranteed income contract, the value reported by the issuing company
or bank;

(d) for any other asset, the fair market value of the asset, as
determined in good faith by the Trustee or the Committee in accordance with
regulations promulgated under Section 3(18) of ERISA.

1.37 "FAMILY MEMBER" shall mean an individual described in Code Section
414(q)(6)(B).

1.38 "FORFEITURE" means the portion of the Participant's Accrued Benefit
which is forfeited pursuant to the terms of the Plan.

1.39 "FORFEITURE ACCOUNT" means an account holding amounts forfeited by
Participants.

1.40 "HIGHLY COMPENSATED ELIGIBLE EMPLOYEE" OR "HCE" means a highly
compensated active employee or a highly compensated former employee.

A highly compensated active employee includes any Employee who performs
service for the Employer during the determination year and who, during the look-
back year: (i) received Compensation from the Employer in excess of $75,000
(as adjusted pursuant to Section 415(d) of the Code); (ii) received Compensation
from the Employer in excess of $50,000 (as adjusted pursuant to Section 415(d)
of the Code) and was a member of the top-paid group for such year; or (iii) was
an officer of the Employer and received Compensation during such year that is
greater than 50 percent of the dollar limitation in effect under Section 415
(b)(1)(A) of the Code. The term highly compensated active employee also
includes: (i) Employees who are both described in the preceding sentence if the
term "determination year" is substituted for the term "look-back year" and the
Employee is one of the 100 Employees who received the most Compensation from the
Employer during the determination year; and (ii) Employees who are 5-percent
owners at any time during the look-back year or determination year.

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If no officer has satisfied the Compensation requirement of (iii) above
during either a determination year or look-back year, the highest paid officer
for such year shall be treated as a highly compensated active employee.

For this purpose, the determination year shall be the Plan Year. The
look-back year shall be the twelve-month period immediately preceding the
determination year. Pursuant to Code Section 414(q), the Committee may elect
for the look-back year to be the calendar year ending with or within the
applicable Plan Year determination year.

If the Employer at all times during the Plan Year maintains significant
business activities (and employs Employees in such activities) in at least two
significantly separate geographic areas and satisfies such other conditions as
the Secretary of the Treasury may prescribe, the Committee may elect to apply a
simplified definition of Highly Compensated Employee under the Plan by
substituting "$50,000" for "$75,000" in paragraph (i) above, and disregarding
paragraph (ii) above.

An Employee who performs services for the Employer any time during the year
is in the top-paid group of Employees for any year if such Employee is in the
group consisting of the top 20% of the Employees when ranked on the basis of
Compensation paid during such year. For purposes of determining the number of
Employees in the top-paid group (but not for identifying the particular
Employees in the top-paid group), the following Employees shall be excluded:

(i) Employees who have not completed six (6) months of service;

(ii) Employees who normally work less than seventeen and one-half
(17 1/2,) Hours of Service;

(iii) Employees who normally work not more than six (6) months during
any year;

(iv) Employees who have not attained age twenty-one (21);

(v) Employees who are included in a unit of Employees covered by a
bona fide collective bargaining agreement with the Employer; and

(vi) Employees who are nonresident aliens and who receive no earned
income (within the meaning of Section 911(d)(2) of the Code) from the Employer
which constitutes income from sources within the United States (within the
meaning of Section 861 (a)(3) of the Code).

The Committee may elect to apply paragraph (i), (ii) or (iv) of this Section by
substituting a shorter period of service, smaller number of hours or months, or
lower age for that specified in such subparagraphs.

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<PAGE>

A highly compensated former employee includes any Employee who separated
from service (or was deemed to have separated) prior to the determination year,
performs no service for the Employer during the determination year, and was a
Highly Compensated Employee for either the separation year or any determination
year ending on or after the Employee's 55th birthday. If a former Employee
separated from service with the Employer prior to January 1, 1987, and the
Committee irrevocably elects to apply this special rule, he is a Highly
Compensated Employee only if he or she was described in any one or more of the
following groups during either the Employee's separation year (or the year
preceding such separation year) or any year ending on or after such individual's
55th birthday (or the last year ending before such Employee's 55th birthday):

(i) 5-PERCENT OWNER. The Employee was a 5-percent owner of the
Employer at any time during the year.

(ii) COMPENSATION AMOUNT. The Employee received Compensation in
excess of $50,000 during the year.

The determination of who is a Highly Compensated Employee, including the
determination of the number and identity of Employees in the top-paid group, the
top 100 Employees, the number of Employees treated as officers and the
Compensation that is considered, will be made in accordance with Section 414(q)
of the Code and the regulations thereunder.

1.41 "HOUR OF SERVICE" means each hour for which an Employee is directly
or indirectly paid or entitled to payment by a Commonly Controlled Entity for
the performance of duties each hour for which an Employee is entitled to:

(a) payment for the performance of duties for any Commonly
Controlled Entity;

(b) payment from any Commonly Controlled Entity for any period
during which no duties are performed (irrespective of whether the
employment relationship has terminated) due to vacation, holiday, sickness,
incapacity (including disability), layoff, leave of absence, jury duty or
military service;

(c) back pay, irrespective of mitigation of damages, by award or
agreement with any Commonly Controlled Company (and these hours shall be
credited to the period to which the agreement pertains); or

(d) no payment, but is on an Authorized Leave of Absence (and these
hours shall be based upon his or her normally scheduled hours per week or a
40 hour week if there is no regular schedule).

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The crediting of hours shall be made in accordance with Department of Labor
regulation section 2530.200b-2 and 3. Actual hours shall be used whenever an
accurate record of hours are maintained for an Employee.

1.42 "INTERNAL REVENUE CODE" OR "CODE" means the Internal Revenue Code of
1986, as amended, any subsequent Internal Revenue Code and final Treasury
Regulations. If there is a subsequent Internal Revenue Code, any references
herein to Internal Revenue Code sections shall be deemed to refer to comparable
sections of any subsequent Internal Revenue Code.

1.43 "INVESTMENT ELECTION" means an election by which a Participant directs
the investment of his or her Contributions by voice response to the telephone
number provided by the Named Fiduciary to whom it is spoken, or on such form
that may be required by the Named Fiduciary to whom it is delivered. No
Investment Election shall be deemed to have been given to the Named Fiduciary
unless it is complete and delivered in accordance with the procedures
established by such Named Fiduciary for this purpose.

1.44 "INVESTMENT FUND" OR "FUND" means one or more collective investment
funds, a pool of assets, or deposits with the Custodian, a mutual fund,
insurance contract, or managed pool of assets. The Investment Funds authorized
by the Committee are listed in Appendix A.

1.45 "LIMITED DEFERRALS" means Elective Deferrals subject to the limits of
Code Section 401(a)(30).

1.46 "MATERNITY/PATERNITY ABSENCE" means a paid or unpaid and unapproved
absence from employment with a Commonly Controlled Entity (1) by reason of the
pregnancy of the Employee; (2) by reason of the birth of a child of the
Employee; (3) by reason of the placement of a child under age eighteen (18) in
connection with the adoption of such child by the Employee (including a trial
period prior to adoption); and (4) for the purpose of caring for a child of the
Employee immediately following the birth or adoption of such child. The
Employee must prove to the satisfaction of the Committee or its agent that the
absence meets the above requirements and must supply information concerning the
length of the absence unless the Committee has access to relevant information
without the Employee submitting it.

1.47 "NAMED FIDUCIARY" means:

(a) with respect to the management and control of the P!an's
administration and operation over which each has discretionary authority,
the Committee;

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(b) with respect to the implementation of a Participant's or
Beneficiary's Investment Election or Conversion Election, the Committee or
other such person appointed under the terms of the Trust Agreement.

1.48 "NON-HIGHLY COMPENSATED EMPLOYEE" or "NHCE" means an Employee who is
neither an HCE nor a Family Member.

1.49 "NORMAL RETIREMENT DATE" means the date a Participant attains
sixty-five (65) years of age.

1.50 "NOTICE DATE" means the date established by the Committee as the
deadline for it to receive notification with respect to an administrative matter
in order to be processed as of a Change Date designated by the Committee.

1.51 "PARTICIPANT" means an Eligible Employee who begins to participate in
the Plan after completing the eligibility requirements. A Participant's
participation continues until his or her Termination of Employment and his or
her Accrued Benefit is distributed or forfeited.

1.52 "PAYMENT DATE" means the date on or after the Settlement Date on which
a Participant's Accrued Benefit is distributed or commences to be distributed,
which date shall be at least the minimum number of days required by law, if any,
after the date the Participant has received any notice required by law, if any.

If a distribution is one to which Sections 401(a)(11) and 417 of the
Internal Revenue Code do not apply, such distribution may commence less than 30
days after the notice required under Section 1.41(a)-11(c) of the Income Tax
Regulations is given, provided that:

(a) the plan administrator clearly informs the Participant that the
Participant has a right to a period of at least thirty (30) days after
receiving the notice to consider the decision of whether or not to elect
a distribution (and, if applicable, a particular distribution option), and

(b) the Participant, after receiving the notice, affirmatively
elects a distribution.

1.53 "PERIOD OF SEVERANCE" means the period of time measured from the later
of (a) an Employee's Termination of Employment, and (b) the conclusion of a
Maternity/Paternity Absence of no longer than twelve (12) consecutive months, to
the date thereafter he or she first earns an Hour of Service.

1.54 "PLAN" means the VARLEN CORPORATION PROFIT SHARING AND RETIREMENT
SAVINGS PLAN, as set forth herein and as hereafter may be amended from time to
time.

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1.55 "PLAN YEAR" means the annual accounting period of the Plan and Trust
which ends on each December 31.

1.56 "QDRO" means a domestic relations order which the Committee has
determined to be a qualified domestic relations order within the meaning of
Section 414(p) of the Code.

1.57 "QUALIFIED MATCHING CONTRIBUTION" means a Matching Contribution that
is treated as a Pre-Tax Contribution and posted to the Pre-Tax Account.

1.58 "RELATED PLAN" means:

(a) with respect to Section 401(k) and 401(m) of the Code, any plan
or plans maintained by a Commonly Controlled Entity which is treated with
this Plan as a single plan for purposes of Sections 401(a)(4) or 410(b) of
the Code; and

(b) with respect to Section 415 of the Code, any other defined
contribution plan or a defined benefit plan (as defined in Section 415(k)
of the Code) maintained by a Commonly Controlled Entity, respectively
called a "Related Defined Contribution Plan" and a "Related Defined Benefit
Plan".

1.59 "ROLLOVER CONTRIBUTION" means:

(a) a rollover contribution as described in Section 402(c) of the
Code (or its predecessor); or

(b) a Trustee Transfer (1) to the Custodian of an amount by the
custodian of a retirement plan qualified for tax-favored treatment under
Code Section 401(a), which plan provides for such transfer; (2) with
respect to which the benefits otherwise protected by Code Section 411 in
such transferor plan are no longer required by Code Section 411 to be
protected in this Plan; and (3) which does not include amounts subject to
Code Section 401(k).

1.60 "SETTLEMENT DATE" means the date on which the transactions from the
most recent Trade Date are settled.

1.61 "SPOUSAL CONSENT" means the irrevocable written consent given by a
Spouse to a Participant's election (or waiver) of a specified form of benefit or
Beneficiary designation. The Spouse's consent must acknowledge the effect on
the Spouse of the Participant's election, waiver or designation and be duly
witnessed by a Plan representative or notary public. Spousal Consent shall be
valid only with respect to the spouse who signs the Spousal Consent and only for
the particular choice made by the Participant which requires Spousal Consent. A
Participant may

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revoke (without Spousal Consent) a prior election, waiver or designation that
required Spousal Consent at any time before the Sweep Date associated with the
Settlement Date upon which payments will begin. Spousal Consent also means a
determination by the Administrator that there is no Spouse, the Spouse cannot be
located or such other circumstances as may be established by applicable law.

1.62 "SPOUSE" means a person who, as of the earlier of a Participant's
Payment Date and death, is alive and married to the Participant within the
meaning of the laws of the State of the Participant's residence as evidenced by
a valid marriage certificate or other proof acceptable to the Committee. A
spouse who was the Spouse on the Payment Date but who is divorced from the
Participant at the Participant's death shall still be the Spouse at the date of
the Participant's death, except as otherwise provided in a QDRO.

1.63 "SWEEP DATE" means the date established by the Committee as the cutoff
date and time for the responsible Named Fiduciary to receive notification with
respect to a financial transaction for an Accounting Period in order to be
processed with respect to a Trade Date designated by the Committee.

1.64 "TERMINATION OF EMPLOYMENT" occurs when a person ceases to be an
Employee or if earlier, the first anniversary of the date his or her Authorized
Leave of Absence commenced, as determined by the personnel policies of the
Commonly Controlled Entity to whom he or she rendered services; provided,
however, where a Commonly Controlled Entity ceases to be such with respect to an
Employee as a result of either an asset sale or stock sale an Employee of the
Commonly Controlled Entity shall be deemed not to have incurred a Termination of
Employment: (a) unless the Committee shall make a determination that the
transaction satisfies Section 401(k) of the Code, or if no such determination is
made, until such Employee ceases to be employed by the successor to the Commonly
Controlled Entity; or (b) if the Committee shall make a Trustee Transfer of his
or her Accrued Benefit. Transfer of employment from one Commonly Controlled
Entity to another Commonly Controlled Entity shall not constitute a Termination
of Employment for purposes of the Plan.

1.65 "TRADE DATE" means the date as of which a financial transaction
occurs, however with respect to a transaction involving Investment Funds
maintained on a share accounting methodology, the transaction shall be executed
based upon the average of the proceeds or purchase price of sales and purchases,
respectively, of a share each day a transaction occurs with respect to an
Accounting Period.

1.66 "TRUST" means the legal entity resulting from the agreement between
the Company and the Trustee and all amendments thereto, in which some or all of
the assets of this Plan will be received, held, invested and distributed to or
for the benefit of Participants and Beneficiaries.

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<PAGE>

1.67 "TRUST AGREEMENT" means the agreement between the Company and the
Trustee establishing the Trust, and any amendments thereto.

1.68 "TRUST FUND" means any property, real or personal, received by and
held by the Trustee, plus all income and gains and minus all losses, expenses,
withdrawals and distributions chargeable thereto.

1.69 "TRUSTEE" means any corporation, individual or individuals designated
in the Trust Agreement who shall accept the appointment as Trustee to execute
the duties of the Trustee as set forth in the Trust Agreement.

1.70 "TRUSTEE TRANSFER" means a transfer from the Custodian of an amount,
elected by and for the benefit of a Participant, to the custodian of an eligible
retirement plan, within the meaning of Section 402(c)(8)(B) of the Code;
provided that with respect to any withdrawal or distribution from the Plan, a
Participant may elect a transfer to only one eligible retirement plan, except as
may otherwise be determined by the Committee, in a uniform and nondiscriminatory
manner.

1.71 "VALUATION DATE" means the close of business each Accounting Period,
and such other dates as may be determined by the Committee.

1.72 "VESTING SERVICE" means the sum of an Employee's Years of Service;
provided however, Years of Service shall be disregarded if such Years of Service
were earned prior to the date the Employee's Employer became a Commonly
Controlled Entity, unless the Committee makes a determination not to apply this
exclusion with respect to each such Employee in a uniform and nondiscriminatory
manner.

1.73 "YEAR OF SERVICE" means:

(a) for service from January 1, 1992, each twelve (12) month period
of Continuous Service;

(b) a period of Continuous Service from January 2, 1991 through
January 1, 1992; and

(c) for Computation Periods ending before January 2, 1991, a
Computation Period in which an Employee is credited with at least 1,000
Hours of Service.

Notwithstanding the foregoing, Years of Service will be calculated as follows if
(and only if) it would be of benefit to the Employee:

(d) for service from January 1, 1992, each twelve (12) month period
of Continuous Service;

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<PAGE>

(e) the Computation Period from January 2, 1991 through January 1,
1992, but only if an Employee is credited with at least 1,000 Hours of
Service in such period; and

(f) for Computation Periods ending before January 2, 1991 a
Computation Period in which an Employee is credited with at least 1,000
Hours of Service.

An Employee's service with a company, the assets of which are acquired
by a Commonly Controlled Entity, shall only be counted as employment with such
Commonly Controlled Entity in the determination of his or her Years of Service
if (1) the Committee directs that credit for such service be granted, or (2) a
qualified plan of the acquired company is subsequently maintained by any
Employer or Commonly Controlled Entity.

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<PAGE>

ARTICLE II
- -------------------------------------------------------------------------------

PARTICIPATION

2.1 ELIGIBILITY. On or after the Effective Date as to each Employer:

(a) PARTICIPANT ON JULY 1, 1994. Each person who has an Accrued
Benefit on July 1, 1994 shall become a Participant as of July 1, 1994.

(b) OTHER ELIGIBLE EMPLOYEE. Each other Eligible Employee shall
become a Participant on the first day of each Plan Year quarter on or after
the date he or she completes six months of Continuous Service.

2.2 REEMPLOYMENT.

(a) ELIGIBLE EMPLOYEE WAS PREVIOUSLY A PARTICIPANT. An Eligible
Employee who previously was a Participant prior to his or her Termination
of Employment shall become a Participant on the first day of the next
payroll period.

(b) ELIGIBLE EMPLOYEE HAD A TERMINATION PRIOR TO NEXT CHANGE DATE.
An Eligible Employee who previously completed six months of Continuous
Service and who had a Termination of Employment before he or she became a
Participant shall be eligible to become a Participant on the later of (1)
the date he or she would have become a Participant but for his or her
Termination of Employment, or (2) the date he or she again performs an Hour
of Service.

2.3 PARTICIPATION UPON CHANGE OF JOB STATUS. An Employee who is not an
Eligible Employee shall become a Participant on the later of (1) the date he or
she would have become a Participant had he or she always been an Eligible
Employee, and (2) the date he becomes an Eligible Employee.

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ARTICLE III
- -------------------------------------------------------------------------------

PARTICIPANT CONTRIBUTIONS

3.1 PRE-TAX CONTRIBUTION ELECTION.

(a) A Participant who is an Eligible Employee and who desires to have
Pre-Tax Contributions made on his or her behalf by his or her Employer
shall file a Contribution Election, pursuant to procedures specified by the
Committee, specifying his or her Contribution Percentage of not less than
one percent (1%) nor more than fourteen percent (14%) (stated as a whole
integer percentage) and authorizing the Compensation otherwise payable to
him or her to be reduced.

(b) Notwithstanding Subsection (a) hereof, for any Plan Year the
Committee may determine that the maximum Contribution Percentage shall be
greater or lesser than the percentages set forth in Subsection (a) hereof.
Otherwise, the maximum Contribution Percentage as provided in Subsection
(a) hereof shall apply.

(c) A Participant's Contribution Election shall be effective only
with respect to Compensation not yet paid as of the date the Contribution
Election is effective. A Contribution Election received on or before a
Notice Date shall become initially effective with respect to payroll cycles
ended after the applicable Change Date. However, the Committee, in its
sole discretion, may declare an additional window period to Participants.
Any Contribution Election which has not been properly completed or which
does not contain a properly completed Investment Election will be deemed
not to have been received and be void.

3.2 ELECTION PROCEDURES. A Participant's Contribution Election shall
continue in effect (with automatic adjustment for any change in his or her
Compensation) until the earliest of the date (1) his or her Contribution
Election is changed in accordance with paragraph (a) hereof; (2) he or she
ceases to be paid as an Eligible Employee; or (3) his or her Contribution
Election is cancelled in accordance with paragraph (b) hereof.

(a) CHANGING THE ELECTION. A Participant may increase or decrease
his or her Contribution Percentage (subject to the percentage limits stated
above) only once each Change Date by making a new Contribution Election,
pursuant to procedures specified by the Committee, on which is specified
the amount of the Contribution Percentage.

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<PAGE>

(1) If such Contribution Election is received by the Notice
Date, the change shall be effective with respect to the
first payroll cycle ended after the Change Date.

(2) However, if the Committee deems it necessary, the Committee
may specify an additional window period to Participants.

(3) The amount of increase or decrease of such Contribution
Percentage shall be effective only with respect to
Compensation not yet paid.

(4) Any Contribution Election which has not been properly
completed or which does not contain a properly completed
Investment Election will be deemed not to have been received
and be void.

(b) CANCELING THE ELECTION. A Participant desiring to cancel his or
her existing Contribution Election and reduce his or her Contribution
Percentage to zero must make a new Contribution Election, pursuant to
procedures specified by the Committee. The Committee will establish
procedures, to be administered in a uniform and nondiscriminatory manner,
for allowing a Participant to cancel his or her Contribution Election. Any
Contribution Election received on or before a Notice Date shall become
effective with respect to the payroll cycle ended after the next Change
Date. A Participant who is an Eligible Employee and who has cancelled his
or her Election may again make a Contribution Election at any time. If
such Contribution Election is received by the Notice Date, it shall become
effective with respect to the first payroll cycle ended after the next
Change Date. Any Participant who has improperly completed a Contribution
Election will be deemed not to have made an Election.

3.3 LIMITATION OF ELECTIVE DEFERRALS FOR ALL PARTICIPANTS. A Participant's
Limited Deferrals for any calendar year shall not exceed the Contribution Dollar
Limit. If a Participant advises the Committee that he or she has Elective
Deferrals (reduced by Elective Deferrals previously distributed or which are
characterized as a result of the application of Code Section 401(k)(3) to such
Participant) in excess of the Contribution Dollar Limit ("Excess Deferral"), the
Committee shall return such Excess Deferrals for the taxable year to the
Participant. To the extent the Participant's Limited Deferrals exceed the
Contribution Dollar Limit, the Employer may notify the Plan on behalf of the
Participant (and "Excess Deferral" shall be calculated by taking into account
only Limited Deferrals). If such advice was received by the Committee during the
taxable year, the Plan shall distribute the Excess Deferral as soon as
administratively feasible. If such advice was received by the Committee after
the taxable year but no later than March 1 (or as late as April 14. if allowed
by the

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<PAGE>

Committee) following the close of the taxable year, the Committee shall cause
the Plan to return such Excess Deferral no later than April 15 immediately
following the end of such taxable year, adjusted by income allocable to that
amount.

The net investment gain or loss associated with the Excess Deferral is
calculated as follows:

G
E X ----- X (1 + (10% X M))
(AB-G)

where:

E = the Excess Deferral amount,

G = the net gain or loss for the Plan Year in the Participant's
Pre-Tax Account,

AB = the total value of the Participant's Pre-Tax Account, determined
as of the end of the calendar year being corrected,

M = the number of full months from the calendar year end to the date
the excess amount is paid, plus one for the month during which
payment is to be made if payment will occur after the 15th of
that month.

If the application of the limitations in this Section results in a reduction of
previously contributed Pre-Tax Contributions on behalf of a Participant,
Matching Contributions allocable with respect thereto (prior to such reduction)
which are not distributed under the ACP Test shall be forfeited.

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<PAGE>

ARTICLE IV
- -------------------------------------------------------------------------------

EMPLOYER CONTRIBUTIONS AND ALLOCATIONS

4.1 PRE-TAX CONTRIBUTIONS.

(a) FREQUENCY AND ELIGIBILITY. Subject to the limits of the Plan and
to the Committee's authority to limit Contributions under the terms of this
Plan, for each period for which a Contribution Election is in effect, the
Employer shall contribute to the Plan on behalf of each Participant an
amount equal to the amount designated by the Participant as a Pre-Tax
Contribution on his or her Contribution Election.

(b) ALLOCATION. The Pre-Tax Contribution shall be allocated to the
Pre-Tax Account of the Participant with respect to whom the amount is paid.

(c) TIMING, MEDIUM AND POSTING. Pre-Tax Contributions shall be paid
to the Custodian in cash and posted to each Participant's Pre-Tax Account
by the Committee as soon as such amounts can reasonably be balanced against
the specific amount made on behalf of each Participant. Pre-Tax
Contributions shall be paid to the Custodian not more than ninety (90) days
after the date amounts are deducted from the Participant's Compensation.

4.2 MATCHING CONTRIBUTIONS.

(a) FREQUENCY AND ELIGIBILITY. Subject to the limits of the Plan and
to the Committee's authority to limit Contributions under the Plan, for
each period for which Participants' Contributions are made, the Employer
shall make Matching Contributions as described in the following Allocation
Method paragraph on behalf of each Participant who contributed during the
period.

(b) ALLOCATION METHOD. The Matching Contributions for each period
shall total twenty-five percent (25%) of the sum of each eligible
Participant's Pre-Tax Contributions for the period, provided that no
Matching Contributions shall be made based upon a Participant's
Contributions in excess of six percent (6%) of his or her Compensation. The
Employer may change the twenty-five percent (25%) matching rate or the six
percent (6%) of considered Compensation to any other percentages, including
zero (0%). Notwithstanding the foregoing, for any Participant who is an
Eligible Employee included in Appendix B, the Matching Contributions, if
any, made by the Employer on behalf of such Participant shall be as is
provided in Appendix B.

(c) TIMING, MEDIUM AND POSTING. The Employer shall make each
period's Matching Contribution in cash as soon as is feasible, and not
later than the

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<PAGE>

Employer's federal tax filing date, including extensions, for deducting
such Contribution. The Committee shall post such amount to each
Participant's Matching Account once the total Contribution received by the
Custodian has been balanced against the specific amount to be credited to
each Participant's Matching Account.

(d) COMPENSATION. Compensation shall be measured by the period (not
to exceed the Plan Year) for which the Contribution is being made provided
the Eligible Employee is a Participant during such period.

4.3 SPECIAL CONTRIBUTIONS.

(b) ALLOCATION METHOD. The Special Contribution, together with any
available Forfeiture Account amount to be applied as a Special
Contribution, for each period shall be allocated among eligible
Participants as determined by the Board, subject to a maximum dollar amount
which may be contributed on behalf of any Participant as determined by the
Committee.

(c) TIMING, MEDIUM AND POSTING. The Employer shall make each
period's Special Contribution in cash as soon as is feasible, but no later
than twelve (12) months after the end of the Plan Year to which it is
allocated. The Committee shall post such amount to each Participant's
Special Account once the total Contribution received by the Custodian has
been balanced against the specific amount to be credited to each
Participant's Special Account.

(d) COMPENSATION. Compensation shall be measured by the period (not
to exceed the Plan Year) for which the Contribution is being made, provided
the Eligible Employee is a Participant during such period.

4.4 PROFIT SHARING CONTRIBUTIONS.

(a) FREQUENCY AND ELIGIBILITY. Subject to the limits of the Plan and
to the Committee's authority to limit Contributions under the Plan, for
each Plan Year, the Employer may make a Profit Sharing Contribution in an
amount determined by the Board with respect to the Varlen Corporate Office
and by the Company's Chief Executive Officer with respect to each
Participant who was an Eligible Employee on the last day of the period,
subject to Appendix B. In addition, such Contribution shall be made on
behalf of each Participant who ceased being an Employee during the period
after having attained his or her Normal Retirement Date, having attained

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<PAGE>

fifty-five (55) years of age and completing five (5) years of Continuous
Service, or by reason of his or her Disability or death; subject to
Appendix B.

(b) ALLOCATION METHOD. The Profit Sharing Contribution for each
period shall be allocated among eligible Participants in direct proportion
to their Compensation. Any available Forfeiture Account amount to be
applied as a Profit Sharing Contribution for each period shall be allocated
among eligible Participants pro rata, on a per Participant basis.

(c) TIMING, MEDIUM AND POSTING. The Employer shall make each Plan
Year Profit Sharing Contribution in cash as soon as is feasible, and not
later than the Employer's federal tax filing date, including extensions,
for deducting such Contribution. The Committee shall post such amount to
each Participant's Employer Account once the total Profit Sharing
Contribution received has been balanced against the specific amount to be
credited to each Participant's Employer Account.

4.5 MISCELLANEOUS.

(a) DEDUCTION LIMITS. In no event shall the Employer Contributions
for a Plan Year exceed the maximum the Company estimates will be deductible
(or which would be deductible if the Employers had taxable income) by any
Employer or Commonly Controlled Entity under Section 404 of the Code
("Deductible Amount"). Any amount in excess of the Deductible Amount shall
not be contributed in the following order of Contribution type, to the
extent needed to eliminate the excess:

(1) Each Participant's allocable share of Pre-Tax Contributions
for the Plan Year will be reduced by an amount equal to the
excess of the Participant's Pre-Tax Contributions over an
amount which bears the same ratio to the amount of Pre-Tax
Contributions made to the Plan on behalf of such Participant
during the Plan Year as the Deductible Amount available for
the Plan Year (reduced by the total amount of other types of
Employer Contributions for the Plan Year) bears to the
aggregate Pre-Tax Contributions made to the Plan on behalf
of all Participants subject to such Deductible Amount during
the Plan Year (before the application of this provision).

(2) If the application of Section (a)(1) would result in a
reduction of a Participant's Pre-Tax Contributions which are
matched by

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<PAGE>

Matching Contributions, the rate at which Pre-Tax
Contributions are reduced shall be offset by a reduction for
each Matching Contribution not made as a result.

(3) Profit Sharing Contributions.

(b) PROFIT SHARING PLAN. Notwithstanding anything herein to the
contrary, the Plan shall constitute a profit sharing plan for all purposes
of the Code.

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<PAGE>

ARTICLE V
- -------------------------------------------------------------------------------

ROLLOVERS

5.1 ROLLOVERS. The Committee may authorize the Custodian to accept a
Rollover Contribution in cash from an Eligible Employee, but only if he or she
is a Participant. The Employee shall furnish satisfactory evidence to the
Committee that the amount is eligible for rollover treatment. Such amount shall
be posted to the Employee's Rollover Account by the Committee as of the date
received by the Custodian.

If it is later determined that an amount transferred pursuant to the above
paragraph did not in fact qualify as a Rollover Contribution, the balance
credited to the Employee's Rollover Account shall immediately be (1) segregated
from all other Plan assets, (2) treated as a non-qualified trust established by
and for the benefit of the Employee, and (3) distributed to the Employee. Any
such nonqualifying rollover shall be deemed never to have been a part of the
Plan.

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<PAGE>

ARTICLE VI
- -------------------------------------------------------------------------------

ACCOUNTING FOR PARTICIPANTS'
ACCOUNTS AND FOR INVESTMENT FUNDS

6.1 INDIVIDUAL PARTICIPANT ACCOUNTING.

(a) ACCOUNT MAINTENANCE. The Committee shall cause the Accounts for
each Participant to reflect transactions involving assets of the Accounts
in accordance with this Article. Financial transactions during or with
respect to an Accounting Period shall be accounted for at the individual
Account level by "posting" each transaction to the appropriate Account of
each affected Participant. Participant Account values shall be maintained
in dollars or shares depending on the Investment Fund. At any point in
time, the Participant's Accrued Benefit shall be equal to the net Fair
Market Value of his or her Account determined by using the most recent
Trade Date values provided by the Custodian.

(b) TRADE DATE ACCOUNTING AND INVESTMENT CYCLE. For any transaction
to be processed as of a Trade Date, the Committee must receive instructions
by the Sweep Date and such instructions shall apply only to amounts held in
or posted to the Accounts as of the Trade Date. Financial transactions in
an Investment Fund shall be posted to a Participant's Account as of the
Trade Date and based upon the Trade Date values provided by the Custodian.
All transactions shall be effected on the Settlement Date relating to the
Trade Date (or as soon as is administratively feasible).

(c) SUSPENSION OF TRANSACTIONS. Whenever the Committee considers
such action to be in the best interest of the Participants, the Committee
in its discretion may suspend from time to time the Trade Date.

(d) TEMPORARY INVESTMENT. To the extent practicable, the Committee
shall direct the Custodian to make temporary investments in a short term
interest fund of assets in an Account held pending a Trade Date.

(e) HOW FEES AND EXPENSES ARE CHARGED TO PARTICIPANTS. Account
maintenance fees to the extent not paid by the Employer shall be charged
pro rata to each Participant's Account on the basis of each Participant's
Accrued Benefit, provided that no fee shall reduce a Participant's Account
balance below zero. Transaction type fees (such as special asset fees,
investment election change fees, etc.) shall be charged to the Accounts
involved in the transaction. Fees and expenses incurred for the management
and maintenance of Investment Funds shall be charged at the Investment Fund
level and reflected in the net gain or loss of each Fund to the extent not
paid by the Employer. Notwithstanding the foregoing,

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<PAGE>

for any Accounting Period beginning as soon as administratively possibly
after a favorable determination on this issue is received from the Internal
Revenue Service, (and after a Participant's Termination of Employment), the
Employer shall not pay the fees and expenses chargeable to the Account of a
Participant or to an Investment Fund with respect to the Account of a
Participant who incurred such Termination of Employment. Such fees and
expenses shall be charged directly against the Participant's Account or
used to reimburse the Employer for its payment of such fee or expense.

(f) ERROR CORRECTION. The Committee may correct any errors or
omissions in the administration of the Plan by restoring or charging any
Participant's Accrued Benefit with the amount that would be credited or
charged to the Account had no error or omission been made. Funds necessary
for any such restoration shall be provided through payment made by the
Employer.

(g) ACCOUNTING FOR PARTICIPANT LOANS. Participant loans shall be
held in a separate Fund for investment only by such Participant and
accounted for in dollars as an earmarked asset of the borrowing
Participant's Account.

6.2 ACCOUNTING FOR INVESTMENT FUNDS.

(a) SHARE ACCOUNTING. The investments in each Investment Fund
designated in Appendix A shall be maintained in full and fractional shares.
The Committee is responsible for determining the number of full and
fractional shares of each such Investment Fund. To the extent an
Investment Fund is comprised of a collective investment fund of the
Custodian, the net asset and unit values shall be determined in accordance
with the rules governing such collective investment funds, which are
incorporated herein by reference. Fees and expenses incurred for the
management and maintenance of Investment Funds shall be charged at the
Investment Fund level and reflected in the net gain or loss of each Fund to
the extent not paid by the Employer.

