SECURITIES AND EXCHANGE COMMISSION ~~WASHINGTON, D.C. 20549~~

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

(Mark One)
ý	Annual Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
	For fiscal year ended December 28, 2002
or
¨	Transition Report Pursuant to Section 13 or 15 (d) of Securities Exchange Act of 1934
	For the transition period from to

ý Annual Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For fiscal year ended December 29, 2001 or

o Transition Report Pursuant to Section 13 or 15 (d) of Securities Exchange Act of 1934

For the transition period from to

Commission File Number 333-55797

ELGAR HOLDINGS, INC. ~~(Exact name of Registrant as specified in its charter)~~

~~Delaware~~ (~~State~~Exact orname ~~other jurisdiction~~ of ~~incorporation~~Registrant as orspecified ~~organization)~~in ~~51-0373329~~its ~~(I.R.S. Employer Identification No.~~charter)

9250 Brown Deer Road, San Diego, California 92121-2294 (Address of principal executive office) (Zip Code)

Delaware

51-0373329

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

~~(858) 450-0085 (Registrant's~~9250 ~~telephone~~Brown ~~number~~Deer Road, ~~including~~San ~~area~~Diego, ~~code)~~California 92121-2294

~~Securities registered pursuant to Section 12~~(b)Address of ~~the~~principal executive ~~Act:~~office) (Zip ~~None~~ Code)

~~Securities registered pursuant to Section 12~~(g858) ~~of the Act: None~~ 450-0085

~~Indicate by check mark whether the~~ (Registrant’s ~~(1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities~~telephone ~~Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports)~~number, ~~and~~including ~~(2) has~~area ~~been subject to such filing requirements for the past 90 days. Yes ý No o~~ code)

~~Indicate by~~Securities ~~check mark if disclosure of delinquent filers~~ registered pursuant to ~~Item~~Section ~~405~~12(b) 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. o Not applicable.~~ Act:

~~As of March 29, 2002, the number of outstanding shares of the registrant's Common Stock was 4,602,433.~~ None

~~DOCUMENTS~~Securities ~~INCORPORATED~~registered pursuant BYto ~~REFERENCE None.~~ Section 12(g) of the Act:

None

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 ¨ No ý

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. ¨ Not applicable.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ¨ No ý

As of April 22, 2003, the number of outstanding shares of the registrant’s Common Stock was 4,602,433.

Table of Other Registrants

Name of Corporation		Jurisdiction of Incorporation		IRS Employer Identification Number		Address ~~Inlcuding~~Including Zip Code and Area Code and Telephone Number of Principal Executive Offices
Elgar Electronics Corporation		California		33-0198753		9250 Brown Deer Road San Diego, CA 92121-2294 (858) 450-0085

Elgar Holdings, Inc. Index to Annual Report Onon Form 10-K for Fiscal Year Ended December 29 28, ~~2001~~ 2002

Caption			~~Page~~
~~PART I~~	PART I
ITEM 1.	BUSINESS	~~BUSINESS~~	1
ITEM 2.	PROPERTIES	~~PROPERTIES~~	8
ITEM 3.	LEGAL PROCEEDINGS	~~LEGAL PROCEEDINGS~~	9
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	~~SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS~~	9
~~PART II~~	PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	~~MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS~~	10
ITEM 6.	SELECTED FINANCIAL DATA	~~SELECTED FINANCIAL DATA~~	11
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~	13
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~	19
ITEM 8.	CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	~~CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA~~	20
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	~~CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE~~	20
~~PART III~~	PART III
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	~~DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT~~	20
ITEM 11.	EXECUTIVE COMPENSATION	~~EXECUTIVE COMPENSATION~~	25
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	~~SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT~~	28
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	~~CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS~~	30
~~PART IV~~	PART IV
ITEM 14.	CONTROLS AND PROCEDURES	~~EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K~~	33
ITEM 15.	EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
RULE 13a-14	CERTIFICATIONS

PART I

ITEM 1. BUSINESS

In this report, the "“Company,"” "“EHI,"” "“we,"” "“us"” and "“our" ” refer to Elgar Holdings, Inc. and its ~~subsidiaries~~wholly owned subsidiary, Elgar Electronics Corporation, unless the context requires otherwise.

Overview

We are a leading designer and manufacturer of programmable power supplies and systems for commercial and military applications. Power supplies convert one form of electric power, such as alternating current ("“AC"”) from a wall outlet, into another form of electric power, such as direct current ("“DC"”) used by most electronic products. Programmable power supplies have increased application flexibility as they convert a single input power level into various output power levels. Our products are designed into original equipment manufacturer ("“OEM"”) systems, or utilized by the end customer in power reliability verification, product acceptance, process control, or burn-in applications. We provide one of the broadest product offerings in our industry. Our customers include such industry leaders as ~~Alcatel~~Boeing, ~~Boeing~~Loral, ~~Cisco~~BAE Systems, ~~Loral~~Hewlett-Packard, Dell, Northrup Grumman, Litton, ~~Lucent,~~ Motorola, Advanced Energy, Siemens, ~~American~~Novellus ~~Power~~Systems, ~~Conversion~~Seagate Technology, Halliburton and ~~Lockheed~~ Lockheed Martin.

Elgar Electronics Corporation, our wholly owned subsidiary ("“Elgar"”), was founded in 1965 as a manufacturer of solid-state line conditioners and frequency changers for the AC power test ~~and~~ and measurement market. By the early 1990'’s, we had become primarily an AC power supply provider to the defense market with approximately $20 million in net sales. Over the next several ~~years~~ years we developed and executed a comprehensive plan to expand our focus to target the large and diverse, commercial DC market. We improved product quality through product redesign and clean-up, quality systems improvement and ongoing employee training. We extended product breadth through new product introductions, strategic alliances and acquisitions of two DC power supply companies, Sorensen and Power Ten. We also reduced delivery cycle times and established an industry-leading, technical support and services capability, with extensive pre-sales support and expert rack system integration consultation. This strategy proved to be successful. For our fiscal years ~~1999~~2000, ~~2000~~2001 and ~~2001,~~2002 approximately 7280.50%, 8091.05% and 9183.58% of our sales, respectively, were derived from diversified commercial customers.

Product Applications

Our significant software and hardware engineering capabilities enable us to address a wide range of complex applications in our target markets. We design and manufacture power solutions used in critical applications that require varied levels of power output and involve substantial engineering complexity. Our products are used in applications such as:

• Test & Measurement (“T&M”) — where our products are used to verify that electronic equipment operates reliably under varied levels of power input;

• OEM — where our products are embedded into a system by our customer which is in turn sold to the end customer;

• Process Control — where our products are primarily used as power amplifying devices in the control of a process; and

• Reliability/burn in — where our power supplies are used to provide power to devices to improve product reliability. Burn-in applications are essential to verifying product reliability and are used to screen for “infant mortality” related failures in products.

Applications within each of our target markets include:

AC Power		Programmable DC		Systems Integration		Power Conditioning
• Avionics testing • Computer final test • Lighting testing • Power supply testing • Weapons testing		• Cell phone verification • Computer printed circuit boards • Ion implantation systems • Oncology Equipment • Microprocessor test systems • Components testing		• GPS satellite testing • Automotive electronics testing • Utility power control		• Military communications backup • Power distribution for shipboard computers • Training systems • Unmanned aircraft control

AC Power

Programmable DC

Systems Integration

Power Conditioning

• Avionics testing

• Computer final test

• Lighting testing

• Power supply testing

• Weapons testing

• Components testing

• Computer printed circuit boards

• Ion implantation systems

• Oncology equipment

• Microprocessor test systems

• GPS satellite testing

• Automotive electronics testing

• Utility power control

• Military communications backup

• Power distribution for shipboard computers

• Training systems

• Unmanned aircraft control

Principal Products

We have four principal product areas:

~~We categorize~~• Programmable ~~our~~DC ~~sales~~Power inis ~~these~~a ~~four~~type ~~principal~~of ~~product~~programmable ~~areas,~~power ~~with~~supply used ~~net~~to ~~sales~~power ~~shown~~or bytest ~~product~~products ~~area~~that ~~for~~require ~~our~~DC ~~fiscal~~inputs, ~~year~~such ~~ended~~as ~~December 29~~printed circuit boards, ~~2001~~semiconductors, ~~("Fiscal~~medical ~~2001")~~equipment, astelecommunications ~~follows (the~~equipment, ~~amounts~~avionics ~~below~~and ~~exclude~~almost ~~$307,000~~all ofother ~~shipping~~types ~~revenue~~of inelectronic ~~2001):~~ products;

		Net Sales for Fiscal 2001
Product Line		$ (000s)		% of Total
Programmable DC Power		$	30,799	52.7	%
Systems Integration Products and Services			8,282	14.2
Programmable AC Power			6,119	10.5
Other Products and Services			13,189	22.6
	Total	$	58,389	100.0	%

• Systems Integration Products and Services include both power subsystem design, manufacture and integration, and space power simulation systems. The power subsystem business is a natural extension of the design and manufacturing capabilities developed while producing complete space power simulation systems over the past 15 years;

• Programmable AC Power is a type of programmable power supply used to power or test AC products such as avionics, computers, DC power supplies, appliances and many other types of electronic products; and

• Other Products and Services, which consist of (1) power conditioning and ruggedized uninterruptible power supply (“UPS”) products, which supply back-up power principally to military computer and communications systems and oil exploration companies for data logging applications, (2) the Consolidated Automated Support System (“CASS”) Program for the U.S. Navy (for which we provide programmable AC and DC, fixed DC and power conditioning products) and (3) customer service, consisting of repair services and spare parts.

We categorize our sales in these four principal product areas, with net sales shown by product area for our fiscal year ended December 28, 2002 (“Fiscal 2002”) as follows (the amounts below exclude $194,000 of shipping revenue in 2002):

	Net Sales for Fiscal 2002
Product Line	$	(000s)	% of Total
Programmable DC Power	$	27,719	57.6	%
Systems Integration Products and Services	2,957		6.1
Programmable AC Power	5,281		11.0
Other Products and Services	12,204		25.3
Total	$	48,161	100.0	%

Programmable DC Power

Our broad line of programmable DC products is used by commercial and military customers for a wide variety of applications including computer and communications equipment, semiconductor burn-in, industrial process control, avionics, bench-top equipment, and research and development equipment. Customers for programmable DC products include Racal Instruments ("“Racal"”), Applied Materials, Siemens, Halliburton Company, ~~Cisco~~BAE Systems, ~~Lucent Technologies,~~ Teradyne, Veeco Instruments, ~~Advanced~~Hewlett-Packard and Advanced Power and Reliability Inc. Our OnDC ~~November 2~~products are applied in test and measurement, ~~2001~~burn-in and OEM applications. DC product applications include the testing of laser printer heads, ~~Racal~~DC-to-DC ~~was~~converters, ~~acquired~~satellites byand electronic acomponents. These ~~group~~products are also used for the burn-in of ~~investors~~DC-to-DC ~~that~~converters ~~includes~~and ~~affiliates~~semiconductors. OEM applications of our ~~largest~~DC ~~shareholder~~products include supplying power to medical equipment and cable TV amplifiers. Our DC products are mainly used in OEM applications by customers such as Novellus, Applied Materials and Veeco Instruments. Our power solutions are incorporated into semiconductor manufacturing equipment, microprocessor test stations and burn-in systems. Through Racal, a systems integrator for test and measurement equipment, we are the sole source supplier of programmable DC power equipment to a leading semiconductor manufacturer for use in the Racal automatic test equipment (“ATE”) systems for testing microprocessors. Measurement and control applications are highly varied and include power solutions for the medical equipment, automotive, computer, industrial automation, consumer goods, commercial avionics and space, and oil and gas markets.