(b) ACCOUNTING FOR COMPANY STOCK. The following additional rules
shall apply to the Company Stock Fund:

(1) SHAREHOLDER RIGHTS. Shareholder Rights with respect to all
Company Stock in an Account shall be exercised by the
Trustee in accordance with directions from the Participant
pursuant to the procedures of the Trust Agreement.

(2) TENDER OFFER. If a tender offer is commenced for Company
Stock, the provisions of the Trust Agreement regarding the
response to such tender offer, the holding and investment of

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proceeds derived from such tender offer and the substitution
of new securities for such proceeds shall be followed.

(3) DIVIDENDS AND INCOME. Dividends (whether in cash or in
property) and other income received by the Custodian in
respect of Company Stock shall be reinvested in Company
Stock and shall constitute income and be recognized on an
accrual basis for the Accounting Period in which occurs the
record date with respect to such dividend; provided that,
with respect to any dividend which is reflected in the
market price of the underlying stock, the Committee shall
direct the Custodian during such trading period to trade
such stock the regular way to reflect the value of the
dividend, and all Fund transfers and cash distributions
shall be transacted accordingly with no accrual of such
dividend, other than as reflected in such market price.

(4) TRANSACTION COSTS. Any brokerage commissions, transfer
taxes, transaction charges, and other charges and expenses
in connection with the purchase or sale of Company Stock
shall be added to the cost thereof in the case of a purchase
or deducted from the proceeds thereof in the case of a sale,
to the extent not paid by an Employer; provided, however,
where the purchase or sale of Company Stock is with a
"disqualified person" as defined in Section 4975(e)(2) of
the Code or a "party in interest" as defined in Section
3(14) of ERISA, no commissions may be charged with respect
thereto.

6.3 ACCOUNTS FOR QDRO BENEFICIARIES. A separate Account shall be
established for a Beneficiary entitled to any portion of a Participant's Account
under a QDRO as of the date and in accordance with the directions specified in
the QDRO. Such Account shall be valued and accounted for in the same manner as
any other Account.

(a) INVESTMENT DIRECTION. A QDRO Beneficiary may direct the
investment of such Account in the same manner as any other Participant;
provided, however, a QDRO Beneficiary may not acquire Company Stock.

(b) DISTRIBUTIONS. A QDRO Beneficiary shall be entitled to payment
as provided in the QDRO and permissible under the otherwise applicable
terms of this Plan, regardless of whether the Participant is an Employee,
and to name a Beneficiary as specified in the QDRO.

(c) PARTICIPANT LOANS. A QDRO Beneficiary shall not be entitled to
borrow from his or her Account. If a QDRO specifies that the QDRO
Beneficiary

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<PAGE>

is entitled to any portion of the Account of a Participant who has an
outstanding loan balance, all outstanding loans shall continue to be held
in the Participant's Account and shall not be divided between the
Participant's and QDRO Beneficiary's Accounts.

6.4 SPECIAL ACCOUNTING DURING CONVERSION PERIOD. The Committee and
Custodian may use any reasonable accounting methods in performing their
respective duties during the period of converting the prior accounting system of
the Plan and Trust to conform to the individual Participant accounting system
described in this Section. This includes, but is not limited to, the method for
allocating net investment gains or losses and the extent, if any, to which
contributions received by and distributions paid from the Trust during this
period share in such allocation. All or a portion of the Trust assets may be
held, if necessary, in a short term interest bearing vehicle, which may include
deposits of the Trustee, during the conversion period for establishing such
individual Participant Accounts.

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ARTICLE VII
- -------------------------------------------------------------------------------

INVESTMENT FUNDS AND ELECTIONS

7.1 INVESTMENT FUNDS. Except for a Participant's loan Account, the Trust
shall be maintained in various Investment Funds. The Committee may change the
number or composition of the Investment Funds, subject to the terms and
conditions agreed to with the Custodian.

7.2 INVESTMENT OF CONTRIBUTIONS.

(a) INVESTMENT ELECTION. Each Participant may direct the Trustee, by
submission to the responsible Named Fiduciary of a completed Investment
Election provided for that purpose by the responsible Named Fiduciary, to
invest Contributions posted to his or her Accounts in one or more
Investment Funds. If the Committee directs, for any Accounting Period,
Contributions with respect to which the Participant has investment control
may be invested separately in the Investment Funds. If the Participant
elects to have any such Contributions made on his or her behalf invested in
more than one Investment Fund, he or she must designate in whole multiples
of five percent (5%) what percentage of the Contribution is to be invested
in each such Investment Fund. If the Committee directs, for any Accounting
Period, Contributions with respect to which the Participant has investment
control may be invested separately in Funds.

(b) EFFECTIVE DATE OF INVESTMENT ELECTION: CHANGE OF INVESTMENT
ELECTION. A Participant's initial Investment Election will be effective
with respect to a Fund on the Trade Date which relates to the Sweep Date on
which or prior to which the Investment Election is received pursuant to
procedures specified by the Committee. A Participant's Investment Election
shall continue in effect, notwithstanding any change in his Compensation or
his Contribution Percentage, until the earliest of (1) the effective date
of a new Investment Election, and (2) the date he ceases to be paid as an
Eligible Employee. A change in Investment Election shall be effective with
respect to a Fund on the Trade Date which relates to the Sweep Date on
which or prior to which the Participant's new Investment Election is
received pursuant to procedures specified by the Committee. Any Investment
Election which has not been properly completed will be deemed not to have
been received.

(c) SWITCHING FEES. A reasonable processing fee may be charged
directly to a Participant's Account for Investment Election changes in
excess of a specified number per Plan Year as determined by the Committee.

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7.3 INVESTMENT OF ACCOUNTS.

(a) CONVERSION ELECTION. Notwithstanding a Participant's Investment
Election, a Participant or Beneficiary may direct the Trustee, by submission of
a completed Conversion Election provided for that purpose to the responsible
Named Fiduciary, to change the interest his or her Accrued Benefit has in one or
more Investment Funds. If the Participant or Beneficiary elects to invest his or
her Accrued Benefit in more than one (1) Investment Fund, he or she must
designate in whole multiples of five percent (5%) or in whole dollar amounts
that portion of his Accounts which is to be invested in such Investment Fund. If
the Committee directs, for any Accounting Period, Accounts may be invested
separately in Funds.

(b) EFFECTIVE DATE OF CONVERSION ELECTION. A Conversion Election to
change a Participant's or Beneficiary's investment of his or her Accrued Benefit
in one Investment Fund to another Fund shall be effective with respect to such
Funds on the Trade Date(s) which relates to the Sweep Date on which or prior to
which the Election is received pursuant to procedures specified by the
Committee. Notwithstanding the foregoing, to the extent required by any
provisions of an Investment Fund, the effective date of any Conversion Election
may be delayed or the amount of any permissible Conversion Election may be
reduced. Any Conversion Election which has not been properly completed will be
deemed not to have been received.

(c) SWITCHING FEES. A reasonable processing fee may be charged
directly to a Participant's Account for Conversion Election changes in excess of
a specified number per Plan Year as determined by the Committee.

7.4 ESTABLISHMENT OF INVESTMENT FUNDS. The Committee shall cause to be
established one or more Investment Funds set forth in Appendix A. In addition,
the Committee may, from time to time, in its discretion:

(a) limit investments in or transfers from an Investment Fund;

(b) add funding vehicles thereunder;

(d) add a new Investment Fund to Appendix A.

7.5 TRANSITION RULES. Effective as of the date any Investment Fund is added or
deleted, each Participant and Beneficiary shall have the opportunity to submit
new Investment Elections and Conversion Elections to the responsible Named
Fiduciary no later than the applicable Sweep Date. The Committee and Custodian
may use any

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<PAGE>

reasonable accounting methods in performing their respective duties during the
period of transition from one Investment Fund to another, including, but not
limited to:

(a) designating into which Investment Fund a Participant's Accrued
Benefit will be invested if the Participant fails to submit a proper Conversion
Election form;

(b) the method for allocating net investment gains or losses and the
extent, if any, to which amounts received by and distributions paid from the
Trust during this period share in such allocation; and

(c) investing all or a portion of the Trust's assets in a short-term,
interest-bearing Fund during such transition period.

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<PAGE>

ARTICLE VIII
- -------------------------------------------------------------------------------

VESTING AND FORFEITURES

8.1 FULLY VESTED CONTRIBUTION ACCOUNTS.

A Participant shall be fully vested and have a nonforfeitable right to his
or her Accrued Benefit in these Accounts at all times:

Pre-Tax Account
Post-Tax Account
Rollover Account
Matching Account
Special Account.

8.2 VESTING: PAYMENT OF ACCRUED BENEFIT ON OR AFTER RETIREMENT OR DISABILITY.
A Participant's Accrued Benefit shall be fully vested and nonforfeitable upon
the occurrence of any one or more of the following events:

(a) completion of at least the minimum number of years of Vesting
Service in the Vesting Schedule for a 100% nonforfeitable percentage;

(b) attainment of Normal Retirement Date;

(d) he or she dies while an Employee.

8.3 VESTING SCHEDULE AND FORFEITURES.

(a) VESTING. If a Participant has a Termination of Employment, the
Participant shall be vested and have a nonforfeitable right to his or her
Accrued Benefit in his Employer Account, determined in accordance with the
following vesting schedules:

Years of Vesting Service Nonforfeitable Percentage
------------------------ --------------------------
<S> <C>
Less than 1 year 0%
1 year but less than 2 years 0%
2 years but less than 3 years 40%
3 years but less than 4 years 60%
4 years but less than 5 years 80%
5 years or more 100%
</TABLE>

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<PAGE>

Notwithstanding the preceding sentence, with respect to that portion of a
Participant's Accounts that is attributable to amounts transferred from the
National Metalwares Profit Sharing Plan and Trust, the Precision Scientific
401(k) Tax Deferred Savings Plan, the Precision Scientific Profit Sharing
Plan, the Means Stamping Industries, Inc. Retirement Plan or the
Consolidated Metco Profit Sharing and Retirement Savings Plan, the vested
percentage of such amounts shall be no less than their vested percentage
under such plan as of the transfer's effective date.

8.4 FORFEITURES.

(a) FORFEITURE WHERE PAYMENT COMMENCES PRIOR TO A BREAK IN SERVICE.
As of the Payment Date of a Participant's nonforfeitable percentage of his or
her Accrued Benefit, that portion of his or her Accrued Benefit which is
forfeitable shall be forfeited as of the Payment Date. Thereafter, if such
person is rehired as an Employee prior to incurring a Break in Service, he or
she shall be entitled to make repayment to the Plan of the full amount
distributed to him or her on or after the Payment Date no later than (1) the
date he or she incurs a Break in Service, and (2) the last day of the 5-year
period commencing on or after his or her date of reemployment. Upon making
repayment in a single payment of the amount distributed to him or her, the
amount repaid shall be credited to the Participant's Account from which paid
and the Forfeiture shall be reinstated to his or her Accounts and invested in
the same manner as the Account to which it is posted. The amount required to
restore such Participant's Accounts shall be charged against the Plan's
Forfeitures, and if insufficient, be made up from additional Employer
Contributions.

If the Employee makes the above-described repayment, such repayment shall
be considered to be the "investment in the contract" for purposes of Sections
72(c)(1)(A), 72(f) and 402(e)(4)(D)(i) of the Code in relation to the amount
reinstated in his or her Account on account of the repayment.

(b) FORFEITURE WHERE PAYMENT COMMENCES AFTER A BREAK IN SERVICE. If no
Payment Date of a Participant's nonforfeitable Accrued Benefit occurs before
having incurred a Break in Service, that portion of the Participant's Accrued
Benefit (which is Employer-derived) which is forfeitable as of his or her
Termination of Employment shall be forfeited as of the completion of a Break in
Service. If the Participant is reemployed as an Employee prior to having
incurred a Break in Service, the Forfeiture shall not occur. If the Participant
is reemployed as an Employee after incurring a Break in Service, the Participant
shall be fully vested and have a nonforfeitable interest in that portion of his
or her Accounts accrued prior to the Break in Service and not forfeited as a
result of such Break in Service. A Participant who incurs a Termination of
Employment with a zero vested interest in his or her Accrued Benefit (which is
Employer-derived) shall be

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<PAGE>

deemed to have a Payment Date and a Forfeiture of his or her Accrued
Benefit as of such Termination of Employment.

8.5 FORFEITURE ACCOUNT.

A Forfeiture will be posted, no later than as of the last day of the Plan
Year in which the Forfeiture arises, to the Forfeiture Account on the Settlement
Date for the Trade Date on which the Custodian, at the direction of the
Committee, has converted the Forfeiture to cash. No later than the end of such
Plan Year, the Forfeiture Account shall be used (in the following order) to
reinstate Accrued Benefits and supplement Contributions, to the extent provided
in Article IV.

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<PAGE>

ARTICLE IX
- -------------------------------------------------------------------------------
PARTICIPANT LOANS

9.1 PARTICIPANT LOANS PERMITTED. The Committee is authorized to establish
and administer a loan program for a Participant who is an Eligible Employee or a
former Eligible Employee who is a "party in interest" under ERISA pursuant to
the terms and conditions set forth in this Article. All loan limits are
determined as of the Trade Date the Trustee reserves funds for the loan. The
funds will be disbursed to the Participant as soon as is administratively
feasible after the next following Settlement Date.

9.2 LOAN FUNDING LIMITS.

The loan amount must meet the following limits:

(a) PLAN MINIMUM LIMIT. The minimum amount for any loan is
$1,000.00.

(b) PLAN MAXIMUM LIMIT. Subject to the legal limit described in (c)
below, the maximum a Participant may borrow, including the outstanding
balance of existing Plan loans, is fifty percent (50%) of the following Accounts
which are fully vested:

Post-Tax Account
Employer Account attributable to amounts received from
a merged plan
Pre-Tax Account attributable to amounts received from a
merged plan
Rollover Account
Matching Account
Pre-Tax Account attributable to unmatched Pre-Tax
Contributions
Pre-Tax Account attributable to matched Pre-Tax
Contributions
Special Account
Employer Account.

(c) LEGAL MAXIMUM LIMIT. The maximum a Participant may borrow,
including the outstanding balance of existing loans, is based upon the value of
his or her vested interest in this Plan and all other qualified plans maintained
by a Commonly Controlled Entity (the "Vested Interest"). The maximum amount
is equal to 50% of his or her Vested Interest, not to exceed $50,000.

- 37 -

<PAGE>

However, the $50,000 amount is reduced by the Participant's highest
outstanding balance of all loans from any Commonly Controlled Entity's
qualified plans during the twelve (12) month period ending on the day
before the Trade Date on which the loan is made.

9.3 MAXIMUM NUMBER OF LOANS. A Participant may have only one loan
outstanding at any given time.

9.4 SOURCE OF LOAN FUNDING. A loan to a Participant shall be made solely
from the assets of his or her own Accounts. The available assets shall be
determined first by Contribution Account and then by investment type within each
type of Contribution Account. The hierarchy for loan funding by type of
Contribution Account shall be the order listed in the preceding Plan Maximum
Limit paragraph. Within each Account used for funding, amounts shall first be
taken from the available cash in the Account and then taken by type of
investment in direct proportion to the market value of the Participant's
interest in each Investment Fund as of the Sweep Date on which the loan is made.

9.5 INTEREST RATE. The interest rate charged on Participant loans shall be
fixed and equal to the prime rate, plus 1%, of a bank designated by the
Committee.

9.6 REPAYMENT. Substantially level amortization shall be required of each
loan with payments made at least monthly, through payroll deduction, provided
that payment can be made by check for prepayments in full, or when a Participant
is on an Authorized Leave of Absence, Disabled or transferred to the employ of a
Commonly Controlled Entity which is not participating in the Plan. Loans may be
prepaid in full at any time. The loan repayment period shall be as mutually
agreed upon by the Participant and Committee, not to exceed five (5) years.
However, the term may be for any period not to exceed ten (10) years if the
purpose of the loan is to acquire the Participant's principal residence.

9.7 REPAYMENT HIERARCHY. Loan principal repayments shall be credited to
the Participant's Contribution Accounts in the inverse of the order used to fund
the loan. Loan interest shall be credited to the Contribution Account in direct
proportion to the principal repayment. Loan payments are credited by investment
type based upon the Participant's current Conversion Election for that Account.

9.8 LOAN APPLICATION, NOTE AND SECURITY. A Participant shall apply for any
loan in writing and in accordance with a procedure established by the Committee.
The Committee shall administer Participant loans and shall specify the time
frame for approving loan applications. All loans shall be evidenced by a
promissory note and security agreement, and secured only by a Participant's
vested Account balance. The Plan shall have a lien on a Participant's Account to
the extent of any outstanding loan balance.

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<PAGE>

9.9 DEFAULT, SUSPENSION AND ACCELERATION.

(a) DEFAULT. A loan is treated as a default on the earlier of (i) the
date any scheduled loan payment is more than ninety (90) days late,
provided that the Committee may agree to a suspension of loan payments for
up to twelve (12) months for a Participant who is on an Authorized Leave of
Absence or Disabled, or (ii) 30 days from the time the Participant receives
written notice of the note being due and payable and a demand for past due
amounts.

(b) ACTIONS UPON DEFAULT. In the event of default, the Committee may
direct the Trustee to execute upon its security interest in the
Participant's Account by segregating the unpaid loan balance from the
Account, including interest to the date of default and report the default
as a taxable distribution. As soon as a Plan withdrawal or distribution to
such Participant would otherwise be permitted, the Committee shall
instruct the Trustee to distribute the note to the Participant.

(c) ACCELERATION. A loan shall become due and payable in full once
the Participant incurs a Termination of Employment unless he or she is
Disabled in which case the note will not be due and payable until the
Participant ceases to be Disabled, dies or the note is otherwise due.

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<PAGE>

ARTICLE X
- -------------------------------------------------------------------------------
IN-SERVICE WITHDRAWALS

10.1 WITHDRAWALS FOR 401(k) HARDSHIP.

(a) REQUIREMENTS. A Participant may request the withdrawal of any
amount from the vested portion of his or her Accounts needed to satisfy a
financial need by making a withdrawal request in accordance with a
procedure established by the Committee. The Committee shall only approve
those requests for withdrawals (1) on account of a Participant's "Deemed
Financial Need", and (2) which are "Deemed Necessary" to satisfy the
financial need.

(b) "DEEMED FINANCIAL NEED". Financial commitments relating to:

(1) costs directly related to the purchase or construction
(excluding mortgage payments or balloon payments) of a
Participant's principal residence;

(2) the payment of expenses for medical care described in
Section 213(d) of the Code previously incurred by the
Participant, the Participant's Spouse, or any dependents of
the Participant (as defined in Section 152 of the Code) or
necessary for those persons to obtain medical care described
in Section 213(d) of the Code;

(3) payment of tuition and related educational fees for the next
twelve (12) months of post-secondary education for the
Participant, his or her Spouse, children or dependents (as
defined in Section 152 of the Code); or

(4) necessary payments to prevent the eviction of the
Participant from his or her principal residence or the
foreclosure on the mortgage of the Participant's principal
residence.

(c) "DEEMED NECESSARY". A withdrawal is "deemed necessary" to
satisfy the financial need only if all of these conditions are met:

(1) the withdrawal may not exceed the dollar amount needed to
satisfy the Participant's documented Financial Hardship,
plus an amount necessary to pay federal, state, or local

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<PAGE>

income taxes or penalties reasonably anticipated to result
from such withdrawal;

(2) the Participant must have obtained all distributions, other
than Financial Hardship distributions, and all nontaxable
loans under all plans maintained by the Company or any
Commonly Controlled Entity;

(3) the Participant will be suspended from making Pre-Tax
Contributions, after-tax contributions, or elective
contributions subject to a cash or deferred arrangement
under the Plan (or under any other qualified or nonqualified
plan of deferred compensation maintained by a Commonly
Controlled Entity) for at least twelve (12) months from the
date the withdrawal is received; and

(4) the Dollar Limit for the taxable year immediately following
the taxable year in which the Financial Hardship withdrawal
is received shall be reduced by the Elective Deferrals for
the taxable year in which the Financial Hardship withdrawal
is received.

(d) CONTRIBUTION ACCOUNT SOURCES FOR WITHDRAWAL. All available
amounts must first be withdrawn from a Participant's Post-Tax Account. The
remaining withdrawal amount shall come only from his or her Accounts in the
following priority order:

Pre-Tax Account attributable to amounts received from a
merged plan
Rollover Account
Pre-Tax Account attributable to unmatched Pre-Tax
Contributions
Pre-Tax Account attributable to matched Pre-Tax
Contributions.

The amount that may be withdrawn from a Participant's Account shall not
include any of the following amounts posted to his Account after the end of
the Plan Year which ends before July 1, 1989:

Special Contributions
Qualified Matching Contributions
Earnings on the Pre-Tax Account
Earnings on a Special Account.

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<PAGE>

10.2 ROLLOVER ACCOUNT WITHDRAWALS.

(a) AMOUNT PERMITTED. A Participant may withdraw up to the entire
balance from his or her Rollover Account for any reason. There is no hardship
requirement.

(b) PERMITTED FREQUENCY. There is no restriction on the number of
times a Participant may withdraw from this Account.

10.3 WITHDRAWALS FOR PARTICIPANTS OVER AGE 59 1/2.

(a) REQUIREMENTS. A Participant who is over age 59 1/2 may withdraw
from the vested portion of his or her Contribution Accounts listed in paragraph
(b) below.

(b) CONTRIBUTION ACCOUNT SOURCES FOR WITHDRAWAL. When requesting
a withdrawal, a Participant shall first choose whether or not to have amounts
taken from his or her Post-Tax Account. Any remaining withdrawal amount
shall come only from his or her Accounts, in the following priority order of
Contribution Accounts:

Employer Account attributable to amounts received from
a merged plan
Pre-Tax Account attributable to amounts received from a
merged plan
Rollover Account
Matching Account
Pre-Tax Account attributable to unmatched Pre-Tax
Contributions
Pre-Tax Account attributable to matched Pre-Tax
Contributions
Special Account
Employer Account.

10.4 WITHDRAWAL PROCESSING.

(a) MINIMUM AMOUNT. The minimum amount for any type of withdrawal is $100.

(b) APPLICATION BY PARTICIPANT. A Participant must apply for a withdrawal
pursuant to procedures specified by the Committee for any type of

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<PAGE>

withdrawal. Only a Participant who is an Employee may make a withdrawal request.

(c) APPROVAL BY COMMITTEE. The Committee is responsible for determining
that a withdrawal request conforms to the requirements described in this Section
and notifying the Custodian of any payments to be made in a timely manner.

(d) TIME OF PROCESSING. The Custodian shall process all withdrawal
requests which it receives by a Sweep Date, based on the value as of the Trade
Date to which it relates, and fund them on the next Settlement Date. The
Custodian shall then make payment to the Participant as soon thereafter as is
administratively feasible.

(e) MEDIUM AND FORM OF PAYMENT. The medium of payment for withdrawals is
cash or Direct Rollover. The form of payment for withdrawals shall be a single
installment (except to the extent of an Account which includes a transfer from
the National Metalwares Profit Sharing Plan and Trust, the Precision Scientific
401(k) Tax Deferred Savings Plan, the Precision Scientific Profit Sharing Plan
or the Consolidated Metco Profit Sharing and Retirement Savings Plan which was
subject to the funding standards of Code Section 412).

(f) INVESTMENT FUND SOURCES. Within each Account used for funding a
withdrawal, amounts shall be taken by type of investment in direct proportion
to the market value of the Participant's interest in each Investment Fund at the
time the withdrawal is made.

(g) DIRECT ROLLOVER. With respect to any payment hereunder which
constitutes an Eligible Rollover Distribution, a Distributee may direct the
Committee to have all or some portion of such payment (other than from a
Post-Tax Account) paid in the form of a Trustee Transfer, in accordance with
procedures established by the Committee, provided the Committee receives
written notice of such direction with specific instructions as to the Eligible
Retirement Plan on or prior to the applicable Sweep Date for payment.

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<PAGE>

ARTICLE XI
- -------------------------------------------------------------------------------
DISTRIBUTIONS ON AND AFTER
TERMINATION OF EMPLOYMENT

11.1 REQUEST FOR DISTRIBUTION OF BENEFITS.

(a) REQUEST FOR DISTRIBUTION. Subject to the other requirements of
this Article, a Participant may elect to have his or her vested Accrued
Benefit paid to him or her beginning upon any Settlement Date following his
or her Termination of Employment pursuant to procedures specified by the
Committee. Such election form shall include or be accompanied by a notice
which provides the Participant with information regarding all optional
times and forms of payment available. The election must be submitted to the
Committee by the Sweep Date that relates to the Payment Date.

(b) FAILURE TO REQUEST DISTRIBUTION. If a Participant has a
Termination of Employment and fails to make a request for distribution by
the last Payment Date permitted under this Article, his or her vested
Accrued Benefit shall be valued as of the Valuation Date which immediately
precedes such latest date of distribution (called the "Default Valuation
Date") and a notice of such deemed distribution shall be issued to his or
her last known address as soon as administratively possible. !f the
Participant does not respond to the notice or cannot be located, his or her
vested Accrued Benefit determined on the Default Valuation Date shall be
treated as a Forfeiture. If the Participant subsequently files a claim, the
amount forfeited (unadjusted for gains and losses) shall be reinstated to
his or her Accounts and distributed as soon as administratively feasible,
and such payment shall be accounted for by charging it against the
Forfeiture Account or by a contribution from the Employer of the affected
Participant.

11.2 DEADLINE FOR DISTRIBUTION. In addition to any other Plan requirements
and unless the Participant elects otherwise, or cannot be located, the Payment
Date of a Participant's vested Accrued Benefit shall be not later than sixty
(60) days after the latest of the close of the Plan Year in which (i) the
Participant attains the earlier of age sixty-five (65) or his or her Normal
Retirement Date, (ii) occurs the tenth (10th) anniversary of the Plan Year in
which the Participant commenced participation, or (iii) the Participant had a
Termination of Employment. However, if the amount of the payment or the location
of the Participant (after a reasonable search) cannot be ascertained by that
deadline, payment shall be made no later than 60 days after the earliest date on
which such amount or location is ascertained. In any case, the Payment Date of a
Participant's vested Accrued Benefit shall not be later than April 1 following
the calendar year in which the Participant attains age seventy and one-half

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<PAGE>

(70 1/2) and each December 31 thereafter and shall comply with the requirements
of Section 401(a)(9) of the Code and the Treasury Regulations promulgated
thereunder.

11.3 PAYMENT FORM AND MEDIUM. A Participant's vested Accrued Benefit shall
be paid in the form of a lump sum or periodic installments as selected by the
Participant. As to Participants whose Accounts include a transfer from the
National Metalwares Profit Sharing Plan and Trust, the Precision Scientific
Profit Sharing Plan or the Freightliner portion of the Consolidated Metco Profit
Sharing and Retirement Savings Plan, available forms of payment with respect to
such amounts shall include a lump sum, periodic installments or a single or
joint life annuity, as selected by the Participant. Payments will be made in
cash (generally by check) except as provided in Section 11.7.

11.4 SMALL AMOUNTS PAID IMMEDIATELY. If a Participant has a Termination of
Employment and the Participant's vested Accrued Benefit is $3,500 or less, the
Participant's Accrued Benefit shall be paid as a single lump sum as soon as
administratively feasible after his Termination of Employment.

11.5 PAYMENT WITHIN LIFE EXPECTANCY. The Participant's payment election
must be consistent with the requirement of Code Section 401(a)(9) that all
payments are to be completed within a period not to exceed the lives or the
joint and last survivor life expectancy of the Participant and his or her
Beneficiary. The life expectancies of a Participant and his or her spouse may
not be recomputed annually.

11.6 INCIDENTAL BENEFIT RULE. The Participant's payment election must be
consistent with the requirement that, if the Participant's Spouse is not his or
her sole primary Beneficiary, the minimum annual distribution for each calendar
year, beginning with the year in which he or she attains age seventy and
one-half (70 1/2), shall not be less than the quotient obtained by dividing (a)
the Participant's vested Accrued Benefit as of the last Trade Date of the
preceding year by (b) the applicable divisor as determined under the incidental
benefit requirements of Code Section 401 (a)(9).

11.7 QJSA AND QPSA INFORMATION AND ELECTIONS. The following information
and election rules shall apply to any Participant who elects an annuity option,
but only to the extent such Participant's Accounts include a transfer from the
National Metalwares Profit Sharing Plan and Trust, the Precision Scientific
Profit Sharing Plan or the Freightliner portion of the Consolidated Metco Profit
Sharing and Retirement Savings Plan:

(a) "QJSA". A qualified joint and fifty percent (50%) survivor
annuity, meaning a form of benefit payment which is the actuarial
equivalent of the applicable portion of the Participant's vested Accrued
Benefit at the Payment Date, payable to the Participant in monthly payments
for life and providing that, if the Participant's Spouse survives him or
her, monthly

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<PAGE>

payments equal to fifty percent (50%) of the amount payable to the
Participant during his lifetime will be paid to the Spouse for the
remainder of such person's lifetime.

(b) "QPSA". A qualified pre-retirement survivor annuity, meaning
that upon the death of a Participant before the Payment Date of the
applicable portion of his vested Accrued Benefit, such benefit will become
payable to the surviving Spouse as a life annuity, unless Spousal Consent
has been given to a different Beneficiary or the surviving Spouse chooses a
different form of payment.

(c) QJSA INFORMATION TO A PARTICIPANT. No more than ninety (90)
days before the Payment Date, each Participant who has a Spouse and
requests an annuity form of payment shall be given a written explanation of
(1) the terms and conditions of the QJSA which apply to his annuity; (2)
the right to make an election to waive this form of payment and choose an
optional form of payment and the effect of this election; (3) the right to
revoke this election and the effect of this revocation; and (4) the need
for Spousal Consent.

(d) QJSA ELECTION. A Participant may elect (and such election shall
include Spousal Consent if married), at any time within the ninety (90) day
period ending on the Payment Date, to (1) waive the right to receive the
QJSA and elect an optional form of payment; or (2) revoke or change any
such election.

(e) QJSA SPOUSAL CONSENT TO PARTICIPANT LOANS. Spousal Consent
must be obtained for any Participant loan which is funded from any amount
to which the election in paragraph (d) above applies within the ninety (90)
day period ending on the date such loan is secured.

(f) QJSA SPOUSAL CONSENT TO PARTICIPANT IN-SERVICE WITHDRAWALS.
Spousal Consent must be obtained for any Participant in-service withdrawal
which is funded from any amount to which the election in paragraph (d)
above applies within the ninety (90) day period ending on the date of such
in-service withdrawal.

(g) QPSA BENEFICIARY INFORMATION TO PARTICIPANT. Each married
Participant who has requested a life annuity form of payment shall be given
written information stating that (1) his death benefit is payable to his
surviving Spouse; (2) his ability to choose that the benefit be paid to a
different Beneficiary; (3) the right to revoke or change a prior
designation and the effects of such revocation or change; and (4) the need
for Spousal Consent. Such

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<PAGE>

information shall be provided during whichever of the following periods
ends later:

(1) the period that begins one year before the date on
which the Participant requests a life annuity form of
payment and that ends one year after such date; and

(2) the period that begins with the first day of the Plan
Year in which the Participant attains age thirty-two
(32) and that ends with the close of the Plan Year in
which the Participant attains age thirty-five (35).

Notwithstanding the foregoing, if the Participant incurs a Termination of
Employment after requesting a life annuity form of payment, but before
attaining age thirty-five (35), the information described in the first
sentence of this Subsection shall be provided during the period that begins
one year before the date of the Participant's Termination of Employment and
that ends one year after such date.

(h) QPSA BENEFICIARY DESIGNATION BY PARTICIPANT. A married
Participant may designate (with Spousal Consent) a non-spouse Beneficiary
at any time after the Participant has been given the information in the
QPSA Beneficiary Information to Participant paragraph above and upon the
earlier of (1) the date the Participant incurs a Termination of Employment,
or (2) the beginning of the Plan Year in which that Participant attains age
35.

11.8 CONTINUED PAYMENT OF AMOUNTS IN PAYMENT STATUS ON JANUARY 1, 1992.
Any person who became a Participant prior to January 1, 1992 only because he had
an Accrued Benefit and who had commenced to receive payments prior to January 1,
1992 shall continue to receive such payments in the same form and payment
schedule under this Plan.

11.9 TEFRA TRANSITIONAL RULE. Notwithstanding any other provisions of this
Plan, distribution on behalf of any Participant may be made in accordance with
the following requirements (regardless of when such distribution commences):

(a) The distribution must have been one provided for in the National
Metalwares Profit Sharing Plan and Trust, the Precision Scientific 401(k)
Tax Deferred Savings Plan, the Precision Scientific Profit Sharing Plan,
the Means Stamping Industries, Inc. Retirement Plan or the Consolidated
Metco Profit Sharing and Retirement Savings Plan.

(b) The distribution by the National Metalwares Profit Sharing Plan
and Trust, the Precision Scientific 401(k) Tax Deferred Savings Plan, the

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Precision Scientific Profit Sharing Plan, the Means Stamping Industries,
Inc. Retirement Plan or the Consolidated Metco Profit Sharing and
Retirement Savings Plan is one which would not have disqualified the
National Metalwares Profit Sharing Plan and Trust, the Precision Scientific
401(k) Tax Deferred Savings Plan, the Precision Scientific Profit Sharing
Plan, the Means Stamping Industries, Inc. Retirement Plan or the
Consolidated Metco Profit Sharing and Retirement Savings Plan under Code
Section 401(a)(9) as in effect prior to amendment by TEFRA.

(c) The distribution is in accordance with a method of distribution
designated by the Participant whose interest is being distributed or, if
the Participant is deceased, by a Beneficiary of such Participant.

(d) Such designation was in writing, was signed by the Participant
or the Beneficiary, and was made before January 1, 1984.