~~Our DC~~ We ~~products~~offer ~~are~~20 ~~applied in test and measurement, burn-in and OEM applications.~~ DC product ~~applications~~lines ~~include~~under the ~~testing of laser printer heads~~Sorensen, ~~DC-to-DC converters, satellites~~ Elgar and ~~electronic~~Power Ten ~~components.~~brand ~~These~~names, ~~products~~ranging ~~are~~in ~~also~~power ~~used~~from ~~for~~60 ~~the~~watts ~~burn-in of DC-~~to~~-DC~~ ~~converters and semiconductors~~30kw. Most ~~OEM applications~~ of our DC products ~~include~~are ~~supplying~~produced ~~power~~in-house, although tofive ~~medical~~lower ~~equipment~~priced ~~and~~programmable ~~cable TV amplifiers. Our~~ DC ~~products~~product ~~are~~lines ~~mainly~~that ~~used~~represented ~~in OEM applications by customers such as~~less ~~Novellus,~~than ~~Applied Materials and Veeco Instruments~~3.0% ~~Our~~of ~~power~~our ~~solutions~~revenue ~~are incorporated into semiconductor manufacturing equipment, microprocessor test stations and burn-~~in ~~systems. Through~~Fiscal ~~Racal~~2002, aare ~~systems~~manufactured ~~integrator~~by ~~for~~others ~~test~~ and ~~measurement~~brand labeled ~~equipment,~~Sorensen. Our wepurchase ~~are the sole source supplier~~ of ~~programmable~~Power DCTen ~~power equipment to a leading semiconductor manufacturer for use~~ in ~~the~~May ~~Racal~~1998 ~~automatic~~broadened ~~test~~our ~~equipment~~product ~~("ATE")~~offering ~~systems~~with ~~for~~high-power, ~~testing~~programmable ~~microprocessors~~DC products. We ~~Measurement~~recently ~~and~~entered ~~control~~the ~~applications~~market ~~are highly varied and include power solutions~~ for ~~the~~DC ~~medical equipment, automotive,~~loads ~~computer,~~with ~~industrial~~a ~~automation,~~new ~~consumer~~product ~~goods~~line, ~~commercial~~enabling ~~avionics~~us ~~and~~to ~~space,~~achieve ~~and~~incremental ~~oil~~revenue ~~and~~by ~~gas markets. Our largest customer in~~ selling this ~~market,~~product ~~Siemens,~~into ~~uses~~ our DCexisting ~~power~~customer ~~supplies~~base inthrough ~~its~~the ~~oncology treatment~~same ~~systems~~sales ~~to create x-rays~~channel.

We Space ~~offer 20 DC product lines under the Sorensen, Elgar and~~ Power ~~Ten~~ ~~brand~~Simulator names, ranging in power from 60 watts to 30kW. Most of our products are produced in-house, although five lower priced programmable DC product lines, which represented less than 6.0% of our revenue in Fiscal 2001, are manufactured by others and brand labeled Sorensen. Our purchase of Power Ten in May 1998 broadened our product offering with high-power, programmable DC products. We recently entered the market for DC loads with a new product line, enabling us to achieve incremental revenue by selling this product into our existing customer base through the same sales channel. Products

Our ~~Systems~~space ~~Integration~~power ~~Products~~simulation products are applied in test and ~~Services~~ measurement applications to test satellites. Given the significant cost involved in building, launching and insuring satellites, fully testing units prior to launch is critical. With the flexibility to generate any possible power scenario that solar panels may produce in space, our fully integrated Solar Array Simulator (“SAS”) test system performs mission-critical power testing from payload testing to final satellite testing inside a thermal vacuum chamber. The SAS can be programmed to create the output power forms associated with a wide variety

Systems integration products and services includes power subsystems products and services and space power simulation systems. Because of the substantial power subsystem integration expertise we have developed through our space power simulation work and the desire of customers to outsource non-core engineering tasks, many OEMs, in-house test engineering groups and contract manufacturers are beginning to rely on us to provide the power subsystems component of complex integrated systems. We introduced this service in 1999 and, as a result, have been able to secure additional market share for our products by bundling them with our engineering and manufacturing services into integrated power subsystems supplied to customers. In addition to providing a new source of complementary business, we benefit from these services by increasing customer loyalty and retention, thereby differentiating us from our competition. Our subsystems integration services include system design, power supply selection, power and thermal management design, complete rack wiring, custom input and output cables, and system controls ranging from rudimentary switches to custom Windows NT application software. The customer is provided a complete turnkey system.

Systems integration products and services also includes our space power simulation products, which are applied in test and measurement applications to test satellites. Given the significant cost involved in building, launching and insuring satellites, fully testing units prior to launch is critical. With the flexibility to generate any possible power scenario that solar panels may produce in space, our fully

integrated Solar Array Simulator ("SAS") test system performs mission-critical power testing from payload testing to final satellite testing inside a thermal vacuum chamber. The SAS can be programmed to create the output power forms associated with a wide variety of solar array operating environments including direct solar illumination, spinning orbital profiles, an eclipse entry and exit, aging of the solar array and many other conditions.

We believe that we are the leading non-captive source for satellite ground power test systems in the United States. With ~~We introduced~~ our third generation Solar Array Simulator in 1995, and were the sole supplier of solar array simulators, battery simulators and umbilical power systems to Lockheed Martin and Motorola on the Iridium project. Today, with our turn-key power systems and fourth generation SAS systems, we supply virtually every major U.S. commercial, military and power subsystem development satellite manufacturer, ~~including~~ including Boeing/Hughes, Lockheed Martin, Space Systems Loral, TRW, Jet Propulsion Lab, ~~Motorola Space~~ and Ball Aerospace. Additionally, we have established a strong presence in Europe with customers such as Astrium (Matra Marconi Space and DASA), Alenia Space, Alcatel, Terma and the European Space Agency (ESA ESTEC), and we have recently entered the Japanese market by securing an order with NTNEC Toshiba Space.

In ACaddition, ~~Power~~ we also provide Battery Simulator Systems that simulate spacecraft flight batteries in all power conditions, including charge and discharge.

Programmable AC Power

Our programmable AC products generate a wide range of dynamic AC voltages, frequencies, phase relationships and currents, simulating all possible electrical power waveforms. In addition to pure AC waveforms, our SmartWave™ products are capable of creating any distortion to the wave including noise, spikes, drop-outs and shifts in phase angle. Like our DC products, our AC products are used to test electronic equipment such as consumer appliances, computers, DC power supplies and avionics, with the tests subjecting the equipment to all possible power variations needed to evaluate performance of the specific product or component.

Our leading AC product, the SmartWave™, is widely recognized in the industry as one of the most technologically advanced AC products on the market. The AC power market, which has been dominated by military spending in the past, is a small but steady and attractive niche for us. We believe that we have one of the largest shares of the AC power market. We are currently the incumbent on many significant U.S. government ATE contracts.

We offer 15 AC product lines under the Elgar brand name, ranging in power from 120VA to 712kVA. In 2000, to address the low-cost market, we introduced the ContinuousWave™—Manual and ContinousWave™—Programmable product lines, which are used primarily in avionics and AC power components testing.

Other Products and Services

Other products and services comprise three components, which are:

• power conditioning and uninterruptible power supply (“UPS”) products;

• the CASS program; and

• customer service.

UPS. Our power conditioning and UPS product line includes a range of instruments which are capable of providing precise AC output power regardless of the input power distortions or drop-outs. This type of product is used in critical applications where electrical power fluctuations could have severe consequences, such as with field-support for military operations and back-up for data logging in oil exploration missions. The Global Uninterruptible Power Supply (GUPS™), our principal product in this line, is designed to handle any input power from anywhere in the world, including aircraft power, and generates a clean AC output even when the input power is lost.

CASS. The CASS program is a Navy/NAVAIR program developed to reduce the required number of avionics custom automated test equipment ~~("ATE")~~ systems located on aircraft carriers, at depots and at test integration facilities. Our role in the CASS program is to provide these ATE stations with power subsystems, which consist of programmable AC and DC power supplies, a power conditioner and fixed DC system supplies. We are the sole supplier of power subsystems to Lockheed Martin, the prime contractor for the CASS program. We have delivered 611 systems under the program to date.

~~Having delivered~~ Although ~~602 systems to date, we have been notified by Lockheed Martin that the U.S. Navy is winding down the CASS Program, with~~ full-rate production toon ~~cease~~the CASS program ceased in the fourth quarter of 2002~~. After full-rate production ceases~~, ~~however,~~ we ~~will~~are ~~enter~~now in the sustaining phase for the program, where the emphasis ~~will~~is be on small quantity orders, spares ~~and~~ and service. We understand that the U.S. Navy is considering a limited expansion of the CASS program to equip non-carrier ships. If this were to occur, and Lockheed Martin were to obtain any such business, this could represent additional opportunities for our revenue growth. Further, other branches of the military have programs similar to CASS, including the U.S. Army'’s Integrated Family of Test Equipment, which currently utilizes our other standard products.

Customer Service. ~~Additionally,~~ We we offer comprehensive customer service for all of our product offerings through our in-house staff of ~~six~~ten customer service technicians, ~~three~~two service administrators and ~~six~~four customer service engineers. Our customer service organization provides global repair and ~~spare~~ spare parts for all products we offer, and provides technical assistance to our international distributors ~~which~~that are responsible for equipment repairs in their territories and to customers who repair equipment in-house.

Significant Customers

We sell our power supplies and systems to over 2,500 customers, both directly and indirectly through distributors. Certain customers are material to our ~~business~~ business and operations. In Fiscal ~~2001~~ 2002, ~~two~~one ~~customers~~customer, ~~represented~~Lockheed ~~more than 10% of total net sales. In Fiscal 2001~~Martin, ~~our top ten customers~~ accounted for approximately 4215.13% of our total net sales, up from 3813.27% in ~~our fiscal year ended December 30, 2000 ("~~Fiscal ~~2000")~~2001. Boeing/Hughes ~~Lockheed Martin~~ accounted for approximately 137.7% of our total net sales in Fiscal ~~2001~~2002, updown from 910.2% in our fiscal year ended December 29, 2001 (“Fiscal ~~2000~~2001”). No ~~Hughes~~other customer accounted for ~~approximately~~ 10.2% or more of our ~~total~~ net sales in Fiscal ~~2001~~2002, upFiscal ~~from~~2001 ~~3.3%~~or inour fiscal year ended December 30, 2000 (“Fiscal 2000”). In NoFiscal ~~other~~2002, ~~customer~~our top ten customers accounted for 10approximately 41.7% ~~or more~~ of ~~our~~ net sales, indown ~~Fiscal~~slightly ~~2001~~from or42.1% in Fiscal ~~2000~~2001.

Competition

We With the exception of Agilent, a significant competitor, we believe we sell more programmable ~~power~~switch-mode power supplies in the United States than any other provider ~~except for Agilent~~. Most of our competitors are either small private companies, which do not match the breadth of product offerings, or non-core subsidiaries of much larger parent companies, which tend to be less focused on the power solution market. We operate in a very competitive environment across our DC and AC product lines and enjoy a less competitive environment in our systems integration product and services business. The ~~power supply~~principal ~~industry~~competitive isfactors ~~currently~~in ~~experiencing~~our amarkets ~~period~~include ofvendor ~~consolidation~~and inproduct reputation, ~~response~~fast todelivery, ~~customers'~~price, ~~desires~~product toperformance ~~consolidate~~specifications, functionality ~~their~~and ~~supplier~~features, ~~base~~ease of implementation and ~~manufacturers'~~use, ~~desires~~and toquality ~~incorporate~~of customer ~~additional~~support. We ~~product~~believe we are ~~lines~~well positioned with regard to these factors and ~~technologies.~~compete effectively in all of our target markets.

The principal competitive factors in the marketplace include vendor and product reputation, fast delivery, price, product performance specifications, functionality and features, ease of implementation and use, and quality of customer support. We believe we are well positioned with regard to these factors and have competed effectively in all of our target markets.