(e) The Participant had accrued a benefit under the National
Metalwares Profit Sharing Plan and Trust, the Precision Scientific 401(k)
Tax Deferred Savings Plan, the Precision Scientific Profit Sharing Plan,
the Means Stamping Industries, Inc. Retirement Plan or the Consolidated
Metco Profit Sharing and Retirement Savings Plan as of December 31, 1983.

(f) The method of distribution designated by the Participant or the
Beneficiary specifies the time at which distribution will commence, the
period over which distribution will be made, and in the case of any
distribution upon the Participant's death, the Beneficiaries of the
Participant listed in order of priority.

11.10 DIRECT ROLLOVER. With respect to any payment hereunder which
constitutes an Eligible Rollover Distribution, a Participant may direct the
Committee to have such payment (other than from a Post-Tax Account) paid in the
form of a Trustee Transfer, in accordance with procedures established by the
Committee, provided the Committee receives written notice of such direction with
specific instructions as to the Eligible Retirement Plan on or prior to the
applicable Sweep Date for payment.

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ARTICLE XII
- -------------------------------------------------------------------------------
DISTRIBUTION OF ACCRUED BENEFITS ON DEATH

12.1 PAYMENT TO BENEFICIARY. On the death of a Participant prior to his or
Payment Date, his or her vested Accrued Benefit shall be paid to the Beneficiary
or Beneficiaries designated by the Participant in a beneficiary designation form
provided by the Committee. Death of a Participant on or after his or her Payment
Date shall result in payment to his or her Beneficiary of whatever death benefit
is provided by the form of payment in effect on his or her Payment Date.

12.2 BENEFICIARY DESIGNATION. Each Participant shall complete a
beneficiary designation form indicating the Beneficiary who is to receive the
Participant's remaining Plan interest at the time of his or her death. The
Participant may change such designation of Beneficiary from time to time by
filing a new beneficiary designation form with the Committee. No designation
of Beneficiary or change of Beneficiary shall be effective until properly filed
with the Committee. Notwithstanding any designation to the contrary, the
Participant's Beneficiary shall be the Participant's Spouse to whom the
Participant is legally married under the laws of the State of the Participant's
residence on the date of the Participant's death and surviving him or her on
such date, unless such designation includes Spousal Consent. If the Participant
dies leaving no Spouse and either (1) the Participant shall have failed to file
a valid beneficiary designation form, or (2) all persons designated on the
beneficiary designation form shall have predeceased the Participant, the
Committee shall have the Custodian distribute such Participant's Accrued
Benefit in a single sum to his or her estate.

12.3 BENEFIT ELECTION.

(a) REQUEST FOR DISTRIBUTION.

In the event of a Participant's death prior to his or her Payment
Date, a Beneficiary may elect to have the vested Accrued Benefit of a
deceased Participant paid to him or her beginning upon any Settlement Date
following the Participant's date of death by submitting a completed
distribution election form to the Committee. The election must be submitted
to the Committee by the Sweep Date that relates to the Settlement Date upon
which payments are to begin.

(b) FAILURE TO REQUEST DISTRIBUTION. In the event a Beneficiary fails
to submit a timely distribution request form, his or her vested Accrued
Benefit shall be valued as of the Valuation Date which immediately precedes
such latest date of distribution (called the "Default Valuation Date") and
a notice of

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<PAGE>

such deemed distribution shall be issued to his or her last known address
as soon as administratively possible. If the Beneficiary does not respond
to the notice or cannot be located, his or her vested Accrued Benefit
determined on the Default Valuation Date shall be treated as a Forfeiture.
If the Beneficiary subsequently files a claim, the amount forfeited
(unadjusted for gains and losses) shall be reinstated to his or her
Accounts and distributed as soon as administratively feasible, and such
payment shall be accounted for by charging it against the Forfeiture or by
a Contribution from the Employer of the affected Beneficiary.

12.4 PAYMENT FORM. In the event of a Participant's death prior to his or
her Payment Date, a Beneficiary shall be limited to the same form of payment to
which the Participant was limited, unless the Participant has elected an annuity
form of payment which provides for a QPSA with respect to that portion of his
Account which is payable in an annuity form of payment. Payments will be made in
cash (generally by check).

12.5 TIME LIMIT FOR PAYMENT TO BENEFICIARY. Payment to a Beneficiary must
either:

(a) be completed within five (5) years of the Participant's death; or

(b) begin within one year of his or her death and be completed within
the period of the Beneficiary's lifetime, except that:

(1) If the Participant dies after the April 1 immediately
following the end of the calendar year in which he or she
attains age seventy and one-half (70 1/2), payment to his or
her Beneficiary must be made at least as rapidly as provided
in the Participant's distribution election;

(2) If the surviving Spouse is the Beneficiary, payments need
not begin until the date on which the Participant would have
attained age seventy and one-half (70 1/2) and must be
completed within the Spouse's lifetime; and

(3) If the Participant and the surviving Spouse who is the
Beneficiary die (A) before the April 1 immediately following
the end of the calendar year in which the Participant would
have attained age seventy and one-half (70 1/2); and
(B) before payments have begun to the Spouse, the Spouse
will be treated as the Participant in applying these rules.

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<PAGE>

12.6 DIRECT ROLLOVER. With respect to any payment hereunder which
constitutes an Eligible Rollover Distribution, a Distributee may direct the
Committee to have such payment (other than from a Post-Tax Account) paid in the
form of a Trustee Transfer, in accordance with the procedure established by the
Committee, provided the Committee receives written notice of such direction with
specific instructions as to the Eligible Retirement Plan on or prior to the
applicable Sweep Date for payment.

12.7 QPSA INFORMATION AND ELECTION. The following information and
election rules shall apply to any Beneficiary of a Participant who dies prior to
his or her Payment Date after having elected an annuity option which provides
for a QPSA, but only to the extent his or her Account includes a transfer from
the National Metalwares Profit Sharing Plan and Trust, the Precision Scientific
Profit Sharing Plan or the Freightliner portion of the Consolidated Metco Profit
Sharing and Retirement Savings Plan:

(a) FORM OF PAYMENT. The applicable portion of the Participant's
vested Accrued Benefit will be paid in the form of a QPSA.

(b) QPSA INFORMATION TO A SURVIVING SPOUSE. Each surviving Spouse
who requests a life annuity form of payment shall be given a written
explanation of (1) the terms and conditions of being paid the applicable
portion of his or her vested Accrued Benefit in the form of a single life
annuity, (2) the right to make an election to waive this form of payment
and choose an optional form of payment and the effect of making this
election, and (3) the right to revoke this election and the effect of this
revocation.

(c) QPSA ELECTION BY SURVIVING SPOUSE. A surviving Spouse may elect,
ant any time up to the Sweep Date associated with the Settlement Date upon
which payments will begin, to (1) waive the single life annuity and elect
an optional form of payment, or (2) revoke or change any such election.

12.8 SMALL AMOUNTS PAID IMMEDIATELY. If a Beneficiary's vested Accrued
Benefit is $3,500 or less, the Beneficiary's vested Accrued Benefit shall be
paid as a single lump sum as soon as administratively feasible.

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ARTICLE XIII
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

MAXIMUM CONTRIBUTIONS

13.1 DEFINITIONS.

(a) "ANNUAL ADDITIONS" means with respect to a Participant for any
Plan Year the sum of:

(1) Contributions and Forfeitures (and any earnings
thereon) allocated as of a date within the Plan Year;

(2) All contributions, forfeitures and suspended amounts
(and income thereon) for such Plan Year, allocated to
such Participant's account(s) under any Related Defined
Contribution Plan as of a date within such Plan Year;

(3) The sum of all after-tax contributions of the
Participant to Related Plans for the Plan Year and
allocated to such Participant's accounts under such
Related Plan as of a date within such Plan Year
("Aggregate Employee Contributions");

(4) Solely for purposes of this Section, all contributions
to any "separate account" (as defined in Section
419A(d) of the Code) allocated to such Participant as
of a date within the Plan Year if such Participant is
a "Key Employee" within the meaning of Code Section
416(i); and

(5) Solely for purposes of this Section, all contributions
to any "individual medical benefit account" (as defined
in Section 415(I) of the Code) allocated to such
Participant as of a date within the Plan Year.

(b) "MAXIMUM ANNUAL ADDITIONS" of a Participant for a Plan Year
means the lesser of:

(1) twenty-five percent (25%) of the Participant's
Compensation, or

(2) the greater of thirty thousand dollars ($30,000) or
one-quarter of the dollar limitation in Code Section
415(b)(1)(A) as adjusted for cost of living increases

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(determined in accordance with regulations prescribed by the
Secretary of the Treasury or his or her delegate pursuant to
the provisions of Section 415(d) of the Code).

(c) "ANNUAL EXCESS" means, for each Participant affected, the
amount by which the allocable Annual Additions for such Participant
exceeds or would exceed the Maximum Annual Addition for such Participant.

13.2 AVOIDING AN ANNUAL EXCESS. Notwithstanding any other provision of
this Plan, a Participant's "Annual Additions" for any Plan Year, which is hereby
designated as the "limitation year" for the Plan, as that term is used in
Section 415 of the Code, shall not exceed his or her "Maximum Annual Additions."
If, at any time during a Plan Year, the allocation of additional Contributions
for a Plan Year would produce an Annual Excess, the affected Participant shall
receive the Maximum Annual Addition from Contributions, and, at the direction of
the Committee, for the remainder of the Plan Year Contributions will be reduced,
if possible, to the amount needed for each affected Participant to receive the
Maximum Annual Addition.

13.3 CORRECTING AN ANNUAL EXCESS. If for any Plan Year as a result of a
reasonable error in estimating a person's Compensation, Elective Deferrals, or
such other facts and circumstances which the Internal Revenue Service will
permit, a Participant's Annual Excess shall be treated in the following manner:

(a) Aggregate Employee Contributions allocable under a Related
Plan shall be distributed to the Participant, if permitted, by the amount
of the Annual Excess.

(b) If any Annual Excess remains, Pre-Tax Contributions shall be
distributed to such Participant.

(c) If any Annual Excess (adjusted for investment gains and losses)
remains, Contributions shall be a Forfeiture for such Participant in the
following order:

(1) Matching Contributions; and

(2) Profit Sharing Contributions.

(d) Any Forfeiture of a Participant's allocations of Contributions
under subparagraph (c) above shall be held in the Forfeiture Account and
shall be used for the Plan Year to reduce or applied as Contributions. If
any such amount remains in the Forfeiture Account, it shall again be held
in suspense in the Forfeiture Account and be utilized to reduce future
Contributions for succeeding Plan Years.

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<PAGE>

(e) Any amounts held in suspense in the Forfeiture Account pursuant
to Paragraph (d) above remaining upon Plan termination shall be returned
to the Employers in such proportions as shall be determined by the
Committee.

13.4 CORRECTING A MULTIPLE PLAN EXCESS. If a Participant's Accounts have
or would have an Annual Excess, the Annual Excess shall be corrected by reducing
the Annual Addition to this Plan before reductions have been made to other
Related Defined Contribution Plans.

13.5 TWO-PLAN LIMIT. If a Participant participates in any Related
Defined Benefit Plan, the sum of the "Defined Benefit Plan Fraction" (as defined
below) and the "Defined Contribution Plan Fraction" (as defined below) for such
Participant shall not exceed one (called the "Combined Fraction").

(a) "DEFINED BENEFIT PLAN FRACTION" means, for any Plan Year, a
fraction, the numerator of which is the projected benefit payable pursuant
to Code Section 415(e)(2)(A) under all Related Defined Benefit Plans and
the denominator of which is the lesser of: (i) the product of 1.25 and the
dollar limit in effect for the Plan Year under Code Section 415(b)(1)(A),
and (ii) the product of 1.4 and one hundred percent (100%) of the
Participant's average Compensation for his or her high three (3) years.

(b) "DEFINED CONTRIBUTION PLAN FRACTION" means, for any Plan Year,
a fraction, the numerator of which is the sum of the Annual Additions (as
determined pursuant to Section 415(c) of the Code in effect for such Plan
Year) to a Participant's Accounts as of the end of the Plan Year under the
Plan or any Related Defined Contribution Plan, and the denominator of
which is the lesser of:

(1) The sum of the products of 1.25 and the dollar limit
under Code Section 415(c)(1)(A) for such Plan Year and
for each prior year of service with a Commonly
Controlled Entity and its predecessor, and

(2) the sum of the products of 1.4 and twenty-five percent
(25%) of the Participant's Compensation for such Plan
Year and for each prior year of service with a Commonly
Controlled Entity and its predecessor.

If the Combined Fraction of such Participant exceeds one and if the
Related Defined Benefit Plan permits it, the Participant's Defined Benefit
Plan Fraction shall be reduced by limiting the Participant's annual
benefits payable from the Related Defined Benefit Plan in which he or she
participates to the extent necessary to reduce the Combined Fraction of
such Participant to one.

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<PAGE>

13.6 SHORT PLAN YEAR. With respect to any change of the Plan Year (and
co-existent limitation year), the dollar limitation of the Maximum Annual
Addition for such Plan Year shall be determined by multiplying such dollar
amount by a fraction, the numerator of which is the number of months (including
fractional parts of a month) in the short Plan Year, and the denominator of
which is twelve (12).

13.7 GRANDFATHERING OF APPLICABLE LIMITATIONS. The Plan shall recognize
and apply any grandfathering of applicable benefits and contributions
limitations which are permitted under ERISA, the Tax Equity and Fiscal
Responsibility Act of 1982 and the Tax Reform Act of 1986.

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ARTICLE XIV
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

ADP AND ACP TESTS

14.1 CONTRIBUTION LIMITATION DEFINITIONS. For purposes of this Article,
the following terms are defined as follows:

(a) "AVERAGE CONTRIBUTION PERCENTAGE" OR "ACP" means, separately,
the average of the Calculated Percentage for Participants within the HCE
Group and the NHCE Group, respectively, for a Plan Year.

(b) "AVERAGE DEFERRAL PERCENTAGE" OR "ADP" means, separately, the
average of the Calculated Percentage calculated for Participants within
the HCE Group and the NHCE Group, respectively, for a Plan Year.

(c) "CALCULATED PERCENTAGE" means the calculated percentage for a
Participant. The calculated percentage refers to either the
K-Contributions (including amounts distributed because they exceeded the
Contribution Dollar Limit) with respect to Compensation which would have
been received by the Participant in the Plan Year but for his or her
Contribution Election, or M-Contributions allocated to the Participant's
Account as of a date within the Plan Year, divided by his or her
Compensation for such Plan Year.

(d) "M-CONTRIBUTIONS" shall include Matching Contributions
(excluding Qualified Matching Contributions). In addition,
M-Contributions may include Pre-Tax Contributions and Special
Contributions treated as Matching Contributions, but only to the extent
that (1) the Committee elects to use them; and (2) they meet the
requirements of Code Section 401(m) to be regarded as Matching
Contributions. M-Contributions shall not include Matching Contributions
which become a Forfeiture because the Contribution to which it relates is
in excess of the ADP Test, ACP Test or the Contribution Dollar Limit.

(e) "K-CONTRIBUTIONS" shall include Pre-Tax Contributions
(excluding Pre-Tax Contributions treated as Matching Contributions), but
shall exclude Limited Deferrals to this Plan made on behalf of any NHCE in
excess of the Contribution Dollar Limit. In addition, Deferrals may
include Qualified Matching Contributions and Special Contributions, but
only to the extent that (1) the Committee elects to use them and (2) they
meet the requirements of Code Section 401(k) to be regarded as elective
contributions.

(f) "HCE GROUP" AND "NHCE GROUP" means, with respect to each
Employer and its Commonly Controlled Entities, the respective group of
HCEs and NHCEs who are eligible to have amounts contributed on their
behalf for the

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<PAGE>

Plan Year, including Employees who would be eligible but for their
election not to participate or to contribute, or because their pay is
greater than zero but does not exceed a stated minimum, but subject to the
following:

(1) If the Related Plans are subject to the ADP or ACP Test,
and are considered as one plan for purposes of Code
Sections 401(a)(4) or 410(b) (other than 410(b)(2)), all
such plans shall be aggregated and treated as one plan for
purposes of meeting the ADP and ACP Tests provided that,
for Plan Years beginning after December 31, 1989, plans
may only be aggregated if they have the same Plan Year.

(2) If an HCE who is a five-percent owner (within the meaning
of Code Section 416) or one of the ten HCE most highly
compensated during the Plan Year has any Family Members,
the K-Contributions, M-Contributions and Compensation of
such HCE and his or her Family Members shall be combined
and treated as a single HCE. In addition, such amounts for
all other Family Members shall be removed from the NHCE
Group percentage calculation.

(3) If an HCE is covered by more than one cash or deferred
arrangement maintained by the Related Plans, all such
arrangements (other than arrangements in plans that are
not required to be aggregated for this purpose under
Treas. Reg. Section 1.401(k)-1(g)(I)(ii)(B)) with
respect to the Plan Years ending with or within the same
calendar year shall be aggregated and treated as one
arrangement for purposes of calculating the separate
percentage for the HCE which is used in the determination
of the Average Percentage.

14.2 ADP AND ACP TESTS. For each Plan Year, the ADP and ACP for the HCE
Group must meet either the Basic or Alternative Limitation when compared to the
respective ADP and ACP for the NHCE Group:

(a) BASIC LIMITATION. The ADP or ACP for the HCE Group may not
exceed 1.25 times the ADP or ACP, respectively, for the NHCE Group.

(b) ALTERNATIVE LIMITATION. The ADP or ACP for the HCE Group is
limited by reference to the ADP or ACP, respectively, for the NHCE Group
as follows:

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If the NHCE Group Then the Maximum HCE
Percentage is: Group Percentage is:
-------------- -------------------
Less than 2% 2 times ADP or ACP for the NHCE
Group
2% to 8% ADP or ACP for the NHCE Group plus
2%
More than 8% Basic Limitation applies

14.3 CORRECTION OF ADP AND ACP TESTS.

(a) REDUCTION OF K-CONTRIBUTIONS OR M-CONTRIBUTIONS. If the ADP or
ACP are not met or will not be met, the Committee shall determine a
maximum percentage to be used in place of the Calculated Percentage for
each HCE that would reduce the ADP or ACP of the HCE Group by a sufficient
amount to meet the ADP and ACP Tests. For any HCE Group who has a Family
Member, the reduction amount shall be prorated among Family Members as
provided in Code Sections 401(k) and (m).

(b) ADP CORRECTION. Pre-Tax Contributions (including amounts
previously refunded because they exceeded the Contribution Dollar Limit)
shall be recharacterized by allocating such Pre-Tax Contributions to the
Participant's Post-Tax Account within two and one-half months after the
close of the Plan Year but not to exceed Ten Percent (10%) of his or her
Compensation in an amount equal to the actual K-Contribution minus the
product of the maximum percentage for that HCE and the HCE's Compensation.
Matching Contributions with respect to such distributed Pre-Tax
Contributions shall be forfeited (unless paid to the Participant due to an
ACP Correction).

(c) ACP CORRECTION. Matching Contribution amounts in excess of the
maximum percentage of an HCE's Compensation shall, by the end of the next
Plan Year, be refunded to the Participant to the extent vested, and
forfeited to the extent such amounts were not vested as of the end of the
Plan Year being tested.

(d) INVESTMENT FUND SOURCES. Once the amount of Pre-Tax and
Matching Contributions to be refunded is determined, amounts shall then be
taken by type of investment in direct proportion to the market value of
the Participant's interest in each Investment Fund (which excludes
Participant loans) as of the Trade Date as of which the correction is
processed.

(e) FAMILY MEMBER CORRECTION. To the extent any reduction is
necessary with respect to an HCE and his or her Family Members that have
been combined and treated for testing purposes as a single Employee, the

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excess K-Contributions and/or M-Contributions from the ADP and/or
ACP Test shall be prorated among each such Participant in direct
proportion to his K-Contributions and/or M-Contributions included in
each test.

14.4 METHOD OF CALCULATION. The Committee shall determine the maximum
percentage for each HCE whose Calculated Percentage(s) is(are) the highest at
any one time by reducing his or her Calculated Percentage in the following
manner until the ADP and/or ACP Test is satisfied:

(a) The Calculated Percentage for each HCE under a Related Plan
shall be reduced to the extent permitted under such Related Plan.

(b) If more reduction is needed, the Calculated Percentage of each
HCE whose Calculated Percentage (stated in absolute terms) is the greatest
shall be reduced by one-hundredth (1/100) of one percentage point.

(c) If more reduction is needed, the Calculated Percentage of each
HCE whose Calculated Percentage (stated in absolute terms) is the greatest
(including the Calculated Percentage of any HCE whose Calculated
Percentage was adjusted under Paragraph (b) shall be reduced by
one-hundredth (1/100) of one percentage point.

(d) If more reduction is needed, the procedures of Paragraph (c)
shall be repeated.

14.5 MULTIPLE USE TEST. If the Average Contribution Percentage and the
Average Deferral Percentage for the HCE Group exceeds the Basic Limitation in
both the ADP or the ACP Tests (after correction of the ADP and ACP Test), the
ADP and ACP (as corrected) for the HCE Group must also comply with the
requirements of Code Section 401(m)(9), which as of the Effective Date require
that the sum of these two percentages (as determined after any corrections
needed to meet the ADP or ACP Tests have been made) must not exceed the
greater of:

(a) the sum of

(1) the larger of the ADP or ACP for the NHCE Group times
1.25; and

(2) the smaller of the ADP or ACP for the NHCE Group, times
two (2) if the NHCE Average Percentage is less than two
percent (2%), or plus two percent (2%) if it is two
percent (2%) or more; or

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(b) the sum of

(1) the lesser of the ADP or ACP for the NHCE Group times
1.25; and

(2) the greater of the ADP or ACP for the NHCE Group, times
two (2) if the NHCE Average Percentage is less than two
percent (2%), or plus two percent (2%) if it is two
percent (2%) or more.

If the multiple use limit is exceeded, the Committee shall determine a
maximum ADP or ACP for the HCE Group and shall reduce the ADP or ACP for
each HCE in the same manner as would be used to correct to ADP or ACP.

14.6 ADJUSTMENT FOR INVESTMENT GAIN OR LOSS. The net investment gain or
loss associated with the K-Contributions and/or M-Contributions to be
distributed shall be distributed or charged against a distribution within two
and one-half (2 1/2) months but no later than twelve (12) months following the
close of the applicable Plan Year. Such gain or loss is calculated as follows:

E X G X (1 + (10% X M))
------
(AB-G)

where:

E = the total excess Deferrals or Contributions,

G = the net gain or loss for the Plan Year from all of an HCE's
affected Accounts,

AB = the total value of an HCE's affected Accounts, determined as of
the end of the Plan Year being corrected,

M = the number of full months from the Plan Year end to the date
excess amounts are paid, plus one for the month during which
payment is to be made if payment will occur after the fifteenth
(15th) of the month.

14.7 REQUIRED RECORDS. The Committee shall maintain records which are
sufficient to demonstrate that the ADP, ACP and Multiple Use Test has been met
for

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each Plan Year for at least as long as the Employer's corresponding tax year is
open to audit.

14.8 INCORPORATION BY REFERENCE. The provisions of this Section are
intended to satisfy the requirements of Code Sections 401(k)(3), (m)(2), (m)(9)
and Treas. Reg. Sections 1.401(k)-1(b), 1.401(m)-1(b) and 1.401(m)-2 and, to the
extent not otherwise stated in this Section, those Code Sections and Treasury
Regulations are incorporated herein by reference.

14.9 COLLECTIVELY BARGAINED EMPLOYEES. The provisions of this Article
shall apply separately to Participants who are collectively bargained employees
within the meaning of Treas. Reg. Section 1.410(b)-6(d)(2) and for Participants
who are not collectively bargained employees.

14.10 QSLOB. The Committee in its sole discretion may apply the
provisions of this Article separately with respect to each qualified separate
line of business, as defined in Section 414(r) of the Code.

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ARTICLE XV
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

CUSTODIAL ARRANGEMENTS

15.1 CUSTODIAL AGREEMENT. The Committee may enter into one or more
Custodial Agreements to provide for the holding, investment and payment of Plan
assets, or direct by execution of an insurance contract that all or a specified
portion of the Plan's assets be held, invested and paid under such a contract.
All Custodial Agreements, as from time to time amended, shall continue in force
and shall be deemed to form a part of the Plan. Subject to the requirements of
the Code and ERISA, the Committee may cause assets of the Plan which are
securities to be held in the name of a nominee or in street name provided such
securities are held on behalf of the Plan by:

(a) a bank or trust company that is subject to supervision by the
United States or a State, or a nominee of such bank or trust company;

(b) a broker or dealer registered under the Securities Exchange Act
of 1934, or a nominee of such broker or dealer; or

15.2 SELECTION OF CUSTODIAN. The Committee shall select, remove or
replace the Custodian in accordance with the Custodial Agreement. The
subsequent resignation or removal of a Custodian and the approval of its
accounts shall all be accomplished in the manner provided in the Custodial
Agreement.

15.3 CUSTODIAN'S DUTIES. Except as provided in ERISA, the powers, duties
and responsibilities of the Custodian shall be as stated in the Custodial
Agreement, and unless expressly stated or delegated to the Custodian (with the
Custodian's acceptance), nothing contained in this Plan shall be deemed by
implication to impose any additional powers, duties or responsibilities upon the
Custodian. All Employer Contributions and Rollover Contributions shall be paid
into the Trust, and all benefits payable under the Plan shall be paid from the
Trust, except to the extent such amounts are paid to a Custodian other than the
Trustee. An Employer shall have no rights or claims of any nature in or to the
assets of the Plan except the right to require the Custodian to hold, use, apply
and pay such assets in its hands, in accordance with the directions of the
Committee, for the exclusive benefit of the Participants and their
Beneficiaries, except as hereinafter provided.

15.4 SEPARATE ENTITY. The Custodial Agreement under this Plan from its
inception shall be a separate entity aside and apart from Employers or their
assets,

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and the corpus and income thereof shall in no event and in no manner whatsoever
be subject to the rights or claims of any creditor of any Employer.

15.5 PLAN ASSET VALUATION. As of each Valuation Date, the Fair Market
Value of the Plan's assets held or posted to an Investment Fund shall be
determined by the Committee or the Custodian, as appropriate.

15.6 RIGHT OF EMPLOYERS TO PLAN ASSETS. The Employers shall have no
right or claim of any nature in or to the assets of the Plan except the right to
require the Custodian to hold, use, apply, and pay such assets in its possession
in accordance with the Plan for the exclusive benefit of the Participants or
their Beneficiaries and for defraying the reasonable expenses of administering
the Plan; provided, that:

(a) if the Plan receives an adverse determination with respect to
its initial qualification under Sections 401(a), 401(k) and 401(m) of the
Code, Contributions conditioned upon the qualification of the Plan shall
be returned to the appropriate Employer within one (1) year of such denial
of qualification; provided, that the application for determination of
initial qualification is made by the time prescribed by law for filing the
respective Employer's return for the taxable year in which the Plan is
adopted, or by such later date as is prescribed by the Secretary of the
Treasury under Section 403(c)(2)(B) of ERISA;

(b) if, and to the extent that, deduction for a Contribution under
Section 404 of the Code is disallowed, Contributions conditioned upon
deductibility shall be returned to the appropriate Employer within one (1)
year after the disallowance of the deduction;

(c) if, and to the extent that, a Contribution is made through
mistake of fact, such Contribution shall be returned to the appropriate
Employer within one year of the payment of the Contribution; and

(d) any amounts held suspended pursuant to the limitations of Code
Section 415 shall be returned to the Employers upon termination of the
Plan.

All Contributions made hereunder are conditioned upon the Plan being
qualified under Sections 401(a) or 401(k) and 401(m) of the Code and a
deduction being allowed for such contributions under Section 404 of the
Code. Pre-Tax Contributions returned to an Employer pursuant to this
Section shall be paid to the Participant for whom contributed as soon as
administratively convenient. If these provisions result in the return of
Contributions after such amounts have been allocated to Accounts, such
Accounts shall be reduced by the amount of the allocation attributable to
such amount, adjusted for any losses or expenses.

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ARTICLE XVI
- -------------------------------------------------------------------------------

ADMINISTRATION AND INVESTMENT MANAGEMENT

16.1 AUTHORITY AND RESPONSIBILITY OF THE BOARD OF DIRECTORS. The Board
of Directors shall have overall responsibility for the establishment, amendment,
termination, administration and operation of the Plan, for the establishment of
a funding policy for the Plan, and for the investment of the Plan's assets.
There is hereby delegated to the Committee, as set forth in this Plan and to the
Investment Committee, as set forth in the Custodial Agreement, such
responsibilities as are designated in each document.

16.2 COMMITTEE MEMBERSHIP. The Committee shall consist of not less than
3 persons, who shall be appointed by the Board of Directors of the Company. In
the absence of such appointment of the Committee, the Company will be the
Committee. Committee members shall remain in office at the will of the Board of
Directors and the Board of Directors may from time to time remove any of said
members with or without cause and shall appoint their successors.

16.3 COMMITTEE STRUCTURE. Any individual may be a member of the
Committee. Any member of the Committee may resign by delivering his or her
written resignation to the Board of Directors, and such resignation shall become
effective upon the date specified therein. A member who is an Employee shall
automatically cease to be a member upon his or her Termination of Employment.
In the event of a vacancy in membership, the remaining members shall constitute
the Committee in question with full power to act until said vacancy is filled.

16.4 COMMITTEE ACTIONS. The Committee may act as follows:

(a) The members of the Committee may act at a meeting (including a
meeting at different locations by telephone conference) or in writing
without a meeting (through the use of a single document or concurrent
document).

(b) Any Committee member by writing may delegate any or all of his
or her rights, powers, duties and discretions to any other member with the
consent of such other member.

(c) The Committee shall act by majority decision, which action
shall be effective as if such action had been taken by all members of the
Committee; provided that by majority action one or more Committee members
or other persons may be authorized to act with respect to particular
matters on behalf of all Committee members.

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(d) Subject to applicable law, no member of the Committee shall be
liable for an act or omission of the other Committee members in which the
former had not concurred.

(e) Any action by the Committee under this Plan shall be treated as
an action of a Named Fiduciary under this Plan; provided that, where
reference is made in this Plan (or where the Committee designates in
writing) that the action is on behalf of the Employer, the Committee shall
be acting as an agent of the Employer, pursuant to authority granted by
the Employer.

16.5 COMPENSATION. The members of the Committee shall serve without
compensation for their services as such.

16.6 RESPONSIBILITY AND AUTHORITY OF THE COMMITTEE REGARDING
ADMINISTRATION OF THE PLAN. The Committee on behalf of the Participants will
enforce the Plan in accordance with its respective terms and maintain the Plan
in the form of a written document as required by law and to maintain its
tax-exempt status under the Code. Unless otherwise specifically provided in the
Plan, the Committee shall have full and complete authority, responsibility and
control over the management, administration, and operation of the Plan,
including, but not limited to, the authority and discretion to:

(a) formulate, adopt, issue and apply procedures and rules and
change, alter or amend such procedures and rules in accordance with law
and as may be consistent with the terms of the Plan;

(b) exercise such discretion as may be required to construe and
apply the provisions of the Plan, subject only to the terms and conditions
of the Plan;

(c) appoint and compensate such agents and other specialists
(including attorneys, actuaries and accountants) to aid it in the
administration of the Plan, and arrange for such clerical, accounting,
legal or other services, as the Committee considers necessary or
appropriate in carrying out the provisions of the Plan;

(d) appoint and compensate an independent outside accountant to
conduct such audits of the financial statements of the Plan as the
Committee considers necessary or appropriate;

(e) delegate to the Custodian any tax withholding or tax reporting
obligations it may have under law;

(f) be the agent for service of legal process;

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(g) determine the Accounting Periods, Change Date, Notice Date and
Sweep Date for various transactions;

(h) exercise authority regarding the creation, cancellation or
change of an Investment Fund; and

(i) take all necessary and proper acts as are required for the
Committee to fulfill its duties and obligations under the Plan.

16.7 ALLOCATIONS AND DELEGATIONS OF RESPONSIBILITY.

(a) DELEGATIONS. Each Named Fiduciary, respectively, shall have
the authority to delegate, from time to time, all or any part of its
responsibilities under the Plan to such person or persons as it may deem
advisable and to revoke any such delegation of responsibility. Any action
of the delegate in the exercise of such delegated responsibilities shall
have the same force and effect for all purposes hereunder as if such
action had been taken by the Named Fiduciary. Any Named Fiduciary shall
not be liable for any acts or omissions of any such delegate. The
delegate shall report periodically to the Named Fiduciary, as applicable,
concerning the discharge of the delegated responsibilities.

(b) ALLOCATIONS. Each Named Fiduciary, respectively, shall have
the authority to allocate, from time to time, all or any part of its
responsibilities under the Plan to one or more of its members as it may
deem advisable, and to revoke such allocation of responsibilities. Any
action of the member to whom responsibilities are allocated in the
exercise of such allocated responsibilities shall have the same force and
effect for all purposes hereunder as if such action had been taken by the
Named Fiduciary. Any Named Fiduciary shall not be liable for any acts or
omissions of such member. The member to whom responsibilities have been
allocated shall report periodically to the Named Fiduciary, as applicable,
concerning the discharge of the allocated responsibilities.

(c) LIMIT ON LIABILITY. Fiduciary duties and responsibilities
which have been allocated or delegated pursuant to the terms of the Plan
or the Trust, are intended to limit the liability of each Named Fiduciary,
as appropriate, in accordance with the provisions of Section 405(c)(2) of
ERISA.

16.8 COMMITTEE BONDING. The members of the Committee shall serve without
bond (except as otherwise required by federal law).