Sales and Marketing

We sell our products through sales representatives in the U.S. and through distributors internationally, with some direct sales to specific customers and markets. Our sales organization includes 3720 employees ~~(22 of whom are in sales and marketing, 15 in customer service support, and one in general and administrative~~ plus antwo outside ~~consultant)~~ consultants, as well as approximately 6545 representative/distributor ~~companies with more than 280 salespeople worldwide. We believe that our sales network is one of our major assets and a significant competitive advantage over our competitors.~~

Our in-house sales force includes 11 sales managers who are each responsible for working with customers and prospective customers to provide existing or custom solutions to their needs. Our six sales engineers, who support the sales managers, representatives and customers, design solutions according to customers' applications. In turn, these 17 sales professionals are supported by an administrative staff of four people. Our sales and marketing team also includes two marketing professionals who conduct marketing research, create collateral material and training manuals, coordinate the placement of advertising in appropriate trade journals and other periodicals, as well as organize trade shows and perform general public relations work. 5

~~We have~~companies ~~strong relationships~~ with ~~the~~more ~~majority of our sales representatives. In the U.S., we believe we have retained the services of the top sales representative for our products in~~than ~~each~~200 ~~region~~salespeople ~~of the country~~worldwide. We ~~Internationally, we~~ believe ~~we are represented by top-tier international distributors in the regions where we sell our products. Our sales representatives are~~ ~~essentially~~that ~~field extensions of~~ our sales ~~team, helping to identify and pursue sales opportunities. As a result, the sales force, including the representative~~ network, ~~has~~is ~~been~~one ~~instrumental in identifying potential new product opportunities, thus helping to guide our research and development efforts to the most promising areas. In an effort to maximize the effectiveness~~ of our ~~domestic sales~~major ~~network,~~assets weand ~~have~~provides ~~established~~us ~~a representative board, comprised of the chief executives of five of our sales representative organizations, that meets~~ with ~~management on~~ a ~~periodic basis to~~ ~~discuss~~significant ~~marketing~~competitive ~~strategy and execution of the marketing plan~~advantage. Only one sales representative accounted for over 10% of our net sales in Fiscal 2001. Domestic sales accounted for approximately 91.4%, 88.8% and 89.1% of total net sales in Fiscal 1999, Fiscal 2000 and Fiscal 2001, respectively.

~~Research~~ Our in-house sales force includes nine sales managers who are each responsible for working with customers and prospective ~~Development~~ customers to provide existing or custom solutions to their needs. Our four sales engineers, who support the sales managers, representatives and customers, design solutions according to customers’ applications. In turn, these 13 sales professionals are supported by two program managers and an administrative staff of three people. Our sales and marketing team also includes two marketing professionals who conduct marketing research, create collateral material and training manuals, coordinate the placement of advertising in appropriate trade journals and other periodicals, as well as organize trade shows and perform general public relations work.

At We ~~December 29,~~have ~~2001,~~strong ~~our~~relationships ~~engineering~~with ~~department~~the majority ~~consisted~~ of 65our ~~people~~sales representatives. AsIn ~~evidence~~the U.S., we believe we have retained the services of the top sales representative for our ~~commitment~~products toin ~~new~~each ~~product~~region ~~development~~of the country. Internationally, we are expanding our ~~research~~efforts ~~and development~~in Europe and ~~engineering~~Asia ~~expenses~~by ~~were~~adding ~~$5.9 million~~additional ~~for~~sales ~~Fiscal~~personnel while ~~1999,~~at ~~$6.7 million~~the ~~for~~same ~~Fiscal~~time ~~2000~~utilizing advertising and ~~$6.2 million~~trade ~~for~~shows ~~Fiscal~~to ~~2001~~increase awareness of our products. ~~Customer-funded~~Our ~~research~~sales ~~and~~representatives ~~development~~are essentially field ~~comprised~~extensions ~~$0.7 million~~of our sales team, ~~$0.5 million~~helping to identify and $0pursue sales opportunities.~~3 million~~ ofAs ~~our~~a ~~overall~~result, ~~research~~the ~~and~~sales ~~development~~force, ~~expense~~including ~~incurred~~the representative network, has been instrumental in ~~Fiscal~~identifying ~~1999~~potential new product opportunities, ~~Fiscal~~thus ~~2000~~helping to guide our research and ~~Fiscal~~development ~~2001,~~efforts ~~respectively.~~to the most promising areas.

~~The development~~ In ~~and~~an ~~introduction~~effort ~~of new products has been and will continue~~ to bemaximize anthe effectiveness ~~essential part~~ of our ~~growth~~domestic ~~strategy~~sales tonetwork, ~~increase~~we ~~market~~have ~~share~~established ~~and expand into new markets. Our~~a ~~current~~representative ~~management~~board, ~~team~~comprised ~~has had a record~~ of ~~successful and profitable new product introductions, including~~ the ~~SmartWave™and~~chief ~~the~~executives ~~Solar~~of ~~Array~~five ~~Simulator~~of ~~products.~~our ~~These and other products~~sales ~~are~~representative ~~considered superior in the marketplace due to their digital capabilities~~organizations, ~~flexible~~that ~~format,~~meets ~~high-quality~~with ~~engineering~~management ~~and long-term reliability. Our in-house development efforts are focused~~ on ~~leveraging~~a ~~our~~periodic ~~strong~~basis ~~engineering capabilities~~ to ~~produce higher-end, more sophisticated products utilizing digital technology. Management, in~~ ~~conjunction~~discuss ~~with~~marketing ~~the~~strategy ~~sales force~~ and ~~engineering~~execution ~~department,~~of ~~has~~the ~~demonstrated~~marketing ~~a strong ability to identify potential product areas and create technical solutions~~plan.

Only one sales representative accounted for over 10% of our net sales in Fiscal 2002, Fiscal 2001 or Fiscal 2000.

Domestic sales accounted for approximately 88.8%, 89.1% and 87.6% of total net sales in Fiscal 2000, Fiscal 2001 and Fiscal 2002, respectively.

Research, Development and Engineering

At December 28, 2002, our engineering department consisted of 52 people. Our research, development and engineering expenses were $6.7 million for Fiscal 2000, $6.2 million for Fiscal 2001 and $4.8 million for Fiscal 2002. Customer-funded research and development comprised $0.5 million, $0.3 million and $0.4 million of our overall research and development expenditures incurred in Fiscal 2000, Fiscal 2001 and Fiscal 2002, respectively.