16.9 INFORMATION TO BE SUPPLIED BY EMPLOYER. Each Employer shall supply
to the Committee, within a reasonable time of its request, the names of all
Employees,

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their age, their date of hire, and the amount of Compensation paid to each
Employee, the names and dates of all Employees who incurred a Termination of
Employment during the Plan Year, and the Hours of Service earned by each
Employee during the Plan Year. Each Employer shall provide to the Committee or
its delegate such other information as it shall from time to time need in the
discharge of its duties. The Committee may rely conclusively on the information
certified to it by an Employer.

16.10 RECORDS. The regularly kept records of the Committee (or, where
applicable, the Custodian) and any Employer shall be conclusive evidence of the
Accrued Benefit of a Participant, his or her Compensation, his or her age, his
or her status as an Eligible Employee, and all other matters contained therein
applicable to this Plan; provided that a Participant may request a correction in
the record of his or her age at any time prior to retirement, and such
correction shall be made if within ninety (90) days after such request he or she
furnishes in support thereof a birth certificate, baptismal certificate, or
other documentary proof of age satisfactory to the Committee.

16.11 PLAN EXPENSES. All expenses of the Plan shall be paid by the Trust
except to the extent paid by the Employers, and if paid by the Employers such
Employers may seek reimbursement of such expenses from the Trust and the Trust
shall reimburse the Employers if not prohibited by ERISA. If borne by the
Employers, expenses of administering the Plan shall be borne by the Employers in
such proportions as the Committee shall determine.

16.12 FIDUCIARY CAPACITY. Any person or group of persons may serve in
more than one fiduciary capacity with respect to the Plan.

16.13 EMPLOYER'S AGENT. The Committee shall act as agent for each
Employer in the administration of the Plan and the investment of the Plan's
assets and the Company shall act as agent for each Employer in amending or
terminating the Plan.

16.14 PLAN ADMINISTRATOR. The Committee may appoint a plan administrator
who may (but need not) be a member of the Committee; and in the absence of such
appointment, the Committee shall be the plan administrator.

16.15 APPOINTMENT OF RECORD-KEEPER. The plan administrator has
responsibility for the maintenance of the records of the Participants' Accounts
in accordance with the terms of the Plan. Such records shall include
year-to-date and life-to-date Contributions under the Plan (adjusted for gains,
losses and distributions) allocated to each Participant's Accounts and such
other information, including such information as the Committee or plan
administrator require to satisfy their reporting and disclosure obligations
under ERISA and the Code. The plan administrator also has responsibility for
preparation and issuance of any and all reports required by the Code with
respect to distributions under the Plan and the responsibility with respect to
the

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withholding of any amounts required by the Code to be withheld at the source and
to transmit funds withheld and any and all necessary reports with respect to
such withholding to the Internal Revenue Service.

16.16 PLAN ADMINISTRATOR DUTIES AND AUTHORITY. Except to the extent that
certain responsibilities may be reserved by the Committee to itself or delegated
to other fiduciaries, the plan administrator shall perform all such duties as
are necessary to operate, administer and manage the Plan in accordance with the
terms thereof, including but not limited to the following:

(a) to determine all questions relating to a Participant's
eligibility for participation and benefits under the Plan and to finally
resolve, in the exercise of its full and complete discretionary authority,
any issues presented through the Plan claims procedure (and any final
determination of the Committee shall not be subject to DE NOVO review if
challenged in court and shall not be overturned unless proven to be
arbitrary and capricious upon the evidence considered by the Committee at
the time of its decision);

(b) to provide each Participant with a summary plan description no
later than 90 days after he or she has become a Participant (or such other
period permitted under ERISA Section 104(b)(1)), as well as informing each
Participant of any material modification to the Plan in a timely manner;

(c) to make appropriate determinations as to allocations of
Contributions and the application of Forfeitures; and to make appropriate
determination as to whether Rollover Contributions constitute such;

(d) to interpret and construe the provisions of the Plan, to make
regulations and settle disputes within limits which are not inconsistent
with the terms thereof;

(e) where applicable, to provide each Participant or his Spouse
with QJSA and QPSA information;

(f) to adopt and prescribe the use of necessary forms and
procedures for giving instructions to the Committee, a Named Fiduciary or
the Trustee;

(g) to prepare and file reports, notices, and any other documents
relating to the Plan which may be required by the Secretary of Labor, the
Secretary of the Treasury or any other governmental department or agency,
including, without limitation, those relating to a Participant's service,
accrued benefits, the percentage of such benefits which are
nonforfeitable, the date

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after which benefits are nonforfeitable even if the Participant dies and
annual registrations;

(h) to prepare and distribute to Participants all communication
materials required by ERISA;

(i) to compute and certify to the Custodian the amount and kind of
benefits payable to or withdrawn from Participants and Beneficiaries and
the date of payment, including withdrawals; and to prescribe procedures to
be followed by Participants and Beneficiaries in claiming benefits;

(j) to keep records relating to Participants and other matters
applicable to this Plan, provided that the Committee and the Custodian
may, by a separate written agreement, require that the Custodian keep such
records;

(k) to respond to a QDRO;

(l) to instruct the Custodian as to Participants' and
Beneficiaries' Investment Elections and Conversion Elections;

(m) to make available for inspection and to provide upon request at
such charge as may be permitted and determined by the Committee, documents
and instruments required to be disclosed by ERISA;

(n) to make a determination of whether a Participant is suffering a
deemed or demonstrated financial need and whether a withdrawal from this
Plan is deemed or demonstrated necessary to satisfy such financial need,
provided, however, in making such determination, the plan administrator
may rely, if reasonable to do so, upon representations made by such
Participant in connection with his or her request for a withdrawal;

(o) to take such actions as are necessary to establish and maintain
in full and timely compliance with any law or regulation having pertinence
to this Plan; and

(p) to have reasonable powers necessary or appropriate to
accomplish its duties as plan administrator, including delegation to,
employment of, or contracting for the services of others to assist in
performing its duties.

16.17 COMMITTEE DECISIONS FINAL. The decision of the Committee in
matters within its jurisdiction shall be final, binding, and conclusive upon
the Employers and the Custodian and upon each Employee, Participant, Spouse,
Beneficiary, and every other person or party interested or concerned.

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ARTICLE XVII
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

CLAIMS PROCEDURE

17.1 INITIAL CLAIM FOR BENEFITS. Each person entitled to benefits under
this Plan (a "Claimant") must sign and submit his or her claim for benefits to
the Committee or its agent in writing in such form as is provided or approved by
such Committee. A Claimant shall have no right to seek review of a denial of
benefits, or to bring any action in any court to enforce a claim for benefits
prior to his or her filing a claim for benefits and exhausting his or her rights
under this Section. When a claim for benefits has been filed properly, such
claim for benefits shall be evaluated and the Claimant shall be notified by the
Committee or agent of its approval or denial within ninety (90) days after the
receipt of such claim unless special circumstances require an extension of time
for processing the claim. If such an extension of time for processing is
required, written notice of the extension shall be furnished to the Claimant by
the Committee or agent prior to the termination of the initial ninety (90) day
period which shall specify the special circumstances requiring an extension and
the date by which a final decision will be reached (which date shall not be
later than one hundred eighty (180) days after the date on which the claim was
filed). A Claimant shall be given a written notice in which the Claimant shall
be advised as to whether the claim is granted or denied, in whole or in part.
If a claim is denied, in whole or in part, the Claimant shall be given written
notice which shall contain (1) the specific reasons for the denial, (2)
references to pertinent Plan provisions upon which the denial is based, (3) a
description of any additional material or information necessary to perfect the
claim and an explanation of why such material or information is necessary, and
(4) the Claimant's rights to seek review of the denial.

17.2 REVIEW OF CLAIM DENIAL. If a claim is denied, in whole or in part
(or if within the time periods prescribed for in the initial claim, the
Committee or agent has not furnished the Claimant with a denial and the claim is
therefore deemed denied), the Claimant shall have the right to request that the
Committee review the denial, provided that the Claimant files a written request
for review with the Committee within sixty (60) days after the date on which the
Claimant received written notification of the denial. A Claimant (or his or her
duly authorized representative) may review pertinent documents and submit issues
and comments in writing to the Committee. Within sixty (60) days after a
request for review is received, the review shall be made and the Claimant shall
be advised in writing by the Committee of the decision on review, unless special
circumstances require an extension of time for processing the review, in which
case the Claimant shall be given a written notification by the Committee within
such initial sixty (60) day period specifying the reasons for the extension and
when such review shall be completed (provided that such review shall be
completed within one hundred and twenty (120) days after the date on which the
request for review was filed). The decision on review shall be forwarded to the

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Claimant by the Committee in writing and shall include specific reasons for the
decision and references to Plan provisions upon which the decision is based. A
decision on review shall be final and binding on all persons for all purposes.
If a Claimant shall fail to file a request for review in accordance with the
procedures described in this Section, such Claimant shall have no right to
review and shall have no right to bring action in any court and the denial of
the claim shall become final and binding on all persons for all purposes.

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ARTICLE XVIII
- -------------------------------------------------------------------------------

ADOPTION AND WITHDRAWAL FROM PLAN

18.1 PROCEDURE FOR ADOPTION. Any Commonly Controlled Entity may by
resolution of such Commonly Controlled Entity's board of directors adopt the
Plan for the benefit of its employees as of the date specified in the board
resolution. No such adoption shall be effective until such adoption has been
approved by the Committee.

18.2 PROCEDURE FOR WITHDRAWAL. Any Employer (other than the Company) may,
by resolution of the board of directors of such Employer, with the consent of
the Committee and subject to such conditions as may be imposed by the Committee,
terminate its adoption of the Plan. Notwithstanding the foregoing, an Employer
will be deemed to have terminated its adoption of the Plan when it ceases to be
a Commonly Controlled Entity. With respect to any Participant whose Employer is
deemed to have withdrawn from the Plan because it ceases to be a Commonly
Controlled Entity, such Participant's Account shall be fully vested as of the
date of such withdrawal, provided there is no successor plan or trust to which
the balance of such Participant's Accounts may be transferred.

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ARTICLE XIX
- -------------------------------------------------------------------------------

AMENDMENT, TERMINATION AND MERGER

19.1 AMENDMENTS.

(a) POWER TO AMEND. The Company, by resolution of the Board of
Directors on behalf of all Employers, or the Committee as provided in
Subsection (c) below, may amend, modify, change, revise or discontinue this
Plan by amendment at any time; provided, however, that no amendment shall:

(1) increase the duties or liabilities of the Custodian or the
Committee without its written consent;

(2) have the effect of vesting in any Employer any interest in
any funds, securities or other property, subject to the
terms of this Plan and the Custodial Agreement;

(3) authorize or permit at any time any part of the corpus or
income of the Plan's assets to be used or diverted to
purposes other than for the exclusive benefit of
Participants and Beneficiaries;

(4) except to the extent permissible under ERISA and the Code,
make it possible for any portion of the Trust assets to
revert to an Employer to be used for, or diverted to, any
purpose other than for the exclusive benefit of Participants
and Beneficiaries entitled to Plan benefits and to defray
reasonable expenses of administering the Plan;

(5) amend the provisions of this Plan which either (1) state the
amount and price of Company Stock to be awarded to
designated officers or categories of officers and,
specifically, the timing of such awards, or (2) set forth a
formula that determines the amount, price and timing of such
awards, shall not be amended more than once every six (6)
months, other than to comport with changes in the Code,
ERISA or the rules thereunder;

(6) permit an Employee to be paid the balance of his or her
Pre-Tax Account unless the payment would otherwise be
permitted under Code Section 401(k); and

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(7) have any retroactive effect as to deprive any such person of
any benefit already accrued, except that no amendment made
in order to conform the Plan as a plan described in Section
401(a) of the Code of which amendments are permitted by the
Code or are required or permitted by any other statute
relating to employees' trusts, or any official regulations
or ruling issued pursuant thereto, shall be considered
prejudicial to the rights of any such person.

(b) RESTRICTION ON AMENDMENT. No amendment to the Plan shall
deprive a Participant of his or her nonforfeitable rights to benefits
accrued to the date of the amendment. Further, if the vesting schedule of
the Plan is amended, each Participant with at least three (3) years of
Vesting Service with the Employer may elect, within a reasonable period
after the adoption of the amendment, to have his nonforfeitable percentage
computed under the Plan without regard to such amendment. The period
during which the election may be made shall commence with the date the
amendment is adopted and shall end on the latest of:

(1) sixty (60) days after the amendment is adopted;

(2) sixty (60) days after the amendment becomes effective; or

(3) sixty (60) days after the Participant is issued written
notice of the amendment by the Employer or the Committee.

The preceding language concerning an amendment to the Plan's vesting
schedule shall also apply when a Plan with a different vesting schedule is
merged into this Plan. In addition to the foregoing, the Plan shall not be
amended so as to eliminate an optional form of payment of an Accrued
Benefit attributable to employment prior to the date of the amendment. The
foregoing limitations do not apply to benefit accrual occurring after the
date of the amendment.

(c) THE COMMITTEE. The Committee may amend, modify, change or revise
the Plan by amendment if such amendment could have been adopted under this
Section and it does not cause a change in the level or type of
contributions to be made to the Plan or otherwise materially increase the
duties and obligations of any or all Employers with respect to the Plans.

19.2 PLAN TERMINATION. It is the expectation of the Company that it will
continue the Plan and the payment of Contributions hereunder indefinitely, but
the

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continuation of the Plan and the payment of Contributions hereunder is not
assumed as a contractual obligation of the Company or any other Employer. The
right is reserved by the Company to terminate the Plan at any time, and the
right is reserved by the Company and any other Employer at any time to reduce,
suspend or discontinue its Contributions hereunder, provided, however, that the
Contributions for any Plan Year accrued or determined prior to the end of said
year shall not after the end of said year be retroactively reduced, suspended or
discontinued except as may be permitted by law. Upon termination of the Plan or
complete discontinuance of Contributions hereunder (other than for the reason
that the Employer has had no net profits or accumulated net profits), each
Participant's Accrued Benefit shall be fully vested. Upon termination of the
Plan or a complete discontinuance of Contributions, unclaimed amounts shall be
applied as Forfeitures and any unallocated amounts shall be allocated to
Participants who are Eligible Employees as of the date of such termination or
discontinuance on the basis of Compensation for the Plan Year (or short Plan
Year). Upon a partial termination of the Plan, the Accrued Benefit of each
affected Participant shall be fully vested. In the event of termination of the
Plan, the Committee shall direct the Custodian to distribute to each Participant
the entire amount of his or her Accrued Benefit as soon as administratively
possible, but not earlier than would be permitted in order to retain the Plan's
qualified status under Sections 401(a), (k) and (m) of the Code, as if all
Participants who are Employees had incurred a Termination of Employment on the
Plan's termination date. Should a Participant or a Beneficiary) not elect
immediate payment of a nonforfeitable Accrued Benefit in excess of three
thousand five hundred dollars ($3,500), the Committee shall direct the Custodian
to continue the Plan and Custodial Agreement for the sole purpose of paying to
such Participant his or her Accrued Benefit or death benefit, respectively,
unless in the opinion of the Committee, to make immediate single sum payments to
such Participant or Beneficiary would not adversely affect the tax qualified
status of the Plan upon termination and would not impose additional liability
upon any Employer or the Custodian.

19.3 PLAN MERGER. The Plan shall not merge or consolidate with, or
transfer any assets or liabilities to any other plan, unless each person
entitled to benefits would receive a benefit immediately after the merger,
consolidation or transfer (if the Plan were then terminated) which is equal to
or greater than the benefit he or she would have been entitled to immediately
before the merger, consolidation or transfer (if the Plan were then terminated).
The Committee shall amend or take such other action as is necessary to amend the
Plan in order to satisfy the requirements applicable to any merger,
consolidation or transfer of assets and liabilities.

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ARTICLE XX
- -------------------------------------------------------------------------------

SPECIAL TOP-HEAVY RULES

20.1 APPLICATION. Notwithstanding any provisions of this Plan to the
contrary, the provisions of this Article shall apply and be effective for any
Plan Year for which the Plan shall be determined to be a "Top-Heavy Plan" as
provided and defined herein.

20.2 SPECIAL TERMS. For purposes of this Article, the following terms
shall have the following meanings:

(a) "AGGREGATE BENEFIT" means the sum of:

(1) the present value of the accrued benefit under each and all
defined benefit plans in the Aggregation Group determined on
each plan's individual Determination Date as if there were a
termination of employment on the most recent date the plan
is valued by an actuary for purposes of computing plan costs
under Section 412 of the Code within the twelve (12) month
period ending on the Determination Date of each such plan,
but with respect to the first plan year of any such plan
determined by taking into account the estimated accrued
benefit as of the Determination Date; provided (A) the
method of accrual used for the purpose of this Paragraph (1)
shall be the same as that used under all plans maintained by
all Employers and Commonly Controlled Entities if a single
method is used by all stock plans or, otherwise, the slowest
accrual method permitted under Section 411(b)(1)(C) of the
Code, and (B) the actuarial assumptions to be applied for
purposes of this Paragraph (1) shall be the same assumptions
as those applied for purposes of determining the actuarial
equivalents of optional benefits under the particular plan,
except that the interest rate assumption shall be five
percent(5%);

(2) the present value of the accrued benefit (i.e., account
balances) under each and all defined contribution plans in
the Aggregation Group, valued as of the valuation date
coinciding with or immediately preceding the Determination
Date of each such plan, including (A) contributions made
after the valuation date but on or prior

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to the Determination Date, (B) with respect to the first
plan year of any plan, any contribution made subsequent to
the Determination Date but allocable as of any date in the
first plan year, or (C) with respect to any defined
contribution plan subject to Section 412 of the Code, any
contribution made after the Determination Date that is
allocable as of a date on or prior to the Determination
Date; and

(3) the sum of each and all amounts distributed (other than a
rollover or plan-to-plan transfer) from any Aggregation
Group Plan, plus a rollover or plan-to-plan transfer
initiated by the Employee and made to a plan which is not an
Aggregation Group Plan within the Current Plan Year or
within the preceding four (4) plan years of any such plan,
provided such amounts are not already included in the
present value of the accrued benefits as of the valuation
date coincident with or immediately preceding the
Determination Date.

The Aggregate Benefit shall not include the value of any rollover or
plan-to-plan transfer to an Aggregation Group Plan, which rollover or
transfer was initiated by a Participant, was from a plan which was not
maintained by an Employer or a Commonly Controlled Entity, and was made
after December 31, 1983, nor shall the Aggregate Benefit include the value
of employee contributions which are deductible pursuant to Section 219 of
the Code.

(b) "AGGREGATION GROUP" means the Plan and one or more plans
(including plans that terminated) which is described in Section 401(a) of
the Code, is an annuity contract described in Section 403(a) of the Code or
is a simplified employee pension described in Section 408(k) of the Code
maintained or adopted by an Employer or a Commonly Controlled Entity in the
Current Plan Year or one of the four preceding Plan Years which is either a
"Required Aggregation Group" or a "Permissive Aggregation Group".

(1) A "REQUIRED AGGREGATION GROUP" means all Aggregation Group
Plans in which either (1) a Key Employee participates or (2)
which enables any Aggregation Group Plan in which a Key
Employee participates to satisfy the requirements of
Sections 401(a)(4) and 410 of the Code.

(2) A "PERMISSIVE AGGREGATION GROUP" means Aggregation Group
Plans included in the Required Aggregation Group, plus one
or more other Aggregation Group Plans, as

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designated by the Committee in its sole discretion, which
satisfy the requirements of Sections 401(a)(4) and 410 of
the Code, when considered with the other component plans of
the Required Aggregation Group.

(d) "CURRENT PLAN YEAR" means (1) with respect to the Plan, the Plan
Year in which the Determination Date occurs, and (2) with respect to each
other Aggregation Group Plan, the plan year of such other plan in which
occurs the Determination Date of such other plan.

(e) "DETERMINATION DATE" means (1) with respect to the Plan and its
Plan Year, the last day of the preceding Plan Year; or (2) with respect to
any other Aggregation Group Plan in any calendar year during which the Plan
is not the only component plan of an Aggregation Group, the determination
date of each plan in such Aggregation Group to occur during the calendar
year as determined under the provisions of each such plan.

(f) "FORMER KEY EMPLOYEE" means an Employee (including a terminated
Employee) who is not a Key Employee but who was a Key Employee.

(g) "KEY EMPLOYEE" means an Employee (or a terminated Employee) who
at any time during the Current Plan Year or at any time during the four
preceding Plan Years is:

(1) an officer of a Commonly Controlled Entity whose
compensation from a Commonly Controlled Entity during the
Plan Year is greater than fifty percent (50%) of the amount
specified in Section 415(b)(1)(A) of the Code (as adjusted
for cost-of-living increases by the Secretary of the
Treasury) for the calendar year in which the Plan Year ends;
provided, however, that no more than the lesser of (A) fifty
(50) Employees, or (B) the greater of (i) three (3)
Employees or (ii) ten percent (10%) (rounded to the next
whole integer) of the greatest number of Employees during
the Current Plan Year or any of the preceding four Plan
Years shall be considered as officers for this purpose. Such
officers considered will be those with the greatest annual
compensation as an officer during the five (5) year period
ending on the Determination Date;

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<PAGE>

(2) One of the ten employees who owns (or is considered to own
within the meaning of Section 318 of the Code) more than a
one half percent (1/2%) interest in value and the largest
percentage ownership interest in value in a Commonly
Controlled Entity and whose total annual compensation from a
Commonly Controlled Entity is not less than the amount
specified in Section 415(b)(1)(A) of the Code (as adjusted
for cost-of-living increases by the Secretary of the
Treasury) for the calendar year in which the Plan Year ends;

(3) A person who owns more than five percent (5%) of the value
of the outstanding stock of any Commonly Controlled Entity
or more than five percent (5%) of the total combined voting
power of all stock of any Commonly Controlled Entity
(considered separately) or;

(4) A person who owns more than one percent (1%) of the value of
the outstanding stock of a Commonly Controlled Entity or
more than one percent (1%) of the total combined voting
power of all stock of a Commonly Controlled Entity
(considered separately) and whose total annual compensation
(as defined in section 1.415-2(d) of the Treasury
Regulations) from the Employer or a Commonly Controlled
Entity is in excess of one hundred and fifty thousand
dollars ($150,000).

The rules of Section 416(i)(1)(B) and (C) of the Code shall be applied for
purposes of determining an Employee's ownership interest in a Commonly
Controlled Entity for purposes of Paragraphs (3) and (4) herein. A
Beneficiary (who would not otherwise be considered a Key Employee) of a
deceased Key Employee shall be deemed to be a Key Employee in substitution
for such deceased Key Employee. Any person who is a Key Employee under
more than one of the four Paragraphs of this Section shall have his or her
Aggregate Benefit under the Aggregation Group Plans counted only once with
respect to computing the Aggregate Benefit of Key Employees as of any
Determination Date. Any Employee who is not a Key Employee shall be a
Non-Key Employee.

(h) "TOP-HEAVY PLAN" means the Plan with respect to any Plan Year
if the Aggregate Benefit of all Key Employees or the Beneficiaries of Key
Employees determined on the Determination Date is an amount in excess of
sixty percent (60%) of the Aggregate Benefit of all persons who are
Employees within the Current Plan Year; provided, that if an individual has
not performed services for an Employer or a Commonly Controlled Entity at
any time during

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<PAGE>

the five (5) year period ending on the Determination Date, the
individuals's Accrued Benefit shall not be taken into account. With
respect to any calendar year during which the Plan is not the only
Aggregation Group Plan, the ratio determined under the preceding sentence
shall be computed based on the sum of the Aggregate Benefits of each
Aggregation Group Plan totaled as of the last Determination Date of any
Aggregation Group Plan to occur during the calendar year.

20.3 MINIMUM CONTRIBUTION. For any Plan Year that the Plan shall be a
Top-Heavy Plan, each Participant who is an Eligible Employee but who is neither
a Key Employee nor a Former Key Employee on the last day of the Plan Year shall
have allocated to his or her Matching and Employer Accounts on the last day of
the Plan Year a Profit Sharing Contribution in an amount equal to three percent
(3%) of such Participant's Compensation not in excess of two hundred thousand
dollars ($200,000); provided, however, in no event shall such contribution on
behalf of such Participant be less than five percent (5%) of such Compensation
if any Aggregation Group Plan is a defined benefit plan which does not satisfy
the minimum benefit requirements with respect to such Participant. The amount of
Profit Sharing Contributions required to be allocated under this Section for any
Plan Year shall be reduced by the amount of Employer Contributions and
Forfeitures allocated under this Plan on behalf of the Participant and employer
contributions and forfeitures allocated on behalf of the Participant under any
other defined contribution plan in the Aggregation Group for the Plan Year.
Elective Deferrals to any Aggregation Group Plan made on behalf of a Participant
in Plan Years beginning after December 31, 1984 but before January 1, 1989 shall
be deemed to be Employer Contributions for the purpose of this Section. Elective
Deferrals and Matching Contributions to Aggregation Group Plans in Plan Years
beginning on or after January 1, 1989 shall not be used to meet the minimum
contribution requirements of this Section. Where Employer Contributions and
Forfeitures allocated on behalf of a Participant are insufficient to satisfy the
minimum contribution otherwise required by this Section, an additional employer
contribution shall be made and allocated to the Matching or Employer Accounts of
such Participant.

20.4 MAXIMUM BENEFIT ACCRUAL. For any Plan Year that the Plan is a
Top-Heavy Plan, the denominator of the "defined benefit plan fraction" and the
denominator of the "defined contribution plan fraction" shall be determined by
substituting "1.0" for "1.25"; provided, however, this limit shall not apply
with respect to an Employee for any Plan Year during which he accrues no benefit
under any plan of the Aggregation Group. The preceding sentence shall not apply
if, within this Article, there is substituted "four percent (4%)" for "three
percent (3%)" and "seven and one-half percent (7.5%)" for "five percent (5%)"
and "ninety percent (90%)" for "sixty percent (60%)."

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<PAGE>

ARTICLE XXI
- -------------------------------------------------------------------------------

MISCELLANEOUS PROVISIONS

21.1 ASSIGNMENT AND ALIENATION. As provided by Code Section 401(a)(13) and
to the extent not otherwise required by law, no benefit provided by the Plan may
be anticipated, assigned or alienated, except:

(a) to create, assign or recognize a right to any benefit with
respect to a Participant pursuant to a QDRO, or

(b) to use a Participant's vested Account balance as security for a
loan from the Plan which is permitted pursuant to Code Section 4975.

21.2 PROTECTED BENEFITS. All benefits which are protected by the terms of
Code Section 411(d)(6) and ERISA Section 204(g), which cannot be eliminated
without adversely affecting the qualified status of the Plan on and after July
1, 1994, shall be provided under this Plan to Participants for whom such
benefits are protected. The Committee shall cause such benefits to be
determined and the terms and provisions of the Plan immediately prior to July 1,
1994 are incorporated herein by reference and made a part hereof, but only to
the extent such terms and provisions are so protected. Otherwise, they shall
operate within the terms and provisions of this Plan, as determined by the
Committee.

21.3 PLAN DOES NOT AFFECT EMPLOYMENT RIGHTS. The Plan does not provide any
employment rights to any Employee. The Employer expressly reserves the right to
discharge an Employee at any time, with or without Cause, without regard to the
effect such discharge would have upon the Employee's interest in the Plan.

21.4 DEDUCTION OF TAXES FROM AMOUNTS PAYABLE. The Custodian shall deduct
from the amount to be distributed such amount as the Custodian, in its sole
discretion, deems proper to protect the Custodian and the Plan's assets held
under the Custodial Agreement against liability for the payment of death,
succession, inheritance, income, or other taxes, and out of money so deducted,
the Custodian may discharge any such liability and pay the amount remaining to
the Participant, the Beneficiary or the deceased Participant's estate, as the
case may be.

21.5 FACILITY OF PAYMENT. If a Participant or Beneficiary is declared an
incompetent or is a minor and a conservator, guardian, or other person legally
charged with his or her care has been appointed, any benefits to which such
Participant or Beneficiary is entitled shall be payable to such conservator,
guardian, or other person legally charged with his or her care. The decision of
the Committee in such matters shall be final, binding, and conclusive upon the
Employer and the Custodian and upon

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<PAGE>

each Employee, Participant, Beneficiary, and every other person or party
interested or concerned. An Employer, the Custodian and the Committee shall not
be under any duty to see to the proper application of such payments.

21.6 SOURCE OF BENEFITS. All benefits payable under the Plan shall be paid
or provided for solely from the Plan's assets held under the Custodial Agreement
and the Employers assume no liability or responsibility therefor.

21.7 INDEMNIFICATION. To the extent permitted by law each Employer shall
indemnify and hold harmless each member (and former member) of the Board of
Directors, each member (and former member) of the Committee, and each officer
and employee (and each former officer and employee) of an Employer to whom are
(or were) delegated duties, responsibilities, and authority with respect to the
Plan against all claims, liabilities, fines and penalties, and all expenses
reasonably incurred by or imposed upon him or her (including but not limited to
reasonable attorney fees and amounts paid in any settlement relating to the
Plan) by reason of his or her service under the Plan if he or she did not act
dishonestly, with gross negligence, or otherwise in knowing violation of the law
under which such liability, loss, cost or expense arises. This indemnity shall
not preclude such other indemnities as may be available under insurance
purchased or provided by an Employer under any by-law, agreement, or otherwise,
to the extent permitted by law. Payments of any indemnity, expenses or fees
under this Section shall be made solely from assets of the Employer and shall
not be made directly or indirectly from the assets of the Plan.

21.8 REDUCTION FOR OVERPAYMENT. The Committee shall, whenever it
determines that a person has received benefit payments under this Plan in excess
of the amount to which the person is entitled under the terms of the Plan, make
two reasonable attempts to collect such overpayment from the person.

21.9 LIMITATION ON LIABILITY. No Employer nor any agent or representative
of any Employer who is an employee, officer, or director of an Employer in any
manner guarantees the assets of the Plan against loss or depreciation, and to
the extent not prohibited by federal law, none of them shall be liable (except
for his or her own gross negligence or willful misconduct), for any act or
failure to act, done or omitted in good faith, with respect to the Plan. No
Employer shall be responsible for any act or failure to act of any Custodian
appointed to administer the assets of the Plan.

21.10 COMPANY MERGER. In the event any successor corporation to the
Company, by merger, consolidation, purchase or otherwise, shall elect to adopt
the Plan, such successor corporation shall be substituted hereunder for the
Company upon filing in writing with the Custodian its election so to do.

21.11 EMPLOYEES' TRUST. The Plan and Custodial Agreement are created for
the exclusive purpose of providing benefits to the Participants in the Plan and
their

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<PAGE>

Beneficiaries and defraying reasonable expenses of administering the Plan, and
the Plan and Custodial Agreement shall be interpreted in a manner consistent
with their being, respectively, a Plan described in Sections 401(a), 401(k) and
401(m) of the Code and Custodial Agreements exempt under Section 501(a) of the
Code. At no time shall the assets of the Plan be diverted from the above
purpose.

21.12 GENDER AND NUMBER. Except when the context indicates to the
contrary, when used herein, masculine terms shall be deemed to include the
feminine, and singular the plural.

21.13 INVALIDITY OF CERTAIN PROVISIONS. If any provision of this Plan
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions hereof and the Plan shall be construed and
enforced as if such provisions, to the extent invalid or unenforceable, had not
been included.

21.14 HEADINGS. The headings or articles are included solely for
convenience of reference, and if there is any conflict between such headings and
the text of this Plan, the text shall control.

21.15 UNIFORM AND NONDISCRIMINATORY TREATMENT. Any discretion exercisable
hereunder by an Employer or the Committee shall be exercised in a uniform and
nondiscriminatory manner.

21.16 LAW GOVERNING. The Plan shall be construed and enforced according to
the laws of the state in which the Trust is located, to the extent not preempted
by ERISA.

21.17 NOTICE AND INFORMATION REQUIREMENTS. Except as otherwise provided in
this Plan or in the Custodial Agreement or as otherwise required by law, the
Employer shall have no duty or obligation to affirmatively disclose to any
Participant or Beneficiary, nor shall any Participant or Beneficiary have any
right to be advised of, any material information regarding the Employer, at any
time prior to, upon or in connection with the Employer's purchase, or any other
distribution or transfer (or decision to defer any such distribution) of any
Company Stock or any other stock held under The Plan.

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<PAGE>

Executed in 3 counterpart originals this 29th day of August, 1994, but
effective as of the Effective Date.

VARLEN CORPORATION

By: /s/ Richard A. Nunemaker
---------------------------------

Title: Vice President, Finance and
------------------------------
Chief Financial Officer

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<PAGE>

APPENDIX A

INVESTMENT FUNDS

The Investment Funds offered to Participants and Beneficiaries as of July 1,
1994, based upon share accounting, are:

1. Fidelity Money Market Trust: Retirement Money Market Portfolio
2. Fidelity Managed Income Portfolio (blended with existing GICs)
3. Fidelity Asset Manager
4. Fidelity Growth & Income Portfolio
5. Fidelity Magellan Fund
6. Fidelity Overseas Fund
7. Fidelity Small Cap Stock Fund
8. Varlen Corporation Common Stock.

<PAGE>

APPENDIX B

ADDITIONAL GROUPS OF EMPLOYEES
WHO ARE ELIGIBLE TO PARTICIPATE IN THE PLAN

Employees who are members of the following groups (in connection with their
employment with an Employer) are eligible to participate in the Plan:

1. Metal Polishers, Buffers, Platers and Allied Workers International Union
AFL-CIO, Local #114 ("Local #114"); and

2. UAW, Local #455 ("Local #455").

For any Employees who are members of Local #114 or #455 (but, with respect to
Local #455, only to the extent such Employee was hired before March 1, 1994),
the Matching Contributions for each period shall be as follows:

1. with respect to Local #114:

(a) effective for pay periods beginning prior to July 1, 1994,
ten percent (10%) of the sum of each eligible Participant's Pre-Tax
Contributions for the period, provided that no Matching Contributions
shall be made based upon a Participant's Contributions in excess of six
percent (6%) of his or her Compensation for such period;

(b) effective for pay periods beginning on and after July 1,
1994, twenty percent (20%) of the sum of each eligible Participant's
Pre-Tax Contributions for the period, provided that no Matching
Contributions shall be made based upon a Participant's Contributions in
excess of six percent (6%) of his or her Compensation for such period;
and

2. with respect to Local #455, and only for an Employee who was hired before
March 1, 1994:

(a) effective for pay periods beginning prior to March 1, 1994,
one hundred percent (100%) of each eligible participant's first one
hundred dollars ($100.00) of Pre-Tax Contributions for the Plan Year and
fifty percent (50%) of each such participant's next one hundred dollars
($100.00) of Pre-Tax Contributions for the Plan Year;

(b) effective for pay periods beginning on and after March 1,
1994, one hundred percent (100%) of each eligible participant's first one
hundred fifty dollars ($150.00) of Pre-Tax Contributions for the Plan
Year and fifty percent (50%) of each such participant's next two hundred
dollars ($200.00) of Pre-Tax Contributions for the Plan Year.

<PAGE>

In addition, no Profit Sharing Contributions shall be made on behalf of any
Employees who are members of Local #114 or #455 (but, with respect to Local
#455, only to the extent such Employee was hired before March 1, 1994).

Any Employees who are members of Local #455 and who are hired on or after March
1, 1994 shall not be subject to these special rules regarding Matching and
Profit Sharing Contributions.

<PAGE>

VARLEN CORPORATION

ASSISTANT SECRETARY'S CERTIFICATE

I, Richard A. Nunemaker, Assistant Secretary of Varlen Corporation, a
Delaware corporation (the "Company"), hereby certify that:

Attached hereto are true and complete copies of certain resolutions
duly adopted by the Board of Directors of the Company as of August 29,
1994; such resolutions have not been amended, modified or rescinded and
remain in full force and effect on the date hereof.

IN WITNESS WHEREOF, I have hereunto signed my name this 30th day of
August, 1994.

/s/ Richard A. Nunemaker
----------------------------------
Richard A. Nunemaker
Assistant Secretary

<PAGE>

WHEREAS, the Varlen Corporation (the "Corporation") originally established
the Varlen Corporation Retirement Security and Savings Plan and Trust effective
January 1, 1986;

WHEREAS, the Corporation amended and restated the Varlen Corporation
Retirement Security and Savings Plan and Trust, the National Metalwares Profit
Sharing Plan and Trust, the Precision Scientific 401(k) Tax Deferred Savings
Plan, the Precision Scientific Profit Sharing Plan and the Consolidated Metco
Profit Sharing and Retirement Savings Plan into the Varlen Corporation Profit
Sharing and Retirement Savings Plan (the "Plan") and the Varlen Corporation
Profit Sharing and Retirement Savings Trust effective December 1, 1992;

WHEREAS, the Corporation again amended and restated the Plan effective
August 1, 1993;

WHEREAS, the Corporation desires at this time to amend and restate the Plan
generally effective as of July 1, 1994.

NOW THEREFORE, BE IT RESOLVED, that the Plan, as amended and restated
generally effective as of July 1, 1994, shall be and hereby is approved and
adopted;

FURTHER RESOLVED, that the officers of the Corporation shall be and hereby
are authorized and directed to take such actions as are necessary, appropriate
or advisable to effectuate the foregoing.

**********

<PAGE>
EXCESS BENEFIT PLAN
TRUST AGREEMENT

Varlen Corporation

(Effective December 1, 1994)
<PAGE>
CONTENTS
- -------------------------------------------------------------------------------
PAGE

Article 1. Establishment and Administration 1
of the Trust and Company Contributions

Article 2. Payments to Plan Participants and Their Beneficiaries 3

Article 3. Trustee Responsibility Regarding Payments 4
to Trust Beneficiary When Company is Insolvent

Article 4. Payments to Company 5

Article 5. Management of the Trust Fund 5

Article 6. Investment Funds and Investment Managers 9

Article 7. Resignation or Removal of Trustee 11

Article 8. Amendment or Termination 12

Article 9. Liability and Indemnification 13

Article 10. Miscellaneous 13

Article 11. Effective Date 14
<PAGE>
EXCESS BENEFIT PLAN TRUST AGREEMENT

THIS EXCESS BENEFIT PLAN TRUST AGREEMENT, effective this 1st day of
December, 1994, by and between Varlen Corporation, a Delaware corporation (the
"Company"), and Harris Trust and Savings Bank (the "Trustee").

WITNESSETH:

WHEREAS, the Company has adopted an excess benefit plan known as the Varlen
Corporation Excess Benefit Plan (the "Plan"); and

WHEREAS, the Company expects to incur liability under the terms of such
Plan with respect to the individuals participating in such Plan; and

WHEREAS, the Company wishes to establish a trust (the "Trust") and to
contribute to the Trust assets that shall be held therein, subject to the claims
of the Company's creditors in the event of the Company's Insolvency, as herein
defined, until paid to Plan participants and their beneficiaries in such manner
and at such times as specified in the Plan; and

WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974;
and

WHEREAS, it is the intention of the Company to make contributions to the
Trust to provide itself with a source of funds to assist it in meeting its
liabilities under the Plan;

NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held, and disposed of as follows:

ARTICLE I. ESTABLISHMENT AND ADMINISTRATION OF THE TRUST AND COMPANY
CONTRIBUTIONS

1.1. ESTABLISHMENT. This Agreement is hereby established for the
benefit of Participants in the Plan ("Participants") and the beneficiaries of
such Participants, as determined in accordance with the provisions of the Plan,
to provide for the payment of Plan benefits on an unfunded, nonqualified basis.

The Company, from time to time, may add additional plans (together with the
Plan, the "Plans") and/or additional Participants to be covered by this Trust.
Such a designation shall be in writing, signed by one or more Committee members,
and filed with the Trustee.

1.2. IRREVOCABILITY. The Trust hereby established shall be irrevocable

1
<PAGE>
1.3. STATUS OF THE TRUST. The Trust is intended to be a grantor trust,
of which the Company is the grantor, within the meaning of subpart E, part I,
subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as
amended, and shall be construed accordingly. The principal of the Trust, and any
earnings thereon shall be held separate and apart from other funds of the
Company and shall be used exclusively for the uses and purposes of Participants
and general creditors as herein set forth. Participants and their beneficiaries
shall have no preferred claim on, or any beneficial ownership interest in, any
assets of the Trust. Any rights created under the Plans and this Trust Agreement
shall be mere unsecured contractual rights of Participants and their
beneficiaries against the Company. Any assets held by the Trust will be subject
to the claims of the Company's general creditors under federal and state law in
the event of Insolvency, as defined in Section 3.1 herein.

1.4. COMPANY CONTRIBUTIONS. Within thirty (30) days following the end
of each calendar quarter of every Plan Year (with "Plan Year" defined as each
consecutive twelve (12) month period beginning January 1 and ending December
31), the Company shall contribute cash, or cash equivalents, to the Trust for
the benefit of Participants. The amount to be so contributed by the Company to
the Trust shall be equal to the aggregate incremental accrued benefits (i.e.,
total accrued benefits less any Company contributions to the Trust in prior
periods) of all Participants under the Plan during the preceding calendar
quarter. The Trustee shall not be obliged or have any right to enforce or
collect any contribution from the Company or otherwise see that the funds are
deposited according to the provisions of the Plan.

1.5. TRUSTEE'S ACCEPTANCE. The Trustee accepts its duties and
obligations as Trustee hereunder, agrees to accept delivery of funds delivered
to it by the Company pursuant to this Article 1, and agrees to hold such funds
(and any proceeds from the investment of such funds) in trust in accordance with
the terms and conditions of this Agreement.

1.6. THE COMMITTEE. The Board of Directors of the Company shall
designate a "Committee" which shall have the powers, rights, and duties
described herein and in the Plan. The Board of Directors will certify to the
Trustee from time to time the person or persons who are acting as the members of
the Committee. The Trustee may rely on the latest certificate received from the
Board without further inquiry or verification.

If for any period no persons are acting as members of the Committee, the
Board of Directors of the Company shall act on behalf of, and shall have all of
the powers, rights, and duties otherwise reserved to the Committee. The Company
warrants that all directions or authorizations by the Committee, whether for the
payment of money or otherwise, will comply with the provisions of the Plans and
this Trust Agreement.

2
<PAGE>
ARTICLE 2. PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES

2.1. PAYMENT SCHEDULE. The Committee shall deliver to the Trustee a
schedule (the "Payment Schedule") that indicates the amounts payable in respect
of each Plan Participant (and his or her beneficiaries), the form in which such
mount is to be paid (as provided for or available under the Plans), and the time
of commencement for payment of such amounts. Except as otherwise provided
herein, the Trustee shall make payments to the Participants and their
beneficiaries in accordance with such Payment Schedule.

2.2. COMMITTEE DETERMINATION OF BENEFITS. The entitlement of a
Participant or his or her beneficiaries to benefits under the Plan(s) shall be
determined by the Committee and any claim for such benefits shall be considered
and reviewed under the procedures set out in the Plans.

2.3. DIRECT PAYMENT OF BENEFITS BY THE COMPANY. The Company may make
payment of benefits directly to Plan Participants or their beneficiaries as they
become due under the terms of the Plans. The Company shall notify the Trustee of
its decision to make payment of benefits directly prior to the time amounts are
payable to Participants or their beneficiaries. In addition, if the principal of
the Trust, and any earnings thereon, are not sufficient to make payments of
benefits in accordance with the terms of the Plans, the Company shall make the
balance of each such payment as it falls due. The Trustee shall notify the
Committee where principal and earnings are not sufficient. The Committee may
direct the Trustee in writing to reimburse the Company from the Trust Fund for
Plan benefits, paid directly to a Participant, by the Company.

2.4. PARTICIPANT'S DIRECTIONS.

(a) If a payment required under the terms of a Plan has not been made
to a Participant (whether due to the failure of the Committee to notify the
Trustee as required by this subparagraph or otherwise), then the Participant may
notify the Trustee in writing of the amount (or a reasonable estimate of the
amount) owed to the Participant pursuant to such Plan, and the date such amount
was due and payable. The Trustee shall notify the Committee within fifteen (15)
calendar days of the receipt of such a payment request. If the Committee does
not provide the Trustee with a statement that has been certified as being
accurate by an independent party agreed to by the Trustee, as to the proper
amount due and payable to the Participant within fifteen (15) calendar days of
the date the Trustee notified the Committee of the payment request, then the
Trustee shall make the payment requested by the Participant from the assets of
the Trust Fund, and may conclusively rely on such payment or payments as being
the appropriate amount. The Trustee also shall notify the Committee of such
payment.

(b) Subject to the sufficiency of the assets of the Trust Fund,
payment shall be made to a Participant from the Trust Fund in accordance with
the terms of this Section 2.4 and the Plan until the earlier of:

3
<PAGE>
(1) The date all benefit commitments due to the Participant
under the Plan, as requested by the Participant in his or
her notification to the Trustee, have been satisfied; or

(2) The Committee provides a statement that shows the proper
amount due to the Participant, such statement certified by
an independent party as described above in paragraph (a)
herein. If such a certified statement is so provided,
appropriate adjustment, if any, in the amount paid and to be
paid to the Participant shall be made.

(c) The Trustee shall make distributions from the Trust Fund in
accordance with the provisions of this Section 2.4, subject to the provisions of
Article 5. If such assets are not sufficient, the Company shall be obligated to
make the balance of each such payment when due. The Trustee shall be fully
protected, indemnified, and saved harmless by the Company in acting without
Committee direction under this Section 2.4.

2.5. MISSING PERSONS. If any payment directed to be made by the Trustee
from the Trust Fund is not claimed by the person entitled thereto, the Trustee
shall notify the Committee of that fact. The Trustee thereafter shall have no
obligation to search for or ascertain the whereabouts of any payee under this
Trust.

ARTICLE 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY
WHEN COMPANY IS INSOLVENT

3.1. INSOLVENCY. The Trustee shall cease payment of benefits to
Participants and their beneficiaries if the Company is Insolvent. The Company
shall be considered "Insolvent" for purposes of this Trust Agreement if: (i) the
Company is unable to pay its debts as they become due; or (ii) the Company is
subject to a pending proceeding as a debtor under the United States Bankruptcy
Code.

3.2. CLAIMS OF GENERAL CREDITORS. At all times during the continuance
of this Trust, as provided in Section 1.3 hereof, the principal and income of
the Trust shall be subject to claims of general creditors of the Company under
federal and state law as set forth below.

(a) The Board of Directors and the highest ranking officer of the
Company shall have the duty to inform the Trustee in writing of Company's
Insolvency. If a person claiming to be a creditor of the Company alleges in
writing to the Trustee that the Company has become Insolvent, the Trustee
shall determine whether the Company is Insolvent and, pending such
determination, the Trustee shall discontinue payment of benefits to
Participants or their beneficiaries.

(b) Unless the Trustee has actual knowledge of the Company's
Insolvency, or has received notice from the Company or a person claiming
to be a creditor alleging that the Company is Insolvent, the Trustee shall
have no duty to inquire whether the Company is Insolvent. The Trustee may
in all

4
<PAGE>
events rely on such evidence concerning the Company's solvency as may be
furnished to the Trustee and that provides the Trustee with a reasonable
basis for making a determination concerning the Company's solvency.

(c) If at any time the Trustee has determined that the Company is
Insolvent, the Trustee shall discontinue payments to the Participants or
their beneficiaries and shall hold the assets of the Trust for the benefit
of the Company's general creditors. Nothing in this Trust Agreement shall
in any way diminish any rights of Participants or their beneficiaries to
pursue their rights as general creditors of the Company with respect to
benefits due under the Plans or otherwise.

(d) The Trustee shall resume the payment of benefits to Plan
Participants or their beneficiaries in accordance with Section 2 of this
Trust Agreement only after the Trustee has determined that the Company is
not Insolvent (or is no longer Insolvent).

(e) The Trustee shall have no responsibility or liability of any
kind to the Company, the Participants or their beneficiaries or any other
party with respect to any loss or damage that occurs as a result of any
action or non-action taken or any determination made by the Trustee in good
faith pursuant to the terms of this section.

3.3. RESUMPTION OF PAYMENTS TO PARTICIPANTS. Provided that there are
sufficient assets, if the Trustee discontinues the payment of benefits from the
Trust pursuant to Section 3.2 hereof and subsequently resumes such payments, the
first payment following such discontinuance shall include the aggregate amount
of all payments due to Participants or their beneficiaries under the terms of
the Plans for the period of such discontinuance, less the aggregate amount of
any payments made to Participants or their beneficiaries by the Company in lieu
of the payments provided for hereunder during any such period of discontinuance.

ARTICLE 4. PAYMENTS TO COMPANY

Except as provided in Section 3 hereof, the Company shall have no right or
power to direct the Trustee to return to the Company or to divert to others any
of the Trust assets before all payment of benefits have been made to Plan
Participants and their beneficiaries pursuant to the terms of the Plans.

ARTICLE 5. MANAGEMENT OF THE TRUST FUND

5.1. THE TRUST FUND. Unless the context clearly implies or indicates
otherwise, the term "Trust Fund" as of any date means all property of every kind
then held under this Agreement by the Trustee.

5
<PAGE>
5.2. TRUSTEE'S GENERAL POWERS, RIGHTS, AND DUTIES. With respect to the
Trust Fund and subject only to the limitations expressly provided in this
Agreement (including the powers reserved to the Committee, and the powers,
rights, and duties specifically allocated to an investment manager, if so
appointed as provided in Article 6 herein), or imposed by applicable law, the
Trustee shall have the following powers, rights, and duties in addition to those
vested in it elsewhere in this Agreement or by law:

(a) To invest and reinvest part or all of the Trust Fund in any real
or personal property (including investments in any stocks, bonds,
debentures, mutual fund shares, notes, commercial paper, treasury bills,
options, commodities, futures contracts, partnership interests, venture
capital investments, any common, commingled, or collective trust funds, or
pooled investment funds described in Section 5.3, any interest-bearing
deposits held by any bank or similar financial institution, and any other
real or personal property) and to diversify such investments so as to
minimize the risk of large losses unless under the circumstances it is
clearly prudent not to do so.

(b) To retain in cash such amounts as the Trustee considers
advisable and as are permitted by applicable law and to deposit any cash so
retained in any depository (including any bank acting as trustee) which the
Trustee may select.

(c) To manage, sell, insure, and otherwise deal with all real and
personal property held by the Trustee on such terms and conditions as the
Trustee shall decide.

(d) When directed in writing by the Committee or an investment
manager, to hold, invest and sell employer securities.

(e) To vote stock and other voting securities directly or by proxy
(and to delegate the Trustee's powers and discretions with respect to such
stock or other voting securities to any such proxy except with respect to
employer securities which will only be voted as directed by the Committee
or an investment manager), to exercise subscription, conversion, and other
rights and options (and make payments from the Trust Fund in connection
therewith), to take any action and to abstain from taking any action with
respect to any reorganization, consolidation, merger, dissolution,
recapitalization, refinancing, and any other program or change affecting
any property constituting a part of the Trust Fund (and in connection
therewith to delegate the Trustee's discretionary powers and to pay
assessments, subscriptions, and other charges from the Trust Fund), to hold
or register any property from time to time in the Trustee's name or in the
name of a nominee or to hold it unregistered or in such form that title
shall pass by delivery and, with the approval of the Committee, to borrow
from anyone, including any bank acting as trustee, to the extent permitted
by law, such amounts from time to time as the Trustee considers desirable
to carry out this Trust (and to mortgage or pledge all or part of the Trust
Fund as security).

6
<PAGE>
(f) When directed by the Committee or by an investment manager, to
acquire, retain, or dispose of such investments as the Committee or the
investment manager directs in accordance with this Agreement.

(g) To make payments from the Trust Fund to provide benefits that
have become payable under the Plans pursuant to directions from the
Committee, or that are required to be made to the general creditors of the
Company as set forth in Section 3.2 herein.

(h) With the prior written consent of the Company, to begin,
maintain, or defend any litigation reasonably necessary in connection with
the administration of the Trust and the Company shall indemnify the Trustee
against all reasonable expenses and liabilities sustained by the Trustee by
reason of such litigation.

(i) To withhold, if the Trustee considers it advisable, all or any
part of any payment required to be made hereunder as may be necessary and
proper to protect the Trustee or the Trust Fund against any liability or
claim on account of any estate, inheritance, income or other tax, or
assessment attributable to any amount payable hereunder, and to discharge
any such liability with any part or all of such payment so withheld,
provided that at least ten days prior to discharging any such liability
with any amount so withheld the Trustee shall notify the Committee in
writing of the Trustee's intent to do so.

The Trustee shall not be either individually or severally liable for
any taxes of any kind levied or assessed under the existing or future laws
against the Trust assets. The Committee shall be responsible for: (i)
providing information to the Trustee with respect to all taxes to be
deducted and withheld from payments to Participants; (ii) furnishing to
each person receiving payment or distribution from the Trust, appropriate
tax information evidencing such payment or distribution and the amount
thereof; and (iii) preparing and filing all information reports and tax
returns required to be filed with any federal, state, or local government
agency or authority with respect to any payments made to any Participant
hereunder. To the extent that any taxes are payable by the Trust to any
federal, state, or local taxing authorities on account of earnings on
Trust Assets, the Company shall pay such taxes.

(j) To maintain records reflecting all receipts and payments under
this Agreement and such other records as the Committee specifies and the
Trustee agrees to, which records may be audited from time to time by the
Committee or anyone named by the Committee.

(k) To report to the Committee as of each Plan Year end, and at such
other times as the Committee may request, the then net worth of the Trust
Fund (that is, the fair market value of all assets held in the Trust, less
liabilities known to the Trustee, other than liabilities to Participants
and

7
<PAGE>
amounts payable from the Trust Fund to creditors who are not entitled to
benefits under the Plans), on the basis of such data and information as the
Trustee considers reliable.

(l) To furnish periodic accounts to the Committee for such periods
as the Committee may specify, showing all investments, receipts,
disbursements, and other transactions involving the Trust Fund during the
applicable period and the assets of the Trust Fund held at the end of that
Plan Year.

(m) To furnish the Company with such information in the Trustee's
possession as the Company may need for tax or other purposes. The Company
shall pay, prepare, file, and furnish all Federal, state, and local tax
deposits, returns, and reports required by any government agency or
authority.

(n) To employ agents, attorneys, accountants, and other persons (who
also may be employed by the Company, the Committee, or others), to delegate
discretionary powers to such persons, and to reasonably rely upon
information and advice furnished by such persons; provided that each such
delegation and the acceptance thereof by each such person shall be in
writing; and provided further that the Trustee may not delegate its
responsibilities as to the management or control of the assets of the Trust
Fund.

(o) To perform all other acts which in the Trustee's judgment are
appropriate for the proper management, investment, and distribution of the
Trust Fund to the extent such duties have not been assigned to others as
provided herein.

(p) All rights associated with assets of the Trust shall be
exercised by the Trustee or the person designated by the Trustee, and shall
in no event be exercisable by or rest with Participants. The Company shall
have the right, at any time, and from time to time in its sole discretion,
to substitute assets of equal fair market value for any asset held by the
Trust.

5.3. COLLECTIVE INVESTMENT TRUSTS. The Trustee or any investment
manager may invest any part or all of the Trust assets for which it has
investment responsibility in any common, collective, or commingled trust fund or
pooled investment fund that is maintained by a bank or trust company (including
a bank or trust company acting as Trustee) provided such investments are
consistent with applicable investment requirements and guidelines so established
by the Committee. To the extent that any Trust assets are invested in any such
fund, the provisions of the documents under which such common, collective, or
commingled trust fund or pooled investment fund are maintained shall govern any
investments therein.

5.4. COMMON FUND. Except as provided in Section 6.1 herein, the Trustee
shall not be required to make separate investments of the Trust Fund for the
accounts of each Participant in the absence of such direction by the Committee,
and may administer and invest the deposits made to the Trust by the Company as
to all

8
<PAGE>
Plans as one Trust Fund. The Trustee also shall not be required to make any
separate investments of the Trust Fund for the account of any general creditor
of the Company prior to receipt of directions to make payments to such creditor
in accordance with Section 3.2.

5.5. COMPENSATION AND EXPENSES. Reasonable compensation as may be
agreed upon from time to time between the Committee and the Trustee, and all
expenses (except those specifically described in the next sentence) reasonably
incurred by the Trustee and the Committee in the administration of this Trust,
including compensation to agents, actuaries, attorneys, accountants, and other
persons employed by the Trustee or the Committee, as certified by them, shall be
paid by the Company directly. Expenses solely attributable to investment of the
Trust Fund (such as investment manager fees, load or other commission fees,
brokerage, postage, express or insurance charges, and stock transfer stamps
expense) shall be paid from the Trust Fund to the extent not paid directly by
the Company.

5.6. INSURANCE. The Trustee shall have, without exclusion, all powers
conferred on Trustees by applicable law, unless expressly provided otherwise
herein, provided, however, that if an insurance policy is held as an asset of
the Trust, the Trustee shall have no power to name a beneficiary of the policy
other than the Trust, to assign the policy (as distinct from conversion of the
policy to a different form) other than to a successor Trustee, or to loan to any
person the proceeds of any borrowing against such policy. The Trustee shall have
no duty to inquire into the terms and provisions of any insurance policy or
contract acquired by or delivered to it nor to see that the terms and the
provisions of this Agreement and the Plan in respect thereof have been complied
with.

5.7. CARRYING ON A BUSINESS. Notwithstanding any powers granted to the
Trustee pursuant to this Trust Agreement or to applicable law, the Trustee shall
not have any power that could give this Trust the objective of carrying on a
business and dividing the gains therefrom, within the meaning of Section
301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant
to the Internal Revenue Code.

ARTICLE 6. INVESTMENT FUNDS AND INVESTMENT MANAGERS

6.1. INVESTMENT FUNDS. The Committee may direct the Trustee to
establish one or more separate investment accounts within the Trust Fund, each
separate account being hereinafter referred to as an Investment Fund. Except as
otherwise provided, the Trustee shall transfer to each such Investment Fund such
portion of the assets of the Trust Fund as the Committee directs in accordance
with the specific provisions of each Plan.

The Trustee shall be under no duty to question, and shall not incur any
liability on account of following, any direction of the Committee. The Trustee
shall be under no duty to review the investment guidelines, objectives, and
restrictions established, or the specific investment directions given by the
Committee for any Investment Fund, or to make suggestions to the Committee in
connection

9
<PAGE>
therewith. To the extent that directions from the Committee to the Trustee
represent investment elections of the Plans' Participants, the Trustee shall
have no responsibility for such investment elections and shall incur no
liability on account of investing the assets of the Trust Fund in accordance
with such directions.

All interest, dividends, and other income received with respect to, and any
proceeds received from the sale or other disposition of securities or other
property held in, an Investment Fund shall be credited to and reinvested in such
Investment Fund. All expenses of the Trust Fund which are allocable to a
particular Investment Fund shall be so allocated and charged. Subject to the
provisions of the Plans, the Committee may direct the Trustee to eliminate an
Investment Fund or Funds, and the Trustee shall thereupon dispose of the assets
of such Investment Fund and reinvest the proceeds thereof in accordance with the
directions of the Committee.

6.2. INVESTMENT MANAGERS. The Committee, from time to time, may appoint
one or more independent Investment Managers, pursuant to a written investment
management agreement describing the powers and duties of the Investment Manager,
to direct the investment and reinvestment of all or a portion of the Trust Fund
or an Investment Fund (hereinafter referred to as an Investment Account).

The Committee shall furnish the Trustee with written notice of the
appointment of each Investment Manager hereunder, and of the termination of any
such appointment. Such notice shall specify the assets which shall constitute
the Investment Account. The Trustee shall be fully protected in relying upon the
effectiveness of such appointment and the Investment Manager's continuing
satisfaction of the requirements set forth above until it receives written
notice from the Committee to the contrary.

The Committee shall provide each Investment Manager appointed with respect
to an Investment Fund with the investment guidelines for that fund and with any
modifications in such investment guidelines made from time to time.
Notwithstanding the fact that an Investment Manager may be appointed with
responsibility for the management of an Investment Fund, the Trustee shall have
the responsibility for the investment of cash balances held by it from time to
time as a part of such investment fund in short-term cash equivalents (such as
short-term commercial paper, treasury bills, and similar securities, and for
this purpose, the Trustee may invest in any appropriate common, commingled, or
collective short-term investment fund). In addition, the Trustee shall have the
power, right, and duty to sell any such short-term investments as may be
necessary to carry out the instructions of the investment manager with respect
to the investment of the investment fund. In addition, pending receipt of
directions from the investment manager, reasonable amounts of cash received by
the Trustee from time to time for any Investment Account may be retained by the
Trustee, in its discretion, in cash, without any liability for interest.

10
<PAGE>
The Trustee shall conclusively presume that each Investment Manager, under
its investment management agreement, is entitled to act, in directing the
investment and reinvestment of the Investment Account for which it is
responsible, in its sole and independent discretion and without limitation,
except for any limitations which from time to time the Committee and the Trustee
agree (in writing) shall modify the scope of such authority. The Trustee shall
have no liability:

(a) For the acts or omissions of any Investment Manager or Managers;

(b) For following directions, including investment directions of an
Investment Manager or the Committee, which are given in accordance with
this Trust Agreement; or

(c) For any loss of any kind which may result by reason of errors made
by the Investment Manager or the Committee in the division of the Trust
Fund or Investment Fund into Investment Accounts.

An Investment Manager shall certify, at the request of the Trustee, the
value of any securities or other property held in any Investment Account managed
by such Investment Manager, and such certification shall be regarded as a
direction with regard to such valuation. The Trustee shall be entitled to
conclusively rely upon such valuation for all purposes under this Trust
Agreement. The Trustee shall have the right to request that some part or all of
the directions made by an Investment Manager be in writing and shall assume no
liability hereunder for failure to act pursuant to directions which fail to
conform to such request.

ARTICLE 7. RESIGNATION OR REMOVAL OF TRUSTEE

7.1. RESIGNATION OR REMOVAL OF TRUSTEE. The Trustee may resign at any
time by giving thirty (30) calendar days prior written notice to the Committee.
The Company may remove a Trustee by giving thirty (30) calendar days prior
written notice to the Trustee and the Investment Managers, provided that such
removal shall not become effective until the time immediately preceding the
appointment of a successor Trustee pursuant to Section 7.2.

7.2. SUCCESSOR TRUSTEE. In the event of the resignation or removal of
the Trustee, a Successor Trustee shall be appointed by the Company in writing as
soon as practicable. Written notice of such appointment shall be given by the
Company to the Predecessor Trustee and the Investment Managers.

7.3. DUTIES OF PREDECESSOR TRUSTEE AND SUCCESSOR TRUSTEE. Upon the
appointment of a Successor Trustee, the removed or resigning Trustee shall
transfer and deliver the assets of the Trust Fund to such Successor after
reserving such reasonable amounts as it shall deem necessary to provide for any
expenses, fees, or taxes then or thereafter chargeable against the Trust Fund. A
Trustee that resigns or is removed shall promptly furnish to the Committee and
the Successor Trustee a final account of its administration of the Trust. The
Committee may approve such accounting by written notice of approval delivered to
the Trustee, or unless the

11
<PAGE>
Committee shall have filed with the Trustee written exceptions or objections to
any such statement and account within one hundred eighty (180) days after
receipt thereof, the Committee shall be deemed to have approved such statement
and account, and in such case the Trustee shall be forever released and
discharged with respect to all matters and things reported in such statement and
account as though it had been settled by a decree of a court of competent
jurisdiction in an action or proceeding in which the Trustee, the Committee and
all persons having or claiming to have any interest in the Trust Fund or under
the Agreement were parties. If the Committee fails to appoint a successor
trustee within thirty (30) days after such notice, the Trustee shall be
entitled, at the expense of the Committee, to petition a court of competent
jurisdiction to appoint its successor. A Successor Trustee shall succeed to the
right and title of the Predecessor Trustee in the assets of the Trust Fund and
the Predecessor Trustee shall deliver the property comprising the Trust Fund to
the Successor Trustee together with any instruments of transfer, conveyance,
assignment, and further assurances as the Successor Trustee may reasonably
require. Each Successor Trustee shall have all the powers, rights, and duties
conferred by this Agreement as if named the initial Trustee. Subject to
applicable law, no Successor Trustee shall be personally liable for any act or
failure to act of a Predecessor Trustee.

ARTICLE 8. AMENDMENT OR TERMINATION

8.1. AMENDMENT.

(a) This Trust Agreement may be amended by a written instrument
executed by the Trustee and the Company. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Plans or shall make the Trust
revocable.

(b) The duties and liabilities of the Committee, the Trustee, and each
Investment Manager under this Agreement cannot be changed without their written
consent.

(c) This Trust may not be amended so as to cause the reduction or
cessation of any benefits a Participant has accrued under the terms of the Plans
as in effect immediately prior to any such amendment.

8.2. TERMINATION.

(a) All the rights, titles, powers, duties, discretions, and
immunities imposed on or reserved to the Trustee, the Company, the Committee,
the Board of Directors, and any Investment Managers shall continue in effect
with respect to the Trust, until all benefits payable to Participants under the
Plans have been paid and all assets have been distributed by the Trustee under
the Trust and the Plans.

(b) The Trust shall not terminate until the date on which Plan
Participants and their beneficiaries are no longer entitled to benefits pursuant
to the terms of the Plans. Upon termination of this Trust, the Trustee shall
reserve such

12
<PAGE>
reasonable amounts as it may deem necessary to provide for the payment of
expenses or fees then or thereafter chargeable to the Trust Fund. Upon
termination of this Trust, the Trustee shall continue to have such of the powers
provided in this Agreement as are necessary or desirable for the orderly
liquidation and distribution of the Trust Fund. Upon termination of the Trust,
any assets remaining in the Trust shall be returned to Company.

ARTICLE 9. LIABILITY AND INDEMNIFICATION

9.1. LIABILITIES MUTUALLY EXCLUSIVE. To the extent permitted by law,
the Company, the Trustee, the Committee, the Board of Directors, and each member
thereof and each Investment Manager shall be responsible only for its or their
own acts or omissions.

9.2. INDEMNIFICATION. The Company hereby agrees to indemnify and hold
harmless the Trustee from and against any losses, damages, liabilities, claims,
costs, or expenses (including reasonable attorneys' fees) incurred by the
Trustee arising out of or in connection with the performance by the Trustee of
its duties hereunder, except for any losses, damages, liabilities, claims,
costs, or expenses arising from the Trustee's gross negligence or willful
misconduct as determined by a court of competent jurisdiction in a final and
non-appealable order. Any amount payable to the Trustee under this section shall
be paid by the Company promptly upon demand therefor by the Trustee or, in the
event that the Company fails to make such payment, from the Trust Fund. The
costs and expenses incurred in enforcing this right of indemnification shall be
paid by the Company. In making any distributions and taking any other action
hereunder, the Trustee may rely upon and shall be fully protected in relying
upon, any notice, certificate, or other paper or written document provided by
the Company or the Committee and believed to be genuine.

9.3. TRUSTEE'S ACTIONS CONCLUSIVE. Except as otherwise provided by law,
the Trustee's exercise or nonexercise of its powers and discretion in good faith
shall be conclusive on all persons. No one shall be obliged to see to the
application of any money paid or property delivered to the Trustee, except to
the extent such person is acting as an Investment Manager as respects such money
or property. The certificate of the Trustee that it is acting in accordance with
this Agreement will fully protect all persons dealing with the Trustee. If there
is a disagreement between the Trustee and anyone as to any act or transaction
reported in any accounting, the Trustee shall have the right to a settlement of
its account by any proper court.