The development and introduction of new products has been and will continue to be an essential part of our growth strategy to increase market share and expand into new markets. We have had a record of successful and profitable new product introductions, including the SmartWave™ and the Solar Array Simulator products. These and other products are considered superior in the marketplace due to their digital capabilities, flexible format, high quality engineering and long-term reliability. Our in-house development efforts are focused on leveraging our strong engineering capabilities to produce higher-end, more sophisticated products utilizing digital technology. Management, in conjunction with the sales force and engineering department, has demonstrated a strong ability to identify potential product areas and create technical solutions.

Manufacturing

Our manufacturing facilities are organized and run efficiently with a focus on quality, ~~productivity~~speed and ~~cost~~response, cost and inventory management. Our ~~manufacturing~~ manufacturing equipment is modern and allows for efficient and quality production. We have designed and constructed our own in-house semi-automated test stations to enhance productivity and ensure quality. Operations management has identified ~~four~~three core manufacturing competencies, which are:

~~Operations has~~• magnetics ~~redesigned~~(transformer ~~the production floor to use lean manufacturing techniques and simplify material handling and~~ assembly methodology based on these competencies. The redesign has allowed maximum productivity and leveraging of common processes across product lines, as the majority of Elgar's products use the same basic components. );

~~Over the~~• supply ~~years~~chain wemanagement; ~~have utilized selective vertical integration~~ and a focused factory approach to improve costs and mitigate delivery and quality risks. We utilize cross-functional teams in new product development, design for manufacturability, sustaining support and quality improvement initiatives while supporting a foundation of employee empowerment and training. Our current initiatives involve focused material cost reductions utilizing long-term partnerships and high quality offshore suppliers. In addition, we have made substantial investments in automated test equipment and through-hole and surface-mount board assembly equipment. This equipment is being used to support the implementation of Demand Flow Technology focused on reducing inventory and manufacturing cycle-times.

~~As part~~• lean ~~of our cost management program, we have outsourced certain lower-end, high volume transformers to a subcontract assembly plant in nearby Tecate, Mexico~~manufacturing. ~~All subcontract subassemblies are subjected to our inspection and test process as assurance that quality expectations are met.~~

~~During Fiscal~~ Operations ~~2001,~~has weredesigned ~~improved~~the ~~our~~production floor ~~work~~to ~~flow,~~use ~~added~~lean ~~semi-automated~~manufacturing ~~test~~techniques ~~capabilities~~ and ~~made~~simplify ~~process~~material handling and assembly ~~engineering~~methodology ~~improvements~~based toon ~~reduce~~these ~~manufacturing~~competencies. The ~~lead~~redesign ~~times~~has allowed maximum productivity and leveraging of ~~improve~~common processes across product ~~margins.~~lines, as the majority of Elgar’s products use the same basic components.

~~Power~~ Over ~~Ten~~the ~~Plant~~years ~~Consolidation~~ we have utilized selective vertical integration and a focused factory approach to improve costs and mitigate delivery and quality risks. We utilize cross-functional teams in new product development, design for manufacturability, sustaining support and quality improvement initiatives while supporting a foundation of employee empowerment and training. Our current initiatives involve focused material cost reductions utilizing long-term partnerships and high quality offshore suppliers. In addition, we have made substantial investments in automated test equipment and through-hole and surface-mount board assembly equipment. This equipment is being used to support the implementation of Demand Flow Technology to build high quality products in the shortest production time and at the lowest cost.

In As ~~the~~part ~~third quarter~~ of ~~2001, we consolidated~~ our ~~Power~~cost ~~Ten~~management ~~and~~program, we ~~Elgar~~have ~~manufacturing~~outsourced ~~operations~~certain bylow ~~moving~~volume ~~Power Ten's production~~ and ~~manufacturing~~all ~~operations~~high ~~from Northern~~volume ~~California~~transformers to subcontractors ~~our~~in ~~San~~Mexico ~~Diego~~and ~~headquarters~~India. ~~In connection with the closure, we~~ We have ~~incurred~~also ~~certain~~subcontracted ~~shut-down~~high ~~costs,~~volume ~~including~~sheet ~~employee~~metal ~~termination~~items ~~costs, lease termination costs and costs associated with moving machinery, equipment and personnel~~ to ~~San Diego~~Asia. All Wesubcontractors ~~expect~~are ~~that~~subjected ~~the actions we have taken~~ to ~~consolidate~~our inspection ~~the manufacturing~~ and ~~production~~test ~~facilities~~process ~~will~~as ~~provide~~assurance ~~us with~~that ~~significant~~quality ~~ongoing~~expectations ~~cost~~will ~~savings.~~be met.

Over the last two fiscal years, we have made a concerted effort to improve our competitive positioning by reducing lead times and improving profit margins. As part of this effort, we improved our work flow, added semi-automated test capabilities and made process and engineering improvements.

Backlog

Our backlog at December 29 28, ~~2001~~2002 was approximately $106.7 2 million, all of which we expect to ship in ~~2002~~2003. Our backlog was $2010.8 7 million at December 30 29, ~~2000~~2001. Backlog consists of product orders for which a customer purchase order has been received and accepted and which is scheduled for shipment. Orders are subject to rescheduling or or cancellation by the customer, usually without penalty. Backlog also consists of customer-funded research and development payable under support contracts with our customers and orders for billable services. Because of possible changes in product delivery schedules, cancellation of product orders, and the fact that sales will sometimes reflect orders shipped in the same month they are received, our backlog at any particular date is not necessarily indicative of actual sales for any succeeding period. Moreover, we do not believe that backlog is necessarily indicative of our future results of operations or prospects.

cancellation of product orders, and sales will sometimes reflect orders shipped in the same month they are received, our backlog at any particular date is not necessarily indicative of actual sales for any succeeding period. Moreover, we do not believe that backlog is necessarily indicative of our future results of operations or prospects.

Employees

At December 29 28, ~~2001~~2002, we had ~~360~~ 317 full-time employees (of which 4411 were temporary employees), including 78 64 manufacturing personnel, 65 52 engineering personnel, 2821 administrative personnel, 21 22 sales and marketing personnel, ~~nine~~seven customer service personnel and ~~158~~ 152 personnel involved in direct labor. No attempts to unionize any of our employees have been made. We consider our employee relations to be good.

Intellectual Property

We have trademarked our SmartWave™, ContinuousWave™, TrueWave™ and GUPS™ products and we have been operating under the Elgar and Sorensen trade names for over 30 years. The Power Ten business has been using the Power Ten trade name for over 15 years. In addition to the protection offered by trademark laws and regulations, we rely upon trade secret protection for our confidential and proprietary information and technology.

Environmental

We are subject to various evolving federal, state and local environmental laws and regulations governing, among other things, emissions to air, discharge to waters and the generation, handling, storage, transportation, treatment and disposal of hazardous and non-hazardous substances and wastes. These laws and regulations provide for substantial fines and sanctions for violations and, in many cases, could require us to remediate a site to meet applicable legal requirements. We are not aware of any material environmental conditions affecting the properties where we conduct our business.

Government Contracts

Contracts with the United States Government ~~government~~ (whether directly or indirectly) are subject to cancellation for default or convenience by the government if deemed in its best interests. In addition, based on audits conducted by the government with respect to its contracts, ~~profits~~pricing may be ~~renegotiated~~negotiated with respect to certain programs and contracts. In the last five years, we have not ~~experienced~~had any ~~cancellations~~major orcontracts ~~significant~~canceled ~~price~~by ~~renegotiations of a contract at~~ the government's ~~convenience.~~for Atreasons noof convenience ~~time~~or ~~have we experienced a government cancellation by~~ default. As 2720.50%, 208.05% and 816.52% of our net sales in Fiscal ~~1999~~ 2000, Fiscal ~~2000~~2001 and Fiscal ~~2001~~2002 were made directly or indirectly to the U.S. Government, a significant portion of our business is subject to the ~~government~~ government prerogatives described above.

ITEM 2. PROPERTIES

For Elgar'’s ~~and Power Ten's~~ operations, which are based in San Diego, California, we lease ~~five~~three facilities in close proximity totaling approximately ~~118~~110,~~000~~ 300 square feet, which we use for:

• the design and production of Elgar’s standard DC and AC products and Sorensen-brand products, production for the CASS Program, Power Ten and administrative headquarters (92,100 sq. ft.) (lease expires in December 2007);

• manufacturing of magnetics and power distribution units, which are power conditioning products (9,100 sq. ft.) (lease expires in July 2003); and

• stockroom and receiving for all products (9,100 sq. ft.) (lease expires in December 2005).

Prior to our consolidation of Power Ten’s operations with Elgar’s, Power Ten utilized a 29,100 square foot facility in Los Gatos, California under a lease that expired in July 2002. We subleased 5,300 square feet of this space to an unaffiliated party. Efforts to find a tenant to sublease the remaining 23,800

~~Prior to our consolidation of Power Ten's operations with Elgar's, Power Ten utilized a 29,100~~ square ~~foot facility in Los Gatos, California under a lease that expires in July 2002. We sublease 5,300 square~~ feet ~~of this space to an unaffiliated party, with the term of the sublease also expiring in July 2002. Efforts to find a tenant to sublease the remaining 23,800 square feet~~ for the remainder of the term were unsuccessful. The ~~23,800~~lease ~~square feet is not currently being used,~~ and ~~will~~the besublease ~~turned~~expired ~~back~~ in ~~to the owner in~~ July 2002.

We believe that our facilities are in good condition with substantial capacity available for increased production of current product lines and new product introductions. As a result, no substantial capital expenditures are expected to be required to accommodate the projected revenue growth.

ITEM 3. LEGAL PROCEEDINGS

We are routinely involved in legal proceedings related to the ordinary course of our business. We do not believe any such matters will have a material adverse effect on us. We maintain property, general liability and product liability insurance in amounts ~~which~~that we believe are consistent with industry practices and adequate for our operations.

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

No matters were submitted to a vote of security holders in the fourth quarter of ~~2001~~2002.

PART II

ITEM 5. MARKET FOR REGISTRANT'’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Common Equity Dividends

Our common stock is not listed or traded on any exchange. At March 1, ~~2002~~2003, there were 3532 holders of record of our common stock.

We have not paid any cash dividends on our common stock to date. We intend to retain ~~all~~any future earnings for use in the development of our business and, consequently, do not anticipate paying cash dividends in the foreseeable future. The payment of ~~all~~any cash dividends will be at the discretion of our Board of Directors and will depend upon, among other things, future earnings, operations, capital requirements, our general financial condition, general business conditions, restrictions in our debt agreements and the prior payment of cash dividends to the holders of our preferred stock. Our ability to pay dividends to our stockholders, and the ability of our ~~subsidiaries~~subsidiary to pay dividends to us, is restricted by the indenture governing the $90.0 ~~million~~ million principal amount of Senior Notes due 2008 (the "“Senior Notes"”) and the documents governing our credit facility.

~~Recent Sales of Unregistered Securities~~ 9

In March 1999, EHI issued and sold 4,000 shares of Series C 6% Cumulative Convertible Preferred Stock (the "Series C Preferred Stock") for cash proceeds of $4.0 million. The purchasers of the Series C Preferred Stock were those of our stockholders and warrantholders who elected to participate in a pro rata subscription offering. Upon the occurrence of certain triggering events, the holders of the Series C Convertible Preferred Stock are entitled to convert such shares into our Common Stock at a price of $0.75 per share.