ARTICLE 10. MISCELLANEOUS

10.1. SEVERABILITY. Any provision of this Trust Agreement prohibited by
law shall be ineffective to the extent of any such prohibition, without
invalidating the remaining provisions hereof.

10.2. NONALIENATION. Benefits payable to Plan Participants and their
beneficiaries under this Trust Agreement may not be anticipated, assigned
(either at law or in equity), alienated, pledged, encumbered, or subjected to
attachment,

13
<PAGE>
garnishment, levy, execution, or other legal or equitable process.

10.3. GOVERNING LAW. This Trust Agreement shall be governed by and
construed in accordance with the laws of Illinois, to the extent not preempted
by federal law.

10.4. EVIDENCE. Evidence required of anyone under this Trust Agreement
shall be signed, made, or presented by the proper party or parties and may be by
certificate, affidavit, document, or other information which the person acting
on it considers pertinent and reliable.

10.5. WAIVER OF NOTICE. Any notice required under this Trust Agreement
may be waived by the person entitled to such notice.

10.6. COUNTERPARTS. This Trust Agreement may be executed in two or more
counterparts, any one of which will be an original without reference to the
others.

10.7. GENDER AND NUMBER. Except when otherwise indicated by the
context, words denoting the masculine gender shall include the feminine; the
singular shall include the plural, and the plural shall include the singular.

10.8. SCOPE OF THIS AGREEMENT. The Plans and this Trust Agreement will
be binding on all persons entitled to benefits hereunder and their respective
heirs and legal representatives, and upon the Company, the Committee, the
Trustee, and any Investment Managers, and their successors and assigns.

10.9. STATUTORY REFERENCES. Any references in this Trust Agreement to a
section of the Internal Revenue Code shall include any comparable section or
sections of any future legislation that amends, supplements, or supersedes that
section.

10.10. MERGER OF TRUSTEE. If the Trustee at any time acting hereunder
shall be merged or consolidated with, or shall sell or transfer substantially
all of its assets and business to another corporation, state or federal, or
shall be in any manner reorganized or reincorporated, then the corporation
resulting therefrom, or the corporation to which such sale or transfer shall be
made, shall be deemed to be the Trustee then acting hereunder.

10.11. HEADINGS. The headings contained herein are inserted only as a
matter of convenience and for reference and in no way define, limit, enlarge, or
describe the scope or intent of the Plan and in no way shall affect the Plan or
the construction of any provision thereof.

ARTICLE 11. EFFECTIVE DATE

The effective date of this Trust Agreement shall be December 1, 1994.

14
<PAGE>
IN WITNESS WHEREOF, Varlen Corporation and the Trustee have caused this
Agreement to be executed on their behalf and their respective seals to be
hereunto affixed and attested by their respective officers thereunto duly
authorized, as of the day and year first above written.

VARLEN CORPORATION

By: /s/
---------------------------

TRUSTEE

By: /s/ Philip White
--------------------------
Vice President

<PAGE>

EXHIBIT 11

<PAGE>

VARLEN CORPORATION AND SUBSIDIARIES Exhibit 11
COMPUTATION OF PER SHARE EARNINGS Page 1 of 2
(Thousands, Except Per Share Amounts)

For The Year Ended
-----------------------------------
1/31/95 1/31/94 1/31/93
----------- ---------- ----------
<S> <C> <C> <C>

PRIMARY EARNINGS PER SHARE:

Earnings before cumulative effect of change in
accounting principle $ 14,762 $ 10,766 $ 7,668

Cumulative effect of change in accounting
principle, net of income taxes --- --- (1,351)
----------- ---------- ----------
Net earnings $ 14,762 $ 10,766 $ 6,317
----------- ---------- ----------
----------- ---------- ----------

Computation of the Weighted Average Number of
Shares Outstanding as Used in the Primary
Earnings Per Share Computation:

Weighted average number of shares outstanding 4,854 4,815 6,748

Shares assumed issued under the treasury
stock method 158 132 63

Purchase of treasury stock --- --- (133)
----------- ---------- ----------

Weighted average number of shares outstanding, as adjusted 5,012 4,947 6,678
----------- ---------- ----------
----------- ---------- ----------

Primary Earnings Per Share:

Before accounting change $ 2.95 $ 2.18 $ 1.15

Accounting change --- --- (0.20)
----------- ---------- ----------

Net earnings $ 2.95 $ 2.18 $ 0.95
----------- ---------- ----------
----------- ---------- ----------

FULLY DILUTED EARNINGS PER SHARE:

Reconciliation of net earnings per the consolidated financial
statements to the amount used for the fully diluted
computation:

Earnings before cumulative effect of change in
accounting principle $ 14,762 $ 10,766 $ 7,668

Add interest on 6 1/2% convertible subordinated
debentures, net of income tax effects 2,736 1,874 ---
----------- ---------- ----------

Earnings before cumulative effect of change in
accounting principle, as adjusted 17,498 12,640 7,668

Cumulative effect of change in accounting
principle, net of income taxes --- --- (1,351)
----------- ---------- ----------

Net earnings, as adjusted $ 17,498 $ 12,640 $ 6,317
----------- ---------- ----------
----------- ---------- ----------

<PAGE>

VARLEN CORPORATION AND SUBSIDIARIES Exhibit 11
COMPUTATION OF PER SHARE EARNINGS Page 2 of 2
(Thousands, Except Per Share Amounts)

For The Year Ended
-----------------------------------
1/31/95 1/31/94 1/31/93
----------- ---------- ----------

Computation of the Weighted Average Number of
Shares Outstanding as Used in the Fully
Diluted Earnings Per Share Computation:

Weighted average number of shares outstanding 4,854 4,815 6,748

Shares assumed issued under the treasury
stock method 172 154 63

Purchase of treasury stock --- --- (133)

Shares issuable from assumed exercise of
6 1/2% convertible subordinated debentures 2,524 1,694 ---
----------- ---------- ----------

Weighted average number of shares outstanding, as adjusted 7,550 6,663 6,678
----------- ---------- ----------
----------- ---------- ----------

Fully Diluted Earnings Per Share:

Before accounting change $ 2.32 $ 1.90 $ 1.15

Accounting change --- --- (0.20)
----------- ---------- ----------

Net earnings $ 2.32 $ 1.90 $ 0.95
----------- ---------- ----------
----------- ---------- ----------
</TABLE>

<PAGE>

VARLEN CORPORATION

SUBJECT: Picture caption explanations for Varlen's 1994 10-K
_______________________________________________________________________________

The following picture captions from Varlen Corporation's 1994 Annual Report
are discussed from left to right, top to bottom on the page.

Front cover:

Varlen insignia. Within the Insignia are pictures of a railroad locomotive,
an oil refinery, an eighteen wheel truck, a Chevy Blazer automobile and a
laboratory technician.

Inside the Front cover:

A picture of a railroad car shock control device.

A picture of two rail anchors attached to a piece of railroad track.

A picture of an aluminum truck/trailer hub.

A picture of three automatic transmission reaction plates.

Page #1:

A picture of four types of water baths.

A picture of two types of laboratory instruments used to analyze the physical
property of petroleum products.

A picture of an on-line process instrument used to analyze the physical property
of petroleum products.

Page #2:

A pie chart of "1994 Net Sales" for the Transportation Products and
Laboratory Equipment segments.

A pie chart of "1994 Operating Profit" for the Transportation Products and
Laboratory Equipment segments.

Page #3:

A picture of Ernest H. Lorch, Varlen Corporation's Chairman of the Board of
Directors.

A picture of Richard L. Wellek, Varlen Corporation's President and Chief
Executive Officer.

<PAGE>

A bar graph of "Return on Average Stockholders' Equity" for Varlen
Corporation for the five year period from 1990 to 1994.

A bar graph of "Return on Invested Capital" for Varlen Corporation for the
five year period from 1990 to 1994.

Page #4:

A bar graph of "Net Sales" for Varlen Corporation for the five year period
from 1990 to 1994.

A bar graph of "Net Earnings" for Varlen Corporation for the five year period
from 1990 to 1994.

A bar graph of "Fully Diluted E.P.S. Before Accounting Change" for Varlen
Corporation for the five year period from 1990 to 1994.

Page #5:

A bar graph of "Book Value Per Share" for Varlen Corporation for the five
year period from 1990 to 1994.

A bar graph of "Total Debt to Capitalization" for Varlen Corporation for the
five year period from 1990 to 1994.

Page #6:

A picture of Raymond A Jean, Varlen Corporation's Executive Vice President
and Chief Operating Officer.

A picture of George W. Hoffman, Varlen Corporation's Railroad Group Vice
President.

Page #7:

A picture of a corner buffer for European railroad passenger and freight cars.

A linear graph of "Net Sales" for the Transportation Products segment for the
three year period from 1992 to 1994.

A linear graph of "Operating Profit" for the Transportation Products segment
for the three year period from 1992 to 1994.

Page #8:

A linear graph of "Net Sales" for the Laboratory Equipment segment for the
three year period from 1992 to 1994.

A linear graph of "Operating Profit" for the Laboratory Equipment segment
for the three year period from 1992 to 1994.

A picture of a railroad locomotive heating, ventilating and air conditioning
unit.

Page #9:

A picture of a dashboard for a Class 8 truck.

Page #12:

<PAGE>

A picture of Richard A. Nunemaker, Varlen Corporation's Vice President,
Finance and Chief Financial Officer.

Back Cover:

A map of the world with location points of Varlen Corporation's service,
distribution and manufacturing locations.

<PAGE>

[PHOTO BACKGROUND]

Varlen Corporation

Manufacturer
of Precision
Engineered
Products

1994 Annual Report

<PAGE>

VARLEN AT A GLANCE
- --------------------------------------------------------------------------------

TRANSPORTATION PRODUCTS

RAILROAD SHOCK ABSORPTION PRODUCTS including hydraulic cushioning, draft gears
and elastomeric pads; hopper car outlet gates. Locomotive components including
heating, ventilating and air conditioning systems, valves, toilets and
refrigerators.

PRIMARY MARKETS:
Locomotive and railcar manufacturers, lessors, railroads and railcar maintenance
facilities. Domestic and international markets.

[PARTS PHOTO]

TRUCK AND TRAILER HUBS. Aluminum permanent mold and die castings, fuel water
separators and structural molded plastic components.

PRIMARY MARKETS:
Class 8 trucks and over the road trailer manufacturers.

RAILROAD TRACK FASTENING SYSTEMS.

PRIMARY MARKETS:
Railroads and track maintenance contractors. Domestic and international markets.

PRECISION HIGH VOLUME STAMPED METAL components and automatic transmission
reaction plates.

PRIMARY MARKETS:
Original equipment automotive manufacturers and tier 1 suppliers to the
automotive industry. After-market transmission rebuilders. Parts are found on
cars, trucks and vans.
<PAGE>

LABORATORY EQUIPMENT

CONSTANT TEMPERATURE APPLIANCES including waterbaths, incubators, ovens,
autoclaves.

PRIMARY MARKETS:
Industrial, governmental, educational and clinical research and development
laboratories. Markets worldwide.

[LAB EQUIPMENT PHOTO]

PROCESS INSTRUMENTS for physical property analysis of petroleum products.

PRIMARY MARKETS:
Quality control and process analysis for oil refineries, petro-chemical plants,
petroleum transporters and end users. Markets worldwide.

LABORATORY INSTRUMENTS for physical property analysis of petroleum products.

PRIMARY MARKETS:
Quality control analysis for oil refineries, petro-chemical plants, petroleum
transporters and end users. Markets worldwide.
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

VARLEN CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1994(a) 1993(a) 1992(a)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEAR

Net Sales ........................................ $341,521 $291,908 $266,054

Earnings Before Cumulative Effect of Change in
Accounting Principle ........................... 14,762 10,766 7,668

Cumulative Effect of Change in
Accounting Principle ........................... -- -- (1,351)

Net Earnings ..................................... 14,762 10,766 6,317

Earnings Before Cumulative Effect of Change in
Accounting Principle as a Percent of Sales ..... 4.3% 3.7% 2.9%

Return on Average Stockholders' Equity ........... 20.5% 18.0% 8.5%

Return on Invested Capital ....................... 12.4% 10.5% 7.1%

Capital Expenditures ............................. $ 14,701 $ 11,240 $ 9,567

Depreciation and Amortization .................... 14,664 12,901 11,940
- -----------------------------------------------------------------------------------
AT YEAR END

Working Capital .................................. $ 57,713 $ 49,046 $ 39,570

Net Property, Plant and Equipment ................ 59,636 52,867 54,779

Total Debt ....................................... 72,855 72,820 74,679

Stockholders' Equity ............................. 79,031 63,644 53,788

Senior Debt as a Percent of Total Capitalization.. 2.5% 2.8% 58.1%

Total Debt as a Percent of Total Capitalization .. 48.0% 53.4% 58.1%
- -----------------------------------------------------------------------------------
PER SHARE DATA

Primary:

Earnings Before Change in Accounting Principle . $ 2.95 $ 2.18 $ 1.15

Net Earnings ................................... 2.95 2.18 0.95

Fully Diluted:

Earnings Before Change in Accounting Principle.. 2.32 1.90 1.15

Net Earnings ................................... 2.32 1.90 0.95

Dividends Declared ............................... 0.40 0.40 0.40

Stockholders' Equity ............................. 16.24 13.13 11.33
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
<FN>

(a) Throughout this report the years ended January 31, 1995, 1994 and 1993 are
referred to as 1994, 1993, and 1992, respectively. The per share data in
1992 reflect restatement for a 3 for 2 stock split effected in the form of
a stock dividend in 1993.
</TABLE>

1994 SEGMENT RESULTS

1994 NET SALES 1994 OPERATING PROFIT
by Segment by Segment

[PIE CHART] [PIE CHART]

/ / Transportation / / Transportation
Products Products
76.7% 76.7%

/ / Laboratory / / Laboratory
Equipment Equipment
23.3% 23.3%
2
<PAGE>

LETTER TO OUR SHAREOWNERS AND ASSOCIATES
- --------------------------------------------------------------------------------

For the second consecutive year, Varlen's financial performance reached
record levels. Net income rose 37 percent on a 17 percent increase in revenues.
Return on shareholders' equity of 20.5 percent and return on invested capital of
12.4 percent also were at record levels and substantially higher than comparable
industry averages. Particularly gratifying was the more than doubling of
operating income in our Laboratory Equipment Segment, before a 1993 special
charge.
We feel good about Varlen's performance in 1994 -- not satisfied or
complacent -- but good. Although a great deal was accomplished, there is further
room for improvement and opportunities for growth.

SIGNIFICANT CORPORATE DEVELOPMENTS OCCURRED DURING 1994

Two strategic acquisitions were made in 1994 that strengthen Varlen's
position as a leading manufacturer of engineered products for international
railroad markets.
- - The purchase of Acieries de Ploermel, a French manufacturer serving the
passenger and freight car markets in Europe, will provide a stepping stone for
the application of Varlen's advanced cushioning technologies to the railroad
market for this large region.
- - At the end of the year, Varlen acquired the assets of Prime Manufacturing
Corporation of Oak Creek, Wisconsin, a leading supplier of engineered products
to the North American locomotive market. Prime's major products are heating,
ventilating and air-conditioning systems, refrigerators, toilets and valves.
The demand for new locomotives is growing. In addition, the Class I
railroads in North America are accelerating the rate of rebuilding and upgrading
of their existing locomotive fleets. All of this is being driven by record
railroad traffic and the desire of the railroad industry to continue to lower
costs and improve service.

[PHOTO]
ERNEST H. LORCH

[PHOTO]
RICHARD L. WELLEK

Varlen embarked on a strategy in 1994 of establishing company owned
distributorships for its petroleum instruments in key markets. We acquired our
North American distributor and opened our own sales and service centers in Great
Britain, France and Germany. As we further expand our petroleum analyzer
business through the introduction of new products and by acquisition, having
local service will enhance our competitive advantage.

Major contract awards by two of Varlen's largest customers will increase
our leading market position in coming years and help sustain the record results
Varlen's large truck/trailer business achieved in 1994.

- - Freightliner, the No. 1 Class 8 truck builder, recently selected Varlen as the
sole supplier of a wide range of interior structural molded plastic components
for a new model that will begin production in 1996. This contract could
produce as much as $30,000,000 in incremental annual sales by 1998 at current
industry production levels.

RETURN ON RETURN ON
AVERAGE INVESTED CAPITAL
STOCKHOLDERS' IN PERCENTS
EQUITY
IN PERCENTS

[GRAPH] [GRAPH]

3
<PAGE>

- --------------------------------------------------------------------------------

- - PACCAR, the No. 2 Class 8 truck manufacturer, awarded Varlen multi-year
contracts for aluminum axle hubs and chassis components that will increase our
annual revenue from this customer in 1995 by approximately $13,000,000.
We continuously analyze our operations to make sure we are getting an
adequate return on investment and that the businesses share a common purpose. In
June we closed an underperforming tool and die facility that served the
automotive industry. Recently, we announced our intention to sell National
Metalwares, Inc. because its tubular steel components are used primarily by
manufacturers of consumer durables, not a Varlen target market.

MANY OPPORTUNITIES FOR GROWTH LIE AHEAD
We see many exciting opportunities for growth, even if the rate of
economic expansion in North America should slow.
- - GREATER PENETRATION OF ALL MAJOR HEAVY-DUTY TRUCK BUILDERS WILL CONTINUE. This
is in addition to the large contracts received from Freightliner and PACCAR.
We are also increasing the sales of aluminum axle hubs for trailers as this
market also continues to move toward light weight components. In addition,
hubs are being developed for the European and Japanese truck markets. In order
to accommodate Varlen's penetration of these markets, an additional plant will
be opened during the year at Bryson City, North Carolina, and capacity is
being increased at two other truck component plants.
- - GLOBAL OPPORTUNITIES IN THE RAILROAD INDUSTRY ARE DEVELOPING. Internationally,
we are actively developing the Russian, European and South American markets.
Domestically, we see increased demand for energy absorption devices as greater
numbers of new locomotives are built, the demand for new freight cars remains
high and the aftermarket improves.
- - OUR AUTOMOTIVE PARTS ARE IN THE MOST POPULAR VEHICLES. The trend to light
trucks and new model programs with which we are associated, should allow
Varlen to increase penetration, even if automobile production is flat in 1995.
- - SALES OF LABORATORY EQUIPMENT ARE RISING. New products, recovering
international markets, increased market penetration and higher oil prices
should stimulate sales.
- - A COMFORTABLE FINANCIAL POSITION SUPPORTS EXPANSION. Excellent cash flow and a
strong balance sheet position us to fund internal growth as well as strategic
acquisitions.
- - ACCELERATED PRODUCT DEVELOPMENT IS A PRIORITY. This is imperative if Varlen is
to maintain its rate of growth. As markets become more global and customer
requirements become more complex, our ability to increase the speed of
development and testing will be important to enhancing our competitive
advantage. In 1994 we benefitted from investments made in prior years to
develop new products and markets and that will also be the case in 1995.
- - INTERNATIONAL GROWTH WILL QUICKEN. Our global reach must be expanded,
particularly in our railroad, large truck/trailer and instrument businesses.
Last year 16 percent of Varlen's revenue was from international markets, up
substantially from five years ago.

NET SALES NET EARNINGS FULL DILLUTED E.P.S.
IN MILLIONS IN MILLIONS BEFORE ACCOUNTING
CHANGE
IN DOLLARS

[GRAPH] [GRAPH] [GRAPH]

4
<PAGE>

- --------------------------------------------------------------------------------

IMPROVEMENTS IN PROFITABILITY ARE FORESEEN
Operating profits in our Transportation Products Segment in 1994 improved
slightly, but less than our 19 percent increase in sales. Operating leverage was
constrained by increased raw material costs, downward pressure on prices for our
railroad components, start-up costs for a record number of new products, and
lower productivity as we operated our large truck/trailer and automotive
businesses beyond practical capacity. In the new year, we plan the following
actions at our transportation-related businesses:
- - LESS PROFITABLE PRODUCTS ARE BEING REVIEWED intensely to determine if margin
improvements can be achieved by re-design or re-tooling. If they cannot,
prices will be increased or the products will be discontinued.
- - CONTINUOUS IMPROVEMENT PROGRAMS WILL BE ACCELERATED, supported by higher
capital investment.
- - PRICES WILL BE RAISED in order to pass through increases in certain raw
material costs. In recent years we have avoided raising prices, as we
relentlessly endeavored to lower costs in the face of higher raw material
prices and the cost of increased government regulation. We can no longer
maintain this posture and will selectively increase prices, even at the risk
of losing some low-margin business.
As we get past the "start ups" and further productivity improvement
initiatives become effective, we anticipate that margins will improve in our
Transportation Products Segment. We are intensely focused on this issue.

OUTLOOK FOR 1995 IS OPTIMISTIC
We are reinvesting in our core businesses for future growth, and to
continue our earnings momentum. In 1994 capital expenditures and R&D reached
record levels, $14,700,000 and $4,400,000, respectively. Our 1995 capital budget
is $21,000,000. Of this amount, approximately $6,700,000 will be spent on a new
plant to manufacture structural molded plastic components for the heavy-duty
truck market. The balance of the capital expenditures will be for programs
devoted to cost reductions, new product introductions, quality enhancements and
improving safety.
We ended 1994 with a backlog 38 percent higher than a year ago. Both of
our business segments enjoy higher backlogs, particularly for railroad products
and petroleum analyzers, where last year we got off to a slow start. Although
the rate of economic growth may be slowing in North America, your company is
strong and well positioned for another year of growth.
On behalf of our management team and the company's board of directors, we
extend our sincere appreciation for the support of our shareowners, the
dedication and hard work of our associates and the loyalty of our customers and
suppliers.

/S/ Ernest H. Lorch /s/ Richard R. Wellek

ERNEST H. LORCH RICHARD L. WELLEK
Chairman of the Board President and Chief Executive Officer

March 6, 1995

BOOK VALUE TOTAL DEBT TO
PER SHARE CAPITALIZATION
IN DOLLARS IN PERCENTS

[GRAPH] [GRAPH]

5
<PAGE>

THE VARLEN MISSION
- --------------------------------------------------------------------------------

VARLEN'S PRIMARY OBJECTIVE IS TO INCREASE THE LONG-TERM VALUE OF ITS
SHAREOWNERS' INVESTMENT. THIS WILL BE ACHIEVED BY BUILDING UPON OUR
EMPLOYEES' CREATIVITY AND THEIR COMMITMENT TO SERVING CUSTOMERS BETTER
AND MORE EFFICIENTLY THAN OUR COMPETITORS DO IN THE MARKETS WHERE VARLEN
CHOOSES TO COMPETE.
VARLEN WILL INVEST RESOURCES IN SELECTED INDUSTRIAL MARKETS WHERE IT HAS,
OR CAN OBTAIN, A LEADERSHIP POSITION; WE WILL REDEPLOY RESOURCES FROM MARKETS
WHERE WE CANNOT. WE WILL CONTINUE TO ENHANCE OUR GLOBAL PRESENCE. VARLEN'S
ENGINEERED PRODUCTS FOR THE NICHE MARKETS IN WHICH IT PARTICIPATES ARE
CHARACTERIZED BY DIFFERENTIABLE PROCESS TECHNOLOGY EMPLOYED IN THEIR MANUFACTURE
AND/OR SUPERIOR PERFORMANCE ATTRIBUTES. OUR DEDICATION TO CONTINUOUS IMPROVEMENT
WILL BE UNRELENTING.

REVIEW OF OPERATIONS
- --------------------------------------------------------------------------------

TRANSPORTATION PRODUCTS

Sales increased 19 percent during 1994, but operating income did not keep
pace. Rising material costs, selling price pressures, a record number of new
program start-ups and running beyond practical capacity in some businesses
depressed results. We enter 1995 in better demand/capacity balance, prepared to
execute further productivity programs, and determined to selectively raise
prices in order to improve margins.

[PHOTO] [PHOTO]

RAYMOND A. JEAN GEORGE W. HOFFMAN
Executive Vice President Railroad Group Vice President
and Chief Operating Officer
The North American heavy-duty truck and trailer markets behaved as a
dynamic growth industry in 1994, with Class 8 truck and trailer production
of about 225,000 and 213,000 units, respectively. With strong demand from
Freightliner and PACCAR - Class 8 truck market leaders and our largest
customers in this industry - Varlen sales and income in this market reached
record levels. These markets ended the year with considerable momentum and
with backlogs strong enough to maintain high production schedules well
into the second half of 1995. Even if the industry pulls back late in the year,
the full year impact of the new programs started in mid-1994 and the current
production ramp-up of components for

6
<PAGE>

- --------------------------------------------------------------------------------

PACCAR will still allow us to grow. Specifically, these new PACCAR contracts for
aluminum axle hubs and chassis parts are expected to generate approximately
$13,000,000 annually.
Future real growth prospects are expected to be exciting. As truckers
continuously push to increase their payload capacity and reduce operating
expenses, it heightens demand for our lightweight aluminum and structural
plastic components. Aggressive pull-through marketing programs with fleet
owners are increasing the penetration of our proprietary aluminum hubs in the
trailer market. The technical capability to pro-actively participate in our
customers' development engineering initiatives is leading to breakthrough gains,
such as Freightliner's plastic components for a new Class 8 truck to be intro-
duced in early 1996, and winning new customers. In fact, a state-of-the-art
facility in Bryson City, North Carolina, will be commissioned in 1995 to
accommodate our steady penetration of the structural molded plastic market for
interiors of heavy-duty trucks. Also, international market opportunities are
being aggressively pursued in Europe and Japan.

[PHOTO]

CORNER BUFFERS FOR EUROPEAN RAILROAD
PASSENGER AND FREIGHT CARS ARE MANUFACTURED
AT OUR FRENCH SUBSIDIARY.

North American factories produced an estimated 15,500,000 light passenger
vehicles in 1994, some 10 percent above 1993 production. Driven by all-time high
light truck sales - a strong portion of the market for us - Varlen's automotive
components business outperformed the market. Even with the added cost of closing
a tool and die plant, operating results set a record.
Varlen's increased penetration of very tight tolerance parts for steering
column, engine and powertrain applications led to significant growth.
Interestingly, Varlen supplied components for each of the top ten selling
vehicles in the United States last year. The business also benefitted from a
substantial investment in a continuous flow system for transmission plate
production which paced the business' productivity gains. Even if 1995 retail
sales are fiat with 1994, we expect continued earnings growth from the full year
impact of 1994's new programs, greater pass through of material cost increases,
and ongoing continuous improvement efforts.
Railroads are looking forward to another good year in 1995 after 1994's
increase of 8.7 percent in ton-miles over

TRANSPORTATION PRODUCTS

NET SALES OPERATING PROFIT
TRANSPORTATION TRANSPORTATION
PRODUCTS PRODUCTS
(IN MILLIONS) (IN MILLIONS)

[GRAPH] [GRAPH]

7
<PAGE>

- --------------------------------------------------------------------------------

1993. The railroads need more capacity, and their capital expenditure drivers -
industrial production and profitability - are expected to be strong enough to
keep capital spending growing. Due to a weak backlog at the end of 1993, Varlen
got off to a slow start in 1994, but we are far better positioned now
to generate solid growth in 1995. We enter the year with a substantially higher
backlog for shock control devices, and with a new acquisition which manufactures
engineered products for locomotives. This unit will be joined with an existing
Varlen business serving the growing locomotive market in order to more
effectively reach out and satisfy our customers' aftermarket needs.
Internationally, the acquisition of a French manufacturer of railroad
products gives us a beachhead to accelerate penetration of our products into the
European market. Acieries de Ploermel supplies Europe's freight and transit rail
systems, and railway equipment manufacturers such as GEC Alsthom and Cogifer.
Generating productivity gains remains a business imperative, and product
rationalization programs and redesign of high volume products are expected to
contribute significantly.
Technology leadership across our railroad product lines affords us
opportunities to provide customers with the advanced components they require to
enhance their traffic base. And these opportunities reach out globally. From
track fasteners for South America and Australia to cushioning devices for
Europe, Russia and Asia, we expect foreign sales to increase sharply over the
next several years.

[PHOTO]

PRIME MANUFACTURING CORPORATION-VARLEN'S LATEST ACQUISITION, IS THE
LEADING MANUFACTURER OF HEATING, VENTILATING AND AIR CONDITIONING SYSTEMS FOR
RAILROAD LOCOMOTIVES.

LABORATORY EQUIPMENT
With 1993's successful realignment of our laboratory appliance business,
and rising demand for our petroleum instruments, operating income more than
doubled in this segment during 1994 before considering a 1993 special charge.
Varlen enters 1995 with a stronger backlog and more favorable market drivers to
help sustain the momentum.
After experiencing a very sluggish research laboratory appliance market
instigated by federal health care reform discussions and the downsizing of the
defense sector during the last two years, key portions of our served markets are
on the mend. The international market has been the one bright spot, and with
Europe's improving

LABORATORY EQUIPMENT

NET SALES OPERATING PROFIT
LABORATORY LABORATORY
EQUIPMENT EQUIPMENT
(IN MILLIONS) (IN MILLIONS)

[GRAPH] [GRAPH]

8
<PAGE>

- --------------------------------------------------------------------------------

economic outlook and a strong position in Asia, the overseas business is
expected to remain robust. With its lower cost position, more reliable products,
and dedication to customer service, Varlen's research laboratory appliance unit
is projected to contribute even more handsomely in 1995.
Our petroleum business delivered record earnings for the year, as sales
of instruments for in-process measurement and laboratory verification of the
physical properties of petroleum products picked up considerable momentum during
the second half. With Middle East nations thirsty for cash, and world petroleum
demand growing, we believe that momentum to be sustainable. Oil demand is the
key driver and it seems prospects for increased oil usage are better than they
have been in several years.
Our focus is on accelerating the pace of new product development in order
to further increase our global customers' productivity and improve quality
control. Increasing distribution effectiveness is another key issue now that the
North American sales/marketing and service functions are consolidated under our
recently purchased North American distributor. Also, steps are being taken to go
"direct" in other markets where we have "critical mass". We believe that
our strategy of developing this core business group by combining companies with
complementary products and distribution systems, a high level of technology, and
leadership positions in their respective niches has led to the realization of
operational efficiencies, more responsive customer service, and competitive
advantage.

[PHOTO]

STRUCTURAL MOLDED PLASTIC
INSTRUMENT PANELS AND INTERIOR COMPONENTS
FOR CLASS B TRUCKS ARE A VARLEN SPECIALTY.

OPERATING OUTLOOK
We have articulated a vision of what kind of company we want Varlen to be
- - engineered products for niche markets, leadership positions, global presence -
and identified the key success factors to get us there:
- - Consistent productivity gains

- - Enhanced engineering capabilities

- - More attention to employee training and development

- - Reaching globally with our core businesses

- - Focusing on growth - organically and through acquisitions

- - Divesting under-performing and non-strategic businesses

- - Speed as an essential element in all that we do

Flowing from the above is one all-encompassing goal - TO GET A LOT BETTER.

9
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------

SUMMARY OF OPERATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1994 1993 1992* 1991* 1990*
- ------------------------------------------------------------------------------------------------------------------
STATEMENT OF EARNINGS DATA:
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . $341,521 $291,908 $266,054 $230,517 $242,786
-------- -------- -------- -------- --------
Earnings before income taxes . . . . . . . . . . . . . . . . 25,854 18,723 14,374 7,334 10,213
Income tax expense . . . . . . . . . . . . . . . . . . . . . 11,092 7,957 6,706 3,890 4,528
-------- -------- -------- -------- --------
Earnings before cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . . . . . 14,762 10,766 7,668 3,444 5,685
Cumulative effect of change in accounting principle . . . . -- -- (1,351) -- --
-------- -------- -------- -------- --------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . $ 14,762 $ 10,766 $ 6,317 $ 3,444 $ 5,685
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
- ------------------------------------------------------------------------------------------------------------------
Gross profit as a percent of sales . . . . . . . . . . . . . 23.7% 24.0% 23.8% 21.9% 22.0%
Earnings before cumulative effect of change in
accounting principle as a percent of sales . . . . . . . . 4.3% 3.7% 2.9% 1.5% 2.3%
- ------------------------------------------------------------------------------------------------------------------
Effective tax rate before cumulative effect of change
in accounting principle . . . . . . . . . . . . . . . . . 42.9% 42.5% 46.7% 53.0% 44.3%
- ------------------------------------------------------------------------------------------------------------------
Per share data--primary:
Earnings before change in accounting principle . . . . . . $ 2.95 $ 2.18 $ 1.15 $ 0.51 $ 0.84
Net earnings . . . . . . . . . . . . . . . . . . . . . . . 2.95 2.18 0.95 0.51 0.84
Per share data--fully diluted:
Earnings before change in accounting principle . . . . . . 2.32 1.90 1.15 0.51 0.84
Net earnings . . . . . . . . . . . . . . . . . . . . . . . 2.32 1.90 0.95 0.51 0.84
Dividends declared . . . . . . . . . . . . . . . . . . . . . 0.40 0.40 0.40 0.40 0.40
- ------------------------------------------------------------------------------------------------------------------
Weighted average number of shares--primary . . . . . . . . . 5,012 4,947 6,678 6,738 6,734
Weighted average number of shares--fully diluted . . . . . . 7,550 6,663 6,678 6,738 6,734
- ------------------------------------------------------------------------------------------------------------------

SUMMARY OF FINANCIAL CONDITION
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1994 1993 1992* 1991* 1990*
- ------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
- ------------------------------------------------------------------------------------------------------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . $220,186 $186,264 $180,666 $182,279 $185,081
Working capital . . . . . . . . . . . . . . . . . . . . . . 57,713 49,046 39,570 38,632 38,120
Ratios:
Current assets to current liabilities . . . . . . . . . 2.1/1 2.4/1 1.9/1 2.0/1 2.0/1
Average inventory turnover . . . . . . . . . . . . . . . 6.7 6.1 5.7 5.0 5.1
Average accounts receivable turnover . . . . . . . . . . 8.2 8.1 7.5 7.3 8.0
- ------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment . . . . . . . . . . . . . $ 59,636 $ 52,867 $ 54,779 $ 58,436 $ 59,576
Capital expenditures . . . . . . . . . . . . . . . . . . . . 14,701 11,240 9,567 7,949 8,177
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . 11,885 10,295 9,488 8,794 7,766
- ------------------------------------------------------------------------------------------------------------------
Debt:
Senior debt . . . . . . . . . . . . . . . . . . . . . . . $ 3,855 $ 3,820 $ 74,679 $ 63,261 $ 68,543
Senior debt as a percent of total capitalization . . . . . 2.5% 2.8% 58.1% 46.4% 48.7%
Total debt . . . . . . . . . . . . . . . . . . . . . . . . $ 72,855 $ 72,820 $ 74,679 $ 63,261 $ 68,543
Total debt as a percent of total capitalization . . . . . 48.0% 53.4% 58.1% 46.4% 48.7%
- ------------------------------------------------------------------------------------------------------------------
Stockholders' equity . . . . . . . . . . . . . . . . . . . . $ 79,031 $ 63,644 $ 53,788 $ 73,031 $ 72,075
Stockholders' equity per share . . . . . . . . . . . . . . . 16.24 13.13 11.33 10.84 10.71
Return on average stockholders' equity . . . . . . . . . . . 20.5% 18.0% 8.5% 4.8% 8.1%
- ------------------------------------------------------------------------------------------------------------------
<FN>

*The per share data and weighted average number of shares outstanding were
restated for a 3 for 2 stock split effected in the form of a stock dividend in
1993.
</TABLE>

10
<PAGE>

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------

RESULTS OF OPERATIONS
YEAR ENDED JANUARY 31, 1995 (1994) AS COMPARED TO THE YEAR ENDED JANUARY 31,
1994 (1993)

OVERVIEW
The Company designs, manufactures and markets a diverse range of products
in its transportation products and laboratory equipment business segments. These
products are marketed to the railroad, large truck and trailer, and automotive
industries, as well as to the life sciences research, petroleum and consumer
products industries. The demand for the Company's products is affected by
domestic as well as international economic conditions. The Company's
manufacturing operations have a significant fixed cost component. Accordingly,
during periods of changing product demand, the profitability of many of the
Company's operations may change proportionately more than revenues of such
operations.

OPERATIONS
The Company's sales for fiscal 1994 were $341.5 million, up $49.6 million
or 17.0% from sales of $291.9 million in 1993. Sales increased in both business
segments and all business areas exceeded prior year sales, including the impact
of acquisitions and excluding the impacts of dispositions.
Net earnings were $14.8 million or $2.32 per share on a fully diluted
basis. This represented a 37.1% increase over the $10.8 million or $1.90 per
share on a fully diluted basis in 1993. Net earnings in 1993 included a third
quarter special pre-tax charge of $2.0 million ($1.1 million after tax) taken
against the Company's research laboratory appliance products operation. The
impact of this charge on 1993 net earnings per share was $.15 on a fully diluted
basis. The charge reflected costs incurred in connection with a work force
reduction, installation of a new management team, valuation of certain inventory
and other realignments designed to resize this unit and return it to
profitability.

TRANSPORTATION PRODUCTS
Transportation products revenues increased 19.3% to $261.8 million, as
compared to $219.5 million in 1993. The Company's automotive parts and large
truck and trailer businesses had higher sales than during the prior year period
as a result of increased customer demand and new products partially offset by
selected lower selling prices. The railroad business also had increased sales in
1994 as a result of sales from acquired businesses which more than offset the
impacts of lower unit sales and prices in certain of the base businesses. During
the second half of 1994, the Company acquired two strategically important
railroad products companies and recontinued certain previously discontinued
railroad products related operations, none of which had a material impact during
1994. Operating profit was $28.0 million (10.7% of segment sales) compared to
$27.9 million (12.7% of segment sales) during 1993. Limited ability to pass on
higher material costs through selling price increases, productivity limitations
from overutilization of capacity at certain facilities, and in the railroad
business production limitations early in the year and lower selling prices
throughout most of the year negatively affected the operating profit margin
percentage. This resulted in flat operating profit on a significant increase in
segment sales.
Large truck and trailer industry sales were again substantially higher in
the 1994 periods than in the prior year and the Company benefitted from this
improvement. In addition, the Company's largest heavy duty truck customer
maintained its number one market share position during 1994 and increased sales
penetration occurred at another significant large truck customer. Automotive
industry sales, especially light truck sales, increased during 1994 over the
year's earlier periods which benefitted the Company's automotive parts
operations. The Company also benefitted from its parts being on many of the more
popular automobile models, including certain new models. Demand for the
Company's railroad products, excluding acquisitions and recontinuances, did not
increase despite increased railroad revenue ton miles and increased new freight
car builds, principally due to lower purchases of the Company's maintenance of
way products.

LABORATORY EQUIPMENT
Sales in the laboratory equipment segment for 1994 increased to $79.7
million compared to $72.4 million in 1993. The increase in revenues in this
segment occurred in all business areas after excluding the effects of a small
laboratory products facility disposed of in 1993. The petroleum instrument
business had the greatest sales increase principally as a result of acquisitions
in both late

11
<PAGE>

- --------------------------------------------------------------------------------

1993 and 1994. Increased revenues also occurred in the research laboratory
appliance businesses and tubular metal goods business primarily as a result of
increased unit sales, although small price increases contributed.
Operating profit for the laboratory equipment segment increased to $8.5
million (10.7% of segment sales) from $2.0 million (2.7% of segment sales) in
the prior year's period. Operating earnings improved in 1994 in all business
areas. At the research laboratory appliance business, operating earnings were
significantly increased as a result of cost containment actions taken in 1993.
In 1993 operating profits were negatively affected by the previously discussed
$2.0 million charge taken against the research laboratory appliance operation
and $.6 million of pre-tax costs and losses related to the operation of, and the
establishment of a reserve for, the disposition of the small laboratory products
facility. Increased 1994 petroleum instrument profits resulted from late 1993
and 1994 acquisitions while improvement in performance at the tubular metal
products business resulted from sales of new products. During 1994, foreign
currency fluctuations had a $.5 million positive impact on sales and a $.1
million positive impact on pre-tax earnings in this segment.

[PHOTO]

RICHARD A. NUNEMAKER
VICE PRESIDENT, FINANCE AND CFO

COST OF SALES
Consolidated gross margin was 23.7% in 1994 compared to 24.0% in 1993. The
laboratory equipment segment gross margin increased in all businesses during the
year. In the tubular metal goods and laboratory appliance businesses, the
improvement was the result of cost reduction programs as selling price increases
only approximated material cost increases. The petroleum instruments business
gross margin increased as a result of 1993 and 1994 acquisitions. The gross
margin in the transportation products segment decreased during the year. This
resulted from increased raw material costs, principally aluminum and steel,
which could not always be recovered by increased selling prices. Additionally,
selling price reductions were made on certain products. In the automotive parts
and large truck and trailer businesses, productivity was negatively affected by
over-utilization of capacity and higher than normal new product introductions.

SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses of $50.4 million, 14.8% of
sales in 1994, were lower as a percent of sales than the 1993 level of 15.5%. In
the transportation products segment, selling, general and administrative
expenses as a percent of sales increased slightly versus 1993 due to increased
engineering and product development expenses and the impact of a European
acquisition. In the laboratory equipment segment, selling, general and
administrative expenses decreased during 1994 compared to 1993 principally as a
result of the $2.0 million charge at the laboratory appliance business in 1993.

INTEREST EXPENSE AND INCOME TAXES
Gross interest expense for 1994 was $5.2 million compared to $6.3 million
for the prior year's period. Interest expense reflected lower interest rates on
lower average borrowings. Interest income was $.3 million higher in 1994 as a
result of increased levels of temporary investments during the year.
Income taxes were provided at an effective rate of 42.9% in 1994 and 42.5%
in 1993. The higher than statutory federal rate reflects non-deductible goodwill
amortization, higher taxes on foreign operations and state income taxes.

FOURTH QUARTER
Sales for the fourth quarter of 1994 were $94.6 million, up 37.9% from the
$68.6 million reported in 1993. Sales increased in all business areas of both
the transportation products and laboratory equipment segments. The largest
dollar and percentage increases were in the railroad and large truck and trailer
businesses. On a consolidated basis, consolidated backlog was up 38% at the end
of fiscal 1994 compared to the prior year.
Net earnings were $3.2 million or $.51 per share on a fully diluted basis
in 1994's fourth quarter compared to $2.1 million or $.37 per share in the year
ago period. In 1994, the laboratory equipment segment's profitability increased
principally due to cost reductions at the laboratory appliance business and both
new products and lower costs at the tubular metal goods operation. In the
transportation products segment, operating profit increased in absolute terms
but declined as a percentage of sales due to new product startups and the
inability to pass through material price increases in the automotive parts and
large truck and trailer businesses. Interest expense decreased due to lower
average rates on lower average

12
<PAGE>

- --------------------------------------------------------------------------------
borrowings. The effective income tax rate in the fourth quarter of 1994 was
significantly higher than in the same 1993 period, due to a fourth quarter
adjustment to the 1993 year-to-date effective income tax rate.

CAPITAL RESOURCES AND LIQUIDITY
During the three-year period ended January 31, 1995, the Company generated
$73.7 million of cash from operating activities. As of January 31, 1995, the
Company's working capital was $57.7 million, its total assets were $220.2
million, its total debt, excluding current portion, was $72.8 million and its
stockholders' equity was $79.0 million.
Investing activities during the three-year period ended January 31, 1995
included capital expenditures of $35.5 million. These capital expenditures were
primarily for machinery and equipment to support new products and to improve
operating efficiency. At January 31, 1995, the Company was in negotiations to
acquire an additional plant facility to produce plastic components for the
large truck industry. The cost of this facility and related equipment
expenditures in 1995 are estimated to be $6.7 million. In January 1995, the
Company acquired a railroad products company for approximately $5.9 million and
committed to purchase the related land and building in early 1995.
On May 27, 1993, the Company publicly issued $60 million of its 6.5%
Convertible Subordinated Debentures Due 2003, the proceeds of which were used to
reduce indebtedness under the revolving credit facility. On June 18, 1993, an
additional $9 million of the same debentures were issued pursuant to an
over-allotment option granted to the underwriter of the debentures. To support
its investing activities, the Company entered into an $80 million revolving
credit agreement in the fourth quarter of 1993 which expires on December 6,
1997. This credit facility will be used by the Company as the principal source
of acquisition funding. At January 31, 1995, the Company had no debt outstanding
under this credit facility. The percentage of debt to total capitalization at
January 31, 1995 was 48.0%, down from 53.4% at January 31, 1994. Cash and short
term investments were $13.1 million at the end of fiscal 1994 compared to $5.2
million at the end of fiscal 1993. The Company believes that internally
generated funds will be sufficient to satisfy its anticipated working capital
needs, capital expenditures and scheduled debt repayments.

YEAR ENDED JANUARY 31, 1994 (1993) AS COMPARED TO THE YEAR ENDED JANUARY 31,
1993 (1992)

The Company's sales for fiscal 1993 were $291.9 million, up $25.8 million
or 9.7% from sales of $266.1 million in 1992. Sales increased in the
transportation products segment where all businesses exceeded prior year, but
declined in the laboratory equipment segment.
Net earnings were $10.8 million or $1.90 per share on a fully diluted
basis. This represented a 40.4% increase over the $7.7 million or $1.15 per
share on a fully diluted basis before the cumulative effect of a change in
accounting principle in 1992. Net earnings in 1992 were $6.3 million or $.95 per
share on a fully diluted basis after reflecting an after tax charge of $1.4
million to adopt Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Post-Retirement Benefits Other Than Pensions".
Third quarter 1993 results included a special pre-tax charge of $2.0
million ($1.1 million after tax) taken against the Company's research laboratory
appliance products operation. The impact of this charge on net earnings per
share was $.15 on a fully diluted basis. The charge reflects costs incurred in
connection with a work force reduction, installation of a new management team,
valuation of certain inventory and other realignments designed to resize this
unit and return it to profitability.
Per share amounts in 1993 were positively affected by the repurchase of
approximately 30% of the Company's outstanding common stock from its founding
stockholder in January, 1993.
Transportation products revenues increased 20% to $219.5 million, as
compared to $182.9 million in 1992. All operating units in this segment had
higher sales than during the prior year's period, as a result of increased
customer demand and new products. Operating profit was $27.9 million (12.7% of
segment sales) a 47% increase over the $19.0 million (10.4% of segment sales)
during 1992. Cost reduction programs and higher product sales resulted in
improved plant utilization and increased profitability.
Heavy duty truck and trailer industry sales were substantially higher in
the 1993 period than in the prior year, and the Company benefitted from this
improvement. In addition, the Company benefitted as its largest heavy duty truck
customer

13
<PAGE>

- --------------------------------------------------------------------------------
maintained its number one market share position during 1993. Automotive industry
sales, particularly light truck sales, increased during 1993 over the year
earlier period, as did sales at the Company's automotive parts operation. The
Company also benefitted from a full year of production of a popular new
platform of automobiles by its second largest automotive customer. Demand for
the Company's railroad products increased as railroad revenue ton miles and new
freight car builds increased over 1992. Despite volume increases, the
transportation products segment continued to experience sales price reductions.
Sales in the laboratory equipment segment for 1993 declined to $72.4
million compared to $83.2 million in 1992. The decline in revenues in this
segment occurred in the laboratory appliance business which provides products to
life science research and development laboratories. The combination of the
European recession, delays in releasing government funding and uncertainty about
health care legislation depressed demand for equipment used in life science
research. Additionally, a small laboratory appliance facility that had sales
of approximately $9.5 million in 1992 was sold at the beginning of the second
quarter of 1993. Sales elsewhere in the segment were similar year to year.
Operating profit for the laboratory equipment segment decreased to $2.0
million (2.7% of segment sales) compared to $4.9 million (5.9% of segment sales)
in the prior year's period. Operating profit in 1993 was affected by the
previously discussed $2.0 million charge taken against the research laboratory
products operation. Additionally, in the first quarter of 1993, operating
profits included $.6 million of pre-tax costs and losses related to the
operation and disposition of the small laboratory products facility discussed
above. Improved profits at the tubular metal goods and petroleum analysis
instrument business in 1993 were more than offset by operating losses at the
laboratory appliance operation. During 1993, foreign currency fluctuations had a
$1.1 million negative impact on segment sales and a $.2 million negative impact
on operating profit compared to 1992.
Consolidated gross margin increased to 24.0% in 1993 from 23.8% in 1992.
The transportation products segment gross margin increased. This increase
resulted from increased sales and lower operating costs due to ongoing cost
reduction programs partially offset by selling price reductions particularly in
the railroad products business which had a declining gross margin as a
percentage of sales. The gross margin of the laboratory equipment segment
declined to 27.4% during 1993 compared to 27.6% in the prior year. The
laboratory appliance business had a lower gross margin in 1993 due to the $2.0
million charge previously discussed. However, at the petroleum analysis
instrument operations, gross margin as a percent of sales increased. During
1993, raw material costs in both segments were relatively unchanged except for a
decrease in aluminum prices and increases in most steel products, particularly
in the latter part of the year.
Selling, general and administrative expenses of $45.1 million in 1993 as a
percentage of sales were 15.5%, down from the 1992 level of 16.6% of sales. In
the transportation products segment, selling, general and administrative
expenses as a percent of sales declined versus 1992 due to increased sales while
the dollar amount of these expenses increased approximately 4.7%. In the
laboratory equipment segment, selling, general and administrative expenses as
a percent of sales increased during 1993 compared to 1992 principally as a
result of the $2.0 million charge at the laboratory appliance business.
Gross interest expense for 1993 was $6.3 million compared to $4.9 million
for the prior year's period. Interest expense reflected lower interest rates on
higher average borrowings. During the fourth quarter of 1992, the Company
increased its borrowings to finance a repurchase of approximately 30% of its
common stock from its founding stockholder.
Income taxes were provided at an effective rate of 42.5% in 1993 and 46.7%
in 1992. The higher than statutory federal rate reflects non-deductible goodwill
amortization, higher taxes on foreign operations and state income taxes. The
effective tax rate declined in 1993 principally as a result of higher
consolidated pre-tax earnings and a reduction in the statutory tax rates in
Germany offset partially by United States statutory tax rate increases.

14
<PAGE>

CONSOLIDATED STATEMENTS OF EARNINGS
- --------------------------------------------------------------------------------

VARLEN CORPORATION AND SUBSIDIARIES YEAR ENDED JANUARY 31
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $341,521 $291,908 $266,054
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260,469 221,988 202,829
----------------------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,052 69,920 63,225
Selling, general and administrative expenses . . . . . . . . . . . . . . 50,436 45,087 44,021
----------------------------
Earnings before interest and income taxes . . . . . . . . . . . . . . . . 30,616 24,833 19,204
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,249) (6,332) (4,867)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 487 222 37
-------- -------- --------
Earnings before income taxes . . . . . . . . . . . . . . . . . . . . . . . 25,854 18,723 14,374
Income tax expense (note 7) . . . . . . . . . . . . . . . . . . . . . . 11,092 7,957 6,706
-------- -------- --------
Earnings before cumulative effect of change in accounting principle . . . 14,762 10,766 7,668
Cumulative effect of change in accounting principle,
net of income taxes of $808 (note 9) . . . . . . . . . . . . . . . . . . -- -- (1,351)
-------- -------- --------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,762 $ 10,766 $ 6,317
-------- -------- --------
-------- -------- --------
Weighted average number of shares--primary . . . . . . . . . . . . . . . . 5,012 4,947 6,678
-------- -------- --------
-------- -------- --------
Weighted average number of shares--fully diluted . . . . . . . . . . . . . 7,550 6,663 6,678
-------- -------- --------
-------- -------- --------
Primary earnings per share:
Earnings before change in accounting principle . . . . . . . . . . . . . $ 2.95 $ 2.18 $ 1.15
Change in accounting principle . . . . . . . . . . . . . . . . . . . . . -- -- (0.20)
-------- -------- --------
Net earnings per share . . . . . . . . . . . . . . . . . . . . . . . . $ 2.95 $ 2.18 $ 0.95
-------- -------- --------
-------- -------- --------
Fully diluted earnings per share:
Earnings before change in accounting principle . . . . . . . . . . . . . $ 2.32 $ 1.90 $ 1.15
Change in accounting principle . . . . . . . . . . . . . . . . . . . . . -- -- (0.20)
-------- -------- --------
Net earnings per share . . . . . . . . . . . . . . . . . . . . . . . . $ 2.32 $ 1.90 $ 0.95
-------- -------- --------
-------- -------- --------
</TABLE>
<TABLE>
<CAPTION>

- -------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Deferred Total
Additional stock stock-
Common paid-in Retained compen- Treasury holders'
(IN THOUSANDS, EXCEPT PER SHARE DATA) stock capital earnings sation stock equity
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT FEBRUARY 1, 1992 . . . . . . . . . . . . . . . . $ 449 $12,266 $60,316 $ -- $ -- $73,031
Issuance of common stock under options . . . . . . . . . . . 3 491 -- -- -- 494
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . -- -- 6,317 -- -- 6,317
Cash dividends ($.40 per share) . . . . . . . . . . . . . . -- -- (2,499) -- -- (2,499)
Purchase of 2,033 shares of common stock (note 12) . . . . . -- -- -- -- (23,155) (23,155)
Currency translation adjustments--unrealized . . . . . . . . -- -- (400) -- -- (400)
----- ------- ------- ------ ------- -------
BALANCE AT JANUARY 31, 1993 . . . . . . . . . . . . . . . . 452 12,757 63,734 -- (23,155) 53,788
Issuance of common stock under options . . . . . . . . . . . 1 309 (71) -- 892 1,131
Deferred incentive stock purchase plan . . . . . . . . . . . -- 2,577 (1,550) (1,027) -- --
Amortization of deferred stock compensation . . . . . . . . -- -- -- 103 -- 103
Cash received on stock subscriptions . . . . . . . . . . . . -- -- 222 -- -- 222
3 for 2 stock split (note 12) . . . . . . . . . . . . . . . 30 -- (22,293) -- 22,263 --
Cost of common stock for the purchase of business (note 2) . 2 497 -- -- -- 499
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . -- -- 10,766 -- -- 10,766
Cash dividends ($.40 per share) . . . . . . . . . . . . . . -- -- (1,927) -- -- (1,927)
Additional minimum pension liability . . . . . . . . . . . . -- -- (194) -- -- (194)
Currency translation adjustments--unrealized . . . . . . . . -- -- (744) -- -- (744)
----- ------- ------- ------ ------- -------
BALANCE AT JANUARY 31, 1994 . . . . . . . . . . . . . . . . 485 16,140 47,943 (924) -- 63,644
Issuance of common stock under options . . . . . . . . . . . 2 281 -- -- -- 283
Amortization of deferred stock compensation . . . . . . . . -- -- -- 222 -- 222
Cash received on stock subscriptions . . . . . . . . . . . . -- -- 243 -- -- 243
Cost of common stock for the purchase of business (note 2) . -- 95 -- -- -- 95
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . -- -- 14,762 -- -- 14,762
Cash dividends ($.40 per share) . . . . . . . . . . . . . . -- -- (1,942) -- -- (1,942)
Additional minimum pension liability . . . . . . . . . . . . -- -- 80 -- -- 80
Currency translation adjustments--unrealized . . . . . . . . -- -- 1,644 -- -- 1,644
----- ------- ------- ------ ------- -------
BALANCE AT JANUARY 31, 1995 . . . . . . . . . . . . . . . . $ 487 $16,516 $62,730 $ (702) $ -- $79,031
----- ------- ------- ------ ------- -------
----- ------- ------- ------ ------- -------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

15
<PAGE>

CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

VARLEN CORPORATION AND SUBSIDIARIES JANUARY 31
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS:
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,096 $ 5,168
Accounts receivable, less allowance for doubtful
accounts of $1,318 and $1,207 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,838 35,455
Inventories (note 1):
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,774 12,594
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,890 13,228
Finished goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,686 11,245
--------- ----------
40,350 37,067
--------- ----------
Deferred and refundable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,229 4,095
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,022 2,790
--------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,535 84,575
--------- ----------
Property, plant and equipment (note 5):
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,392 3,008
Buildings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,814 22,465
Machinery and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,172 81,227
--------- ----------
125,378 106,700
Less accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,742 53,833
--------- ----------
59,636 52,867
--------- ----------
Goodwill and other intangible assets, less accumulated
amortization of $15,071 and $12,491. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,292 45,829
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,723 2,993
--------- ----------
$ 220,186 $186,264
--------- ----------
--------- ----------
</TABLE>

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 67 $ 122
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,365 16,784
Accrued expenses (note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,526 18,230
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,864 393
--------- --------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,822 35,529
--------- --------
Long-term debt:
Convertible subordinated debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,000 69,000
Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,788 3,698
--------- --------
Total long-term debt (note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,788 72,698
--------- --------
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,838 5,217
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,707 9,176
Stockholders' equity (notes 5, 10 and 12):
Preferred stock, par value $1.00 per share; authorized
500 shares, issuable in series; none issued . . . . . . . . . . . . . . . . . . . . . . . . . . -- ---
Common stock, par value $.10 per share; authorized
20,000 shares; issued: 4,865 (1/31/95) and 4,846 (1/31/94) . . . . . . . . . . . . . . . . . . . 487 485
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,516 16,140
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,730 47,943
Deferred stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (702) (924)
--------- --------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,031 63,644
--------- --------

$ 220,186 $186,264
--------- --------
--------- --------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

16
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
VARLEN CORPORATION AND SUBSIDIARIES YEAR ENDED JANUARY 31
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,762 $ 10,766 $ 6,317
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,885 10,295 9,488
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,779 2,606 2,452
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . (1,748) (570) (726)
Cumulative effect of change in accounting principle . . . . . . . . . . -- -- 1,351
Change in assets and liabilities net of effects from
purchased businesses:
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . (9,532) 2,198 (5,080)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,156 (3,054) (1,797)
Refundable income taxes . . . . . . . . . . . . . . . . . . . . . . 130 124 2,595
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . (768) (319) (852)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 6,363 (76) 1,263
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 2,207 1,994 2,990
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . 2,431 (2,275) 2,846
Other noncurrent assets . . . . . . . . . . . . . . . . . . . . . . 93 (1,906) (283)
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . 379 1,290 959
-------- -------- --------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . 16,375 10,307 15,206
-------- -------- --------
Net cash provided by operating activities . . . . . . . . . . . . . . 31,137 21,073 21,523
-------- -------- --------
Cash flows from investing activities:
Fixed asset expenditures . . . . . . . . . . . . . . . . . . . . . . . . (14,701) (11,240) (9,567)
Cost of purchased business . . . . . . . . . . . . . . . . . . . . . . . (7,800) (5,437) --
Sale of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 2,000 --
Disposals and other changes in property plant and equipment. . . . . . . 1,067 298 3,514
-------- -------- --------
Net cash used in investing activities . . . . . . . . . . . . . . . . (21,434) (14,379) (6,053)
-------- -------- --------
Cash flows from financing activities:
Proceeds from debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 69,013 21,533
Payments of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . (331) (70,659) (11,532)
Issuance of common stock under option plans . . . . . . . . . . . . . . 161 802 392
Cash received on stock subscriptions . . . . . . . . . . . . . . . . . . 243 222 --
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . -- -- (23,155)
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . (1,942) (1,927) (2,499)
-------- -------- --------
Net cash used in financing activities . . . . . . . . . . . . . . . . (1,836) (2,549) (15,261)
-------- -------- --------
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . 61 (269) 416
-------- -------- --------
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . 7,928 3,876 625
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . 5,168 1,292 667
-------- -------- --------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . $ 13,096 $ 5,168 $ 1,292
-------- -------- --------
-------- -------- --------
- --------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of Varlen Corporation and all of its subsidiaries (the "Company").
All significant inter-company balances and transactions have been eliminated.

(b) CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents.

(c) INVENTORIES: Inventories are stated at the lower of cost or market. Cost
of inventories is determined using the last-in, first-out (Lifo) method for 66%
and 79% of inventories, at January 31, 1995 and 1994, respectively. The
first-in, first-out (Fifo) method is used for all remaining inventories. If the
Fifo method of determining inventory costs had been used for all inventories,
inventories would have increased approximately $1,355,000 and $897,000 at
January 31, 1995 and 1994, respectively.

(d) PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are recorded
at cost. Depreciation is provided on the straight-line method over the
estimated useful lives of the assets. The useful lives of buildings range from
10 to 45 years and the useful lives of machinery and equipment range from 3 to
12 years.

(e) INTANGIBLES: Goodwill is amortized on a straight-line basis between 15 and
40 years. The carrying amount of goodwill is evaluated annually to determine if
adjustment to the amortization period or unamortized balance are warranted based
on projections of future earnings. Other intangible assets are amortized on a
straight-line basis over their remaining useful lives.

(f) EARNINGS PER SHARE: Primary earnings per share is computed on the basis of
the weighted average number of common shares outstanding during the period plus
common equivalent shares arising from stock incentive plans using the treasury
stock method. Beginning in 1993, the computation of fully diluted earnings per
share includes the weighted average number of shares that would have been issued
upon conversion of the convertible debentures and the effect on net earnings for
the reduction in the after-tax interest expense on the converted debentures.

(g) FOREIGN CURRENCY TRANSLATION: Foreign currency financial statements of
foreign operations where the local currency is the functional currency are
translated using exchange rates in effect at period end for assets and
liabilities and average exchange rates during the period for results of
operations. Related translation adjustments are reported as a separate
component of Stockholders' Equity. Gains and losses from foreign currency
transactions are included in earnings.

(h) DERIVATIVES: The Company does not currently utilize derivative financial
instruments. However, the Company periodically reviews the potential benefit of
utilizing derivatives to minimize foreign currency exchange, interest rate and
commodity price risks.

(i) RECLASSIFICATION: Certain amounts for 1993 and 1992 have been reclassified
to conform with the 1994 presentation.

2. ACQUISITIONS AND RECONTINUED OPERATIONS

On January 16, 1995, the Company purchased the assets of the Railroad Division
of Prime Manufacturing Corporation ("Prime"), located in Oak Creek, Wisconsin.
The acquisition was made for $5.9 million in cash and $25,000 (1,000 shares) of
Company common stock. The Company is also committed to purchase the related
land and building in early 1995 for approximately $1.0 million. Prime, which
has annual revenues of approximately $15 million, manufactures a wide range of
engineered products for railroad locomotives, including heating, ventilating and
air conditioning equipment; valves and refrigerators. Prime's products are sold
to both original equipment manufacturers and the aftermarket.

On September 30, 1994, the Company purchased the North American distribution
rights for its Walter Herzog GmbH ("Herzog") German subsidiary from UIC, Inc.,
Herzog's previous North American distributor, for $1.8 million in cash and
deferred payments including $70,000 (3,000 shares) of Company common stock. The
Company also formed on that date, Varlen Instruments, Inc., a wholly owned North
American distributor for the products of Herzog as well as Alcor Petroleum
Instruments, Inc. and Precision Scientific Petroleum Instruments Company, two
other operations of the Company.

On August 18, 1994, the Company acquired Acieries de Ploermel ("AP"), a steel
foundry located in the Brittany region of northwest France. The Company
initially made an equity investment and provided loan guarantees totaling
approximately $1,100,000. The Company has injected working capital, refinanced
AP's debt to reduce interest costs and utilized local and French government
grants and interest-free loans. AP, which has annual revenues of approximately
$9 million, specializes in railroad products and is an approved source for most
of the national railroads in Europe. AP also provides castings for valve
manufacturers and, to a lesser extent, for the auto industry.

On November 23, 1993, the Company acquired the petroleum analysis equipment and
testing services division of San Antonio-based Alcor, Inc., a privately held
company. The acquisition was made for $5.4 million in cash and $499,000 (19,550
shares) of Company common stock. The acquired business, which has annual
revenues of approximately $4 million, designs, develops, manufactures and sells
petroleum analysis equipment. It is also engaged in the testing of petroleum
products in its laboratory and the sale of petroleum product reference samples.
The acquired business markets its products and services under the name of Alcor
Petroleum Instruments, Inc.

The acquisitions have been accounted for by the purchase method of accounting
with the excess of the purchase price over the fair value of the net assets
acquired amortized over 40 years. The operating results of the businesses
acquired have been included in the accompanying consolidated results of
operations from the respective dates of acquisition. These transactions were
financed with cash on hand.

On July 31, 1994, the Company recontinued its Chrome Crankshaft Co. and Chrome
Crankshaft Company of Illinois subsidiaries which had been previously treated as
discontinued operations. These operations were recontinued due to a termination
of sale negotiations with a potential purchaser. The results of operations of
these businesses, which are not material to the Company, have been included in
the Company's consolidated results of operations since the date of
recontinuance. Net sales and earnings before income taxes were $3,195 and $608,
respectively, for the six months ended January 31, 1995 and were $5,215 and
$928, respectively, for the year ended January 31, 1994.

<PAGE>

3. SUPPLEMENTARY CASH FLOW INFORMATION

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
(IN THOUSANDS) 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . $ 5,096 $ 5,809 $4,834
------- ------- ------
------- ------- ------
Income taxes (net) . . . . . . . . . . . $10,220 $10,343 $1,860
------- ------- ------
------- ------- ------

Purchase of businesses (note 2):
Fair value of assets acquired . . . . . $15,230 $ 6,240 $ --
Cash paid . . . . . . . . . . . . . . . (7,800) (5,437) --
Common stock issued
for purchase . . . . . . . . . . . . . (95) (499) --
------- ------- ------
Liabilities assumed . . . . . . . . . . $ 7,335 $ 304 $ --
------- ------- ------
------- ------- ------

</TABLE>

4. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and fair value of the Company's financial instruments at
year end are as follows (in thousands):

- -------------------------------------------------------------------------------
1994 1993
- -------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Convertible subordinated
debentures . . . . . . . . . . . $69,000 $69,173 $69,000 $80,751
Industrial revenue bonds
and other debt . . . . . . . . . 3,788 3,901 3,698 4,391
------- ------- ------- -------
Total long-term debt . . . . . . . $72,788 $73,074 $72,698 $85,142
------- ------- ------- -------
------- ------- ------- -------

</TABLE>

The carrying amounts for cash and cash equivalents, accounts receivable,
accounts payable and current maturities of long-term debt are reasonable
estimates of their fair value. The fair value of the convertible subordinated
debentures is its quoted market value. The fair value of industrial revenue
bonds and other debt are estimated using discounted cash flow analysis and
market rates for similar financial instruments.

5. LONG-TERM DEBT

Long-term debt at year end is comprised of the following (in thousands):

- -------------------------------------------------------------------------------
1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
6.5% Convertible Subordinated
Debentures Due 2003 . . . . . . . . . . . . . . $69,000 $69,000
Industrial revenue bonds and other debt. . . . . . 3,855 3,820
------- -------
72,855 72,820
Less current maturities . . . . . . . . . . . . . (67) (122)
------- -------
Long-term debt . . . . . . . . . . . . . . . . . . $72,788 $72,698
------- -------
------- -------
- -------------------------------------------------------------------------------
</TABLE>

During the second quarter of 1993, the Company issued $69,000,000 aggregate
principal amount of 6.5% Convertible Subordinated Debentures Due 2003. These
unsecured debentures are convertible into Common Stock of the Company at $27.33
per share and are callable in whole or in part after June 3, 1996 at the option
of the Company at specified redemption prices plus accrued interest. The
proceeds from the issuance were used to reduce all outstanding debt under the
Company's revolving credit agreement.

At January 31, 1995, the Company had an unused $80,000,000 revolving line of
credit (the "Agreement"). The Agreement allows for borrowings in a variety of
currencies and provides for interest at one of three market interest rates
selected by the Company plus an applicable margin which is dependent upon the
market interest rate chosen and the relationship of interest expense to cash
flow. The highest interest rate available under the Agreement at January 31,
1995 was the prime rate with maximum commitment fees of 3/10 of 1% on the unused
portion of the line of credit. The weighted average interest rate for all
borrowings under the Company's revolving credit agreement in effect during 1993
was 5.7%. The Agreement terminates on December 6, 1997 with two optional one
year extensions.

The Agreement contains provisions which require the Company to maintain a
specified level of net worth and comply with various financial ratios and
includes, among other provisions, restrictions on leases, investments, dividend
payments and the incurrence of additional indebtedness. At January 31, 1995,
$19,409,000 was available for dividend distributions.

Industrial revenue bonds, due in 2004, and other notes payable are secured by
the property, plant and equipment purchased with the proceeds of such debt.
Interest on the bonds is paid at rates ranging from 6.8% to 7.0%.

Scheduled repayments of long-term debt in each of the next four years are
$67,000, $180,000, $16,000 and $2,000. No payments are due subsequently until
2003.

6. LEASES, ACCRUED EXPENSES AND RESEARCH AND DEVELOPMENT COSTS

The Company and its subsidiaries occupy various manufacturing and office
facilities and use certain equipment under operating lease arrangements. Total
rent expense under such agreements amounted to approximately $1,429,000 in 1994,
$1,021,000 in 1993 and $1,023,000 in 1992. At January 31, 1995, the aggregate
minimum future rental commitments under the non-cancelable leases with terms in
excess of one year were approximately $2,584,000. Amounts due annually in each
of the next five years are $1,076,000, $699,000, $443,000, $156,000 and $30,000.

Accrued expenses at January 31, 1995 and 1994 include $9,216,000 and $7,596,000
for certain accrued employee benefits and $4,353,000 and $3,211,000 for various
insurance accruals, respectively.

Research and development costs charged to earnings were $4,366,000 in 1994,
$4,342,000 in 1993 and $3,609,000 in 1992.

7. INCOME TAXES

Earnings before income taxes were derived from the following sources (in
thousands):

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic . . . . . . . . . . . . . . . . . $23,871 $16,688 $12,630
Foreign . . . . . . . . . . . . . . . . . 1,983 2,035 1,744
------- ------- ------
Total . . . . . . . . . . . . . . . . . $25,854 $18,723 $14,374
------- ------- ------
------- ------- ------
- -------------------------------------------------------------------------------
</TABLE>

Income tax expense consists of the following (in thousands):

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . $ 9,365 $ 6,220 $ 5,206
State and local. . . . . . . . . . . . . 2,141 1,754 1,799
Foreign . . . . . . . . . . . . . . . . 886 701 396
------- ------- ------
Total . . . . . . . . . . . . . . . . . 12,392 8,675 7,401
------- ------- ------

Deferred:
Federal . . . . . . . . . . . . . . . . (1,113) (667) (935)
State and local . . . . . . . . . . . . (564) (96) (240)
Foreign . . . . . . . . . . . . . . . . 377 45 480
------- ------- ------
Total . . . . . . . . . . . . . . . . . (1,300) (718) (695)
------- ------- ------
Income tax provision . . . . . . . . . . . $11,092 $ 7,957 $ 6,706
------- ------- ------
------- ------- ------
- -------------------------------------------------------------------------------
</TABLE>

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

Deferred tax assets and liabilities are comprised of the following (in
thousands):

January 31, 1995 January 31, 1994
- -------------------------------------------------------------------------------
Asset Liability Asset Liability
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accounts receivable. . . . . . . . $ 510 $ -- $ 502 $ --
Inventories . . . . . . . . . . . 493 509 920 1,242
Operating losses . . . . . . . . . 2,222 -- 2,063 --
State income taxes . . . . . . . . -- 622 -- 653
Fixed assets . . . . . . . . . . . -- 5,488 -- 6,586
Vacation pay . . . . . . . . . . . 1,008 -- 819 --
Workers' compensation. . . . . . . 2,028 -- 1,991 --
Warranty . . . . . . . . . . . . . 855 -- 570 --
Deferred compensation. . . . . . . 924 -- 693 --
Employee health
and welfare. . . . . . . . . . . 441 -- 353 --
Amortization . . . . . . . . . . . -- 2,029 -- 1,417
Retiree health
and welfare. . . . . . . . . . . 1,324 -- 1,172 --
Other . . . . . . . . . . . . . . 1,788 550 1,470 439
------- ------- ------- -------
Subtotal . . . . . . . . . . . . . 11,593 9,198 10,553 10,337
Valuation allowance. . . . . . . . (2,013) -- (1,465) --
------- ------- ------- -------
Total . . . . . . . . . . . . . . $ 9,580 $ 9,198 $ 9,088 $10,337
------- ------- ------- -------
------- ------- ------- -------
- -------------------------------------------------------------------------------
</TABLE>

The valuation allowance relates principally to built-in losses (the excess of
tax basis over fair market value of the net assets) and net operating losses of
acquired subsidiaries. The use of such losses in reducing future tax
liabilities is subject to substantial limitations. Any such use in the future
will reduce goodwill associated with those acquisitions.

During 1994, the valuation allowance was increased $868,000 to reflect acquired
and current operating losses of a foreign subsidiary and reduced $320,000 to
reflect losses used to reduce current tax liabilities.

Income tax expense differs from the amount of income tax determined by applying
the statutory federal rate to pre-tax income because of the following (in
thousands):

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax provision at statutory
federal tax rate . . . . . . . . . . . . $ 9,049 $6,553 $4,887
Tax rate changes . . . . . . . . . . . . . -- (178) --
State income taxes
(net of federal benefit) . . . . . . . . 895 1,052 1,029
Foreign operations . . . . . . . . . . . . 569 403 464
Goodwill amortization . . . . . . . . . . 278 277 269
Other. . . . . . . . . . . . . . . . . . . 301 (150) 57
------- ------- ------
Income tax provision . . . . . . . . . . . $11,092 $7,957 $6,706
------- ------- ------
------- ------- ------
- -------------------------------------------------------------------------------
</TABLE>

At January 31, 1995, the Company had remaining net operating loss carryforwards
of $4,483,000 expiring between 1995 and 2006 and $1,924,000 which will not
expire, including loss carryforwards subject to the valuation allowance
discussed above. These arose principally as a result of certain acquisitions
and will reduce income taxes payable to the extent of future taxable income from
those operations.

8. RETIREMENT PLANS

The Company maintains a variety of retirement plans, including pension plans,
covering substantially all employees, and supplemental retirement plans,
covering executives. Defined benefit plans cover the majority of union
employees and are based on an amount per year of service formula. Substantially
all salaried employees are covered by a defined contribution plan. The Company
makes contributions to the plans in accordance with ERISA and IRS regulations
and amortizes past service cost over the average remaining service life of
active employees. In 1994, a new defined benefit plan was added which did not
have a material impact on the financial statements. In 1992, one defined
benefit plan was terminated which did not have a material impact on the
financial statements.

Under the Varlen Corporation Profit Sharing and Retirement Savings Plan,
employee deferrals of compensation may be made and the Company will match up to
25% of the first 6% deferred by each employee. Additionally, discretionary
amounts of not less than 2% of eligible salaries and wages are contributed by
the Company. The Company makes contributions to union-sponsored multiemployer
defined benefit plans in accordance with negotiated labor contracts.

The following table sets forth the funded status of the Company's defined
benefit and supplemental pension plans and amounts recognized in the Company's
consolidated balance sheets at January 31, 1995 and 1994 (in thousands):

- -------------------------------------------------------------------------------
Overfunded Underfunded
Plan Plans
- -------------------------------------------------------------------------------
January 31, January 31,
1995 1994 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested . . . . . . . . . . . $330 $349 $ 6,153 $ 6,041
Non-vested . . . . . . . . . . 30 32 1,144 854
---- ---- ------- -------
Total accumulated benefit
obligations . . . . . . . . . . 360 381 7,297 6,895
Additional amounts related to
projected salary increases . . . -- -- 786 846
---- ---- ------- -------
Projected benefit obligation . . . 360 381 8,083 7,741
Fair value of plan assets
(primarily short-term and
fixed income investments) . . . 462 472 5,109 4,633
---- ---- ------- -------
Excess (deficiency) of plan
assets over benefit obligation . 102 91 (2,974) (3,108)
Unrecognized net gain . . . . . . (64) (45) (113) (179)
Unrecognized prior
service cost . . . . . . . . . . 10 11 723 796
Unrecognized (asset) liability at
date of transition of SFAS 87 . (45) (51) 742 844
Adjustment for additional
minimum liability . . . . . . . -- -- (1,372) (1,359)
---- ---- ------- -------
Prepaid (accrued)
pension cost . . . . . . . . . . $ 3 $ 6 $(2,994) $(3,006)
---- ---- ------- -------
---- ---- ------- -------
- -------------------------------------------------------------------------------
</TABLE>

Net retirement plan expense for 1994, 1993 and 1992 consists of the following
(in thousands):

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during the period. . . . . . . . . . . . $ 593 $ 418 $ 423
Net deferral and amortization. . . . . . . (351) 133 545
Interest on projected benefit
obligation . . . . . . . . . . . . . . . 626 512 481
Actual return on plan assets . . . . . . . 39 (456) (716)
------ ------ ------
Net defined benefit pension
expense. . . . . . . . . . . . . . . . . 907 607 733
Net multi-employer defined
benefit pension expense. . . . . . . . . 376 253 174
Net defined contribution
plan expense . . . . . . . . . . . . . . 2,156 1,966 1,691
------ ------ ------
$3,439 $2,826 $2,598
------ ------ ------
------ ------ ------
- -------------------------------------------------------------------------------
</TABLE>

In 1993, the Company recognized a settlement gain of $241,000 related to a lump
sum distribution for a retired employee.

<PAGE>

The weighted average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation were 8.25% and 5%, respectively, in 1994 and 7.5% and 5%,
respectively, in 1993, and 8% and 6%, respectively, in 1992. The expected
long-term rate of return on plan assets was 9% in 1994, 1993 and 1992.

9. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS

The Company adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," in
1992. In applying this standard, the Company incurred a one time pre-tax charge
of approximately $2.2 million ($1.4 million or $.20 per share on an after-tax
basis) to recognize the accumulated postretirement benefit obligation.

Certain of the Company's subsidiaries maintain benefit plans which provide their
employees postretirement medical and life insurance benefits. Eligibility for
the plans range from employees retiring at age 55 with a minimum of 5 years of
service to employees retiring at age 65 with a minimum of 15 years of service.
The Company continues to fund benefit costs primarily on a pay-as-you-go basis
and made benefit payments totaling approximately $50,000 during 1994 and $30,000
during 1993.

The following table sets forth the plan's funded status, reconciled with amounts
recognized in the Company's consolidated balance sheets at January 31, 1995 and
1994 (in thousands):

January 31,
- -------------------------------------------------------------------------------
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees . . . . . . . . . . . . . . . . . . . . $ (719) $ (950)
Fully eligible active plan participants. . . . . (431) (592)
Other active plan participants . . . . . . . . . (1,719) (2,108)
------- -------
(2,869) (3,650)
Plan assets at fair value. . . . . . . . . . . . 257 288
------- -------
Accumulated postretirement benefit
obligation in excess of plan assets. . . . . . . (2,612) (3,362)
Unrecognized net (gain) loss . . . . . . . . . . . (489) 606
------- -------
Accrued postretirement benefit cost. . . . . . . . $(3,101) $(2,756)
------- -------
------- -------
- -------------------------------------------------------------------------------
</TABLE>

Net postretirement benefit costs for 1994, 1993 and 1992 consist of the
following (in thousands):

- -------------------------------------------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost--benefits attributed
to service during the year . . . . . . . $203 $151 $122
Interest on accumulated
postretirement benefit obligation. . . . 233 243 207
Net deferral and amortization. . . . . . . (20) -- --
Actual return on plan assets . . . . . . . (16) (16) (17)
---- ---- ----
Net postretirement benefit cost. . . . . . $400 $378 $312
---- ---- ----
---- ---- ----
- -------------------------------------------------------------------------------
</TABLE>

The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation for pre-age 65 employees is 12% in 1995,
declining approximately 1% per year to 5.5% in 2002, and for post-age 65
employees is 9% in 1995 declining 1% per year to 6% in 1998 and ending at 5.5%
in 2002. In 1994 and 1993, the weighted average discount rate used in
determining the accumulated postretirement benefit obligation was 8.5% and
7.75%, respectively, salary increases are assumed to be 5% per year to
retirement age in both years and the expected long-term rate of return on plan
assets, consisting primarily of fixed income securities, was 9% in 1994, 1993
and 1992.

If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefit obligation as of January 31, 1995 would be
increased by 19%. The effect of this change on the sum of the service cost and
interest cost in 1994 would be an increase of 23%.

The Company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits", in the first quarter of
fiscal 1994. The impact of this statement was immaterial to the Company's
consolidated financial statements.

10. STOCK INCENTIVE PLANS

The Company had three stock option plans in effect during 1994. One of the
stock option plans expired on March 31, 1990 as to future grants. The most
recent plan was adopted in May, 1993 pursuant to which an aggregate of 225,000
shares of the Company's common stock are available for grant. The remaining
plan was adopted in May, 1989 pursuant to which an aggregate of 300,000 shares
of the Company's common stock were available for grant. Under the three plans,
either Incentive Stock Options or Non-qualified Stock Options could be granted,
as determined by the Compensation Committee of the Company's Board of Directors
(the "Committee"). Non-qualified Stock Options can be granted for terms of up
to 10 years and with an option price that is less than the market value of the
Company's common stock on the date of grant, but if less than market value, then
not less than book value; such option price may not be less than 50% of market
value under the 1989 plan and not less than 85% of market value under the 1993
plan. Incentive Stock Options can be granted for terms of up to 10 years and
with an option price that is not less than the market value of the Company's
common stock on the date of grant. Of the 265,600 options outstanding as of
January 31, 1995, 105,825 are currently exercisable, with the remaining options
exercisable over the next 4 1/2 years. A summary of the changes in outstanding
stock options, including options granted under prior plans, follows:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Shares 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at
beginning of year. . . . . . . . . 229,100 260,695 236,363
Granted. . . . . . . . . . . . . . . 53,000 58,625 73,875
Exercised. . . . . . . . . . . . . . (15,175) (76,795) (40,880)
Expired or terminated. . . . . . . . (1,325) (13,425) (8,663)
----------- ----------- -----------
Outstanding at end of year . . . . . 265,600 229,100 260,695
----------- ----------- -----------
----------- ----------- -----------
Available for grant
at end of year . . . . . . . . . . 250,825 302,500 123,600
----------- ----------- -----------
----------- ----------- -----------
Price range of options:
Outstanding. . . . . . . . . . . . . $8.67-21.83 $8.67-21.83 $7.75-14.00
----------- ----------- -----------
----------- ----------- -----------
Exercised. . . . . . . . . . . . . . $8.67-18.63 $7.78-14.00 $7.75-14.00
----------- ----------- -----------
----------- ----------- -----------
- -------------------------------------------------------------------------------
</TABLE>

The Company also had two stock purchase plans in effect during 1994, both of
which were adopted in May, 1993. The Directors Incentive Stock Grant Plan
provides for the automatic annual award of 300 shares of Common Stock at par
value to each director who is not an employee of the Company. An aggregate of
22,500 shares of common stock are available for grant under this plan of which
3,300 have been granted. The Deferred Incentive Stock Purchase Plan provides
for an offer to selected officers and other key employees, as determined by the
Committee, of rights to purchase Common Stock of the Company at a price
determined by the Committee which cannot be less than

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

book value at the grant date. Quarterly deposits are made by the participant
over a five-year period toward the purchase price of the shares, which are
issued to the participant upon receipt of the final payment under the plan. An
aggregate of 150,000 rights are available for grant under this plan, of which
116,250 have been granted at $13.33 per right.

- --------------------------------------------------------------------------------
11. INDUSTRY SEGMENTS

Information relating to the Company's segments is as follows (in thousands):

- ----------------------------------------------------------------------------------------------------------------------------------
Operating Identifiable Capital Depreciation
Net Sales Profit Assets Expenditures Amortization
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994
Transportation products. . . . . . . . . . . $261,835 $27,952 $139,851 $12,763 $10,653
Laboratory equipment* . . . . . . . . . . . 79,686 8,495 59,039 1,839 3,339
-------- -------- -------- -------- --------
341,521 36,447 198,890 14,602 13,992
Corporate. . . . . . . . . . . . . . . . . . -- (5,831) 21,296 99 672
Net interest expense . . . . . . . . . . . . -- (4,762) -- -- ---
-------- -------- -------- -------- --------
Total. . . . . . . . . . . . . . . . . . . . $341,521 $25,854 $220,186 $14,701 $14,664
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
1993
Transportation products . . . . . . . . . . $219,543 $27,876 $117,278 $10,039 $ 9,947
Laboratory equipment* . . . . . . . . . . . 72,365 1,958 55,852 1,163 2,735
-------- -------- -------- -------- --------
291,908 29,834 173,130 11,202 12,682

Corporate . . . . . . . . . . . . . . . . . -- (5,001) 13,134 38 219
Net interest expense . . . . . . . . . . . . -- (6,110) -- -- ---
-------- -------- -------- -------- --------
Total. . . . . . . . . . . . . . . . . . . . $291,908 $18,723 $186,264 $11,240 $12,901
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
1992
Transportation products . . . . . . . . . . $182,880 $19,005 $112,530 $ 7,155 $ 9,085
Laboratory equipment* . . . . . . . . . . . 83,174 4,866 60,298 2,397 2,779
-------- -------- -------- -------- --------
266,054 23,871 172,828 9,552 11,864

Corporate . . . . . . . . . . . . . . . . . -- (4,667) 7,838 15 76
Net interest expense . . . . . . . . . . . . -- (4,830) -- -- ---
-------- -------- -------- -------- --------
Total . . . . . . . . . . . . . . . . . . . $266,054 $14,374 $180,666 $ 9,567 $11,940
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
- ----------------------------------------------------------------------------------------------------------------------------------

<FN>

* The Laboratory Equipment segment was formerly the Laboratory and Other
Products segment.

</TABLE>

Information relating to the Company by geographic area is as follows (in
thousands):

- -------------------------------------------------------------------------------
Net Identifiable
Net Sales Earnings Assets
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
1994
Domestic Operations. . . . . . . . $320,863 $20,145 $191,527
European Operations. . . . . . . . 20,658 1,288 28,659
-------- -------- --------
341,521 21,433 220,186
Corporate and net
interest expense . . . . . . . . -- (6,671) --
-------- -------- --------
Total. . . . . . . . . . . . . . . $341,521 $14,762 $220,186
-------- -------- --------
-------- -------- --------

1993
Domestic Operations. . . . . . . . $275,523 $15,925 $166,196
European Operations. . . . . . . . 16,385 1,866 20,068
-------- -------- --------
291,908 17,791 186,264
Corporate and net
interest expense . . . . . . . . -- (7,025) --
-------- -------- --------
Total. . . . . . . . . . . . . . . $291,908 $10,766 $186,264
-------- -------- --------
-------- -------- --------

1992

Domestic Operations. . . . . . . . $248,310 $10,702 $159,077
European Operations. . . . . . . . 17,744 1,602 21,589
-------- -------- --------
266,054 12,304 180,666
Corporate and net
interest expense . . . . . . . . -- (5,987) --
-------- -------- --------
Total. . . . . . . . . . . . . . . $266,054 $ 6,317 $180,666
-------- -------- --------
-------- -------- --------
- -------------------------------------------------------------------------------
</TABLE>

Sales to two customers by companies in the transportation products segment
aggregated 15% and 10% of consolidated net sales in 1994, 14% and 11% in 1993
and 12% and 11% in 1992.

<PAGE>

12. STOCKHOLDERS' EQUITY

On January 8, 1993, the Company purchased 2,031,750 shares of its outstanding
Common Stock from The Dyson-Kissner-Moran Corporation ("DKM") for approximately
$23.0 million. Such shares, constituting approximately 30% of the Company's
then outstanding Common Stock, represented all of the shares held by DKM. The
Company financed this transaction through its revolving line of credit. The
stock purchased in this transaction was recorded as treasury stock at cost.
Cost of the transaction was $11.33 per share paid to DKM plus certain other
costs related to the purchase.

On August 23, 1993, the Company's Board of Directors authorized a three-for-two
stock split in the form of a stock dividend payable on October 14, 1993, to
stockholders of record on September 30, 1993. The split resulted in the
reissuance of approximately 1,303,000 shares of Common Stock held in treasury
and the issuance of approximately 306,000 new shares of Common Stock. In
addition, the quarterly cash dividend of $.15 per share was adjusted to $.10 per
share to maintain the net amount of the dividend payment at its previous level.
All share and per share amounts have been restated to retroactively reflect the
stock split.

Retained earnings at January 31, 1995 includes $1,085,000 for stock
subscriptions receivable, $597,000, net of deferred income taxes, for unrealized
currency translation gains and $114,000, net of deferred income taxes, for an
additional minimum pension liability. Retained earnings at January 31, 1994
includes $1,328,000 for stock subscriptions receivable, $1,047,000, net of
deferred income taxes, for unrealized currency translation losses and $194,000,
net of deferred income taxes, for an additional minimum pension liability.

- -------------------------------------------------------------------------------
13. INTERIM FINANCIAL INFORMATION (UNAUDITED)

The following information is presented in thousands of dollars, except per share
amounts:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . 1994 $79,900 $77,961 $89,017 $94,643
1993 78,607 71,824 72,845 68,632

Gross profit . . . . . . . . . . . . . . . . 1994 19,524 18,761 21,004 21,763
1993 19,880 17,199 16,309 16,532

Net earnings . . . . . . . . . . . . . . . . 1994 3,630 3,734 4,237 3,161
1993 3,541 3,025 2,127 2,073

Primary earnings per share . . . . . . . . . 1994 0.72 0.75 0.85 0.63
1993 0.73 0.61 0.43 0.41

Fully diluted earnings per share . . . . . . 1994 0.57 0.59 0.65 0.51
1993* 0.73 0.52 0.37 0.37
- -------------------------------------------------------------------------------------------------------------------
<FN>

* Earnings per share is computed independently for each quarter presented.
Therefore, the sum of the quarterly earnings per share does not equal the
total for the year.

</TABLE>

<PAGE>

REPORT BY MANAGEMENT
- -------------------------------------------------------------------------------
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF VARLEN CORPORATION:

Management is responsible for the consolidated financial statements
presented in this report which have been prepared by the Company in accordance
with generally accepted accounting principles applied on a consistent basis.
The financial statements necessarily include amounts based on judgments and
estimates by management as required by the accounting process. Management also
prepared the other financial information in the annual report.

The Company's system of internal accounting control, which is applied by
operating and financial managers, has been designed to provide reasonable
assurance that assets are safeguarded, that transactions are executed and
recorded in accordance with management's established policies and procedures,
and that accounting records are adequate for preparation of financial statements
and other financial information. The design, monitoring and revision of
internal accounting control systems involve, among other things, management's
judgment with respect to the relative cost and expected benefits of specific
control measures.

Varlen's internal audit function reviews the accounting records, financial
controls and practices on a planned, rotational basis to determine compliance
with corporate policies. The consolidated financial statements have been
audited by Deloitte & Touche LLP, independent auditors appointed by the Board of
Directors. Their responsibility is to audit the Company's consolidated
financial statements in accordance with generally accepted auditing standards
and to express their opinion with respect to the statements being presented
fairly in conformity with generally accepted accounting principles.

The Audit Committee, which is composed solely of outside directors, meets
with and reviews the activities of corporate financial management and the
independent auditors to ascertain that each is properly discharging its
responsibility. The independent auditors and management have unrestricted
access to the Audit Committee, which meets periodically to review accounting,
auditing, internal control and financial reporting matters.

/s/ Richard L. Wellek /s/ Richard A. Nunemaker
RICHARD L. WELLEK RICHARD A. NUNEMAKER
President and Vice President, Finance and
Chief Executive Officer Chief Financial Officer
March 6, 1995

INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
VARLEN CORPORATION
NAPERVILLE, ILLINOIS

We have audited the accompanying consolidated balance sheets of Varlen
Corporation and subsidiaries as of January 31, 1995 and 1994, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended January 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Varlen Corporation and
subsidiaries as of January 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 1995, in conformity with generally accepted accounting principles.

As discussed in Note 9 to the consolidated financial statements, in 1992
the Company changed its method of accounting for postretirement benefits other
than pensions.

/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Chicago, Illinois

QUARTERLY MARKET AND DIVIDEND INFORMATION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

- -------------------------------------------------------------------------------
1994 1993
- -------------------------------------------------------------------------------
Fiscal Quarter HIGH LOW High Low
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First. . . . . . . . . . . . . 29 18 3/4 23 1/2 17 53/64
Second . . . . . . . . . . . . 21 18 23 53/64 20 11/64
Third. . . . . . . . . . . . . 23 1/2 19 1/4 27 21/64 20 1/4
Fourth . . . . . . . . . . . . 27 20 27 3/4 21 3/4
- -------------------------------------------------------------------------------
</TABLE>

The Company paid a $.10 quarterly dividend throughout both 1994 and 1993. The
Company estimates its number of shareholders of common stock, $.10 par value, is
approximately 1,700 as of January 31, 1995, including shares held in "nominee"
or "street" name.

<PAGE>

BOARD OF DIRECTORS
- -------------------------------------------------------------------------------

RUDOLPH GRUA, age 66 - JOSEPH J. ROSS, age 49 -
*Vice Chairman and Director of *Chairman, President and Chief Executive
General Binding Corporation Officer of Federal Signal Corporation

ERNEST H. LORCH, age 62 - THEODORE A. RUPPERT, age 64 -
Chairman of the Board *General Partner, Village Development
*Of Counsel to Whitman Breed Abbott Chairman, Chief Executive Officer and
& Morgan, Attorneys Director of Glaize Development and
Director of Tyler Corporation Director of Pioneer Bank and Trust

L. WILLIAM MILES, age 61 - RICHARD L. WELLEK, age 56 -
*Vice President for Administration, *President and Chief Executive Officer
Fairfield University, Connecticut

GREG A. ROSENBAUM, age 42 - * Principal Occupation
*President, Palisades Associates, Inc. - Member Audit Commmittee
Director of Richey Electronics, Inc. - Member Compensation Committee

OFFICERS
- -------------------------------------------------------------------------------

RICHARD L. WELLEK, age 56 RICHARD A. NUNEMAKER, age 46
President and Chief Executive Vice President, Finance and Chief
Officer (1983); National Metalwares, Financial Officer (1991); Vice
Inc. subsidiary and Group Executive President, Controller (1987); B.S.
(1968-1983); B.S. Industrial Accountancy; M.A.S. University of
Management University of Illinois Illinois, C.P.A.

RAYMOND A. JEAN, age 52 STEPHEN A. MAGIDA, age 51
Executive Vice President and Chief Secretary (1984); Attorney (1994);
Operating Officer (1993); Group Partner in the Law Firm of Dechert
Vice President (1988-1992); B.S. Price & Rhoads (1991-1994); Partner in
Engineering Physics University of the Law Firm of Olwine, Connelly, Chase,
Maine; MBA University of Chicago O'Donnell & Weyher (1980-1991); B.S.
Economics Wharton School; LL.B.
GEORGE W. HOFFMAN, age 54 Columbia Law School
Railroad Group Vice President
(1990); Executive, Keystone Railway
Equipment Company subsidiary
(1979-1994); B.S. Chemical
Engineering University of Pittsburgh

GENERAL INFORMATION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
TRANSFER AGENT INFORMATION CONTACT: FORM 10-K:
Harris Trust & Savings Bank Richard A. Nunemaker Stockholders may obtain
111 West Monroe Street Vice President, Finance and a copy of Form 10-K for the year
Chicago, Illinois 60690 Chief Financial Officer ended January 31, 1995 as filed
55 Shuman Boulevard by the Company with the SEC
INDEPENDENT AUDITORS P.O. Box 3089 without charge by addressing
Deloitte & Touche LLP Naperville, Illinois 60566-7089 a written request to Richard A.
Two Prudential Plaza (708) 420-0400 Nunemaker, Vice President,
180 North Stetson Avenue Finance and Chief Financial
Chicago, Illinois 60601 ANNUAL MEETING Officer, Varlen Corporation
The Annual Meeting of at the corporate office.
SHARES LISTED Stockholders will be held at
Varlen Corporation common 10 a.m. (local time) Tuesday,
stock is traded on the May 23, 1995 at the
NASDAQ Stock Market under Hyatt Lisle
the symbol VRLN and its 1400 Corporetum Drive
6 1/2 percent convertible Lisle, Illinois 60532
subordinated debentures are
traded on the NASDAQ
SmallCap Market under the
symbol VRLNG.

</TABLE>

<PAGE>

OPERATING DIVISIONS AND SUBSIDIARIES
- -------------------------------------------------------------------------------

[Logo] Acieries de Ploermel [Logo] Means Industries, Inc.

[Logo] Alcor Petroleum [Logo] Precision Scientific
Instruments, Inc. Petroleum Instruments Company

[Logo] Chrome Crankshaft [Logo] Precision Scientific, Inc.
Companies

[Logo] Consolidated Metco, Inc. [Logo] Prime Manufacturing
Corporation

[Logo] Walter Herzog GmbH [Logo] Unit Rail Anchor Company

[Logo] Keystone Railway [Logo] Varlen Instruments, N. A.
Equipment Company

VARLEN WORLDWIDE
[Figure]

[Logo] Varlen Corporation
55 Shuman Blvd.
P.O. Box 3089
Naperville, Illinois 60566-7089
(708) 420-0400

[Logo] Printed on Recycled Paper

<PAGE>

EXHIBIT 21

<PAGE>

Exhibit (21)

LIST OF SUBSIDIARIES

The following table sets forth certain information with respect to the
significant subsidiaries of the Registrant. All of the voting securities of
each subsidiary are owned by the Registrant (or a wholly owned subsidiary of the
Registrant) and its financial statements are included in the consolidated
financial statements of the Registrant.

Jurisdiction of
Name Incorporation
---- ---------------
<S> <C>
Acieries de Ploermel France
Alcor Petroleum Instruments, Inc. Delaware
Chrome Crankshaft Co. Delaware
Chrome Crankshaft Company of Illinois Illinois
Consolidated Metco, Inc. Delaware
Keystone Industries, Inc. Delaware
Means Industries, Inc. Michigan
National Metalwares, Inc. Illinois
Precision Scientific, Inc. Delaware
Prime Manufacturing Corporation Delaware
Varlen Instruments, Inc. Delaware
Walter Herzog GmbH Germany
</TABLE>

<PAGE>

EXHIBIT 23

<PAGE>

INDEPENDENT AUDITORS' CONSENT

Varlen Corporation:

We consent to the incorporation by reference in the Registration Statements of
Varlen Corporation and subsidiaries on Form S-8, File No. 33-35085 and Form S-8,
File No. 33-55132 and Form S-3, File No. 33-72218 and Form S-3, File No. 33-
61826 and Form S-8/S-3, File No. 33-72480 of our report, dated March 6, 1995,
appearing and incorporated by reference in this Annual Report on Form 10-K of
Varlen Corporation and subsidiaries for the year ended January 31, 1995.

DELOITTE & TOUCHE LLP

April 21, 1995
Chicago, Illinois

<PAGE>

EXHIBIT 24

<PAGE>

VARLEN CORPORATION

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors
of Varlen Corporation (the "Company") does hereby irrevocably constitute and
appoint Richard A. Nunemaker, his attorney-in-fact and agent to sign and execute
in his name and on his behalf, in any and all capacities in which he may be
required to sign, an Annual Report of the Company on Form 10-K under the
Securities and Exchange Act of 1934 for the fiscal year ended January 31, 1995,
to be filed with the Securities and Exchange Commission, and any amendments,
revisions or supplements thereto, including any exhibits, schedules and
documents in connection therewith and any other instruments necessary or
incidental thereto, all as fully and to the same effect as he might or could do
in person if present and acting, and does hereby ratify and confirm all that his
attorney-in-fact shall do or cause to be done incident to or in connection with
the foregoing or by virtue of the foregoing.

IN WITNESS WHEREOF, each of the undersigned has duly executed this
Power of Attorney this 3rd day of April, 1995.

/s/ Ernest H. Lorch /s/ Greg A. Rosenbaum
- ------------------------- ------------------------
Ernest H. Lorch, Greg A. Rosenbaum,
Chairman of the Board Director
and Director

/s/ Rudolph Grua /s/ L. William Miles
- ------------------------- ------------------------
Rudolph Grua, L. William Miles,
Director Director

/s/ Theodore A. Ruppert /s/ Joseph J. Ross
- ------------------------- ------------------------
Theodore A. Ruppert, Joseph J. Ross,
Director Director

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF EARNINGS AND THE CONSOLIDATED BALANCE SHEETS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<CASH> 13,096
<SECURITIES> 0
<RECEIVABLES> 48,838
<ALLOWANCES> 0
<INVENTORY> 40,350
<CURRENT-ASSETS> 111,535
<PP&E> 125,378
<DEPRECIATION> 65,742
<TOTAL-ASSETS> 220,186
<CURRENT-LIABILITIES> 53,822
<BONDS> 72,788
<COMMON> 487
0
0
<OTHER-SE> 78,544
<TOTAL-LIABILITY-AND-EQUITY> 220,186
<SALES> 341,521
<TOTAL-REVENUES> 341,521
<CGS> 260,469
<TOTAL-COSTS> 260,469
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,249
<INCOME-PRETAX> 25,854
<INCOME-TAX> 11,092
<INCOME-CONTINUING> 14,762
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,762
<EPS-PRIMARY> 2.95
<EPS-DILUTED> 2.95

</TABLE>