ITEM 6. SELECTED FINANCIAL DATA

Selected Historical Consolidated Financial Data

The selected consolidated financial data as ~~below~~of and for the fiscal ~~years~~year ended ~~January 1~~December 28, ~~2000~~2002 ("“Fiscal ~~1999"~~2002”), ~~December 30~~presented below have been derived from our consolidated financial statements that have been audited by Deloitte & Touche LLP, ~~2000~~independent ~~("Fiscal~~public ~~2000")~~accountants, and ~~December~~are included in Item 15 of this report. The selected consolidated financial data for the fiscal years ended December 29, 2001 ("“Fiscal 2001”) and ~~as of~~ December 30, 2000 (“Fiscal 2000”) and as of December 29, 2001 presented below have been derived from our consolidated financial statements ~~which~~that have been audited by Arthur ~~Andersen~~ Andersen LLP, ~~independent public accountants,~~ and are included in Item 1415 of this report. The selected consolidated financial data ~~below~~as ~~for~~of ~~the fiscal years ended March~~December 2830, 2000, ~~1998~~as of and for the ~~nine-month~~ ~~period~~fiscal year ended January 21, ~~1999~~2000 and as of ~~March 28,~~and for ~~1998~~the ~~and~~nine-month period ended January 2, 1999 presented below have been derived from our consolidated financial statements ~~which~~that have been audited by Arthur Andersen LLP, ~~independent public accountants,~~ but are not included in this report. The selected consolidated financial data ~~below~~ as of and for the ~~nine-month~~year ~~period~~ ended ~~December 27, 1997 and the twelve-month period ended~~ January 2, 1999 have been derived from our unaudited consolidated financial statements, that are not ~~presented~~included ~~herein.~~in this report.

In March 1999, the Company changed its fiscal year from the Saturday closest to March 31st to the Saturday closest to December 31st., ~~This~~which ~~resulted~~is in the ~~fiscal years~~reason ~~ended~~why ~~March 28,~~information ~~1998~~is ~~and~~presented ~~January 2,~~below ~~1999~~both ~~containing~~for the anine ~~three-month~~months ~~overlap~~ended ~~period, from December~~January 282, ~~1997 to March 28~~1999, ~~1998.~~which ~~This~~is ~~three-month~~derived ~~overlap~~from ~~period included~~audited ~~$15~~financial statements,~~881,000~~ ~~of net sales~~ and ~~$203,000~~the of12 ~~net~~months ~~income. The nine-month period~~ ended ~~December~~January 282, ~~1997 is also included in the fiscal year ended March 28~~1999, ~~1998.~~which ~~The~~is ~~nine-month~~derived ~~period~~from ~~included~~unaudited ~~$46,615,000~~financial ~~of net sales and $4,570,000 of net income~~statements.

The unaudited consolidated financial statements ~~for~~presented ~~each~~below ~~of the periods referred to above~~ include, in the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for the unaudited ~~periods~~period. ~~The data below reflect the effect of our recapitalization on February 3, 1998 (the "Recapitalization") and our acquisition of Power Ten on May 29, 1998.~~

The information presented below is qualified in its entirety by, and should be read in conjunction with, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 8. Consolidated Financial Statements and Supplemental Data.

	Nine Months Ended			Fiscal Year Ended
	Jan. 2, 1999			Jan. 2, 1999			Jan. 1, 2000			Dec. 30, 2000			Dec. 29, 2001			Dec. 28, 2002
				(unaudited)
Operating Data:
Net sales	$	47,136		$	63,017		$	56,059		$	65,786		$	58,696		$	48,355
Cost of sales	26,000			34,619			32,032			38,152			36,443			28,999
Gross profit	21,136			28,398			24,027			27,634			22,253			19,356
Selling, general and administrative expenses	8,114			10,766			10,005			11,337			11,741			9,943
Research, development and engineering expenses	4,912			6,707			5,851			6,675			6,170			4,793
Amortization expense (1)	1,663			1,991			2,432			2,435			2,435			48
Operating income	6,447			8,934			5,739			7,187			1,907			4,572
Interest expense	8,008			10,253			10,458			10,544			10,642			11,980
Loss before income taxes	(1,561		)	(1,319		)	(4,719		)	(3,357		)	(8,735		)	(7,408		)
Income tax provision (benefit)	(191		)	(152		)	(536		)	70			1,449			¾
Net loss	$	(1,370	)	$	(1,167	)	$	(4,183	)	$	(3,427	)	$	(10,184	)	$	(7,408	)

Other Data:
Operating cash flows (uses)	$	4,323		$	7,250		$	(1,350	)	$	(2,637	)	$	(1,206	)	$	(3,477	)
Investing cash flows (uses)	(17,800		)	(18,085		)	(674		)	(1,252		)	(1,085		)	(431		)
Financing cash flows (uses)	17,318			17,084			(4		)	(366		)	4,130			3,542
Depreciation	748			1,024			888			901			896			810
Amortization of intangibles	2,199			3,276			3,166			3,167			3,169			1,547
Capital expenditures	294			589			676			1,254			1,093			437
Ratio of combined earnings and preferred stock dividends to earnings (2)	—			—			—			—			—			—

Other Non-GAAP Data:
Adjusted EBITDA (3)	$	9,100		$	12,610		$	9,158		$	10,523		$	5,418		$	5,751
Adjusted EBITDA margin (4)	19.3		%	20.0		%	16.3		%	16.0		%	9.2		%	11.9		%

Balance Sheet Data:
Total assets	$	63,754		$	63,754		$	58,545		$	56,985		$	49,662		$	47,414
Total debt	104,000			104,000			100,000			99,625			103,798			110,000
Stockholders’ deficit	(59,589		)	(59,589		)	(61,575		)	(67,002		)	(79,354		)	(88,907		)

(1) Amortization expense represents the amortization of goodwill and non-compete agreements associated with the April 1996 acquisition of Elgar by Carlyle-EEC Holdings, Inc., and our May 1998 acquisition of Power Ten. The Company stopped amortizing goodwill in Fiscal 2002 pursuant to the adoption of Statement of Financial Account Standards No. 142, “Goodwill and Other Intangible Assets”.

(2) In calculating the ratio of earnings to fixed charges, earnings consist of loss before income taxes plus fixed charges. Fixed charges consist of interest incurred (which includes amortization of deferred financing costs) whether expensed or capitalized and a portion of rental expense which management believes is a reasonable approximation of an interest factor. Earnings were insufficient to cover fixed charges by approximately $1,776,000 in the nine months ended January 2, 1999, $1,535,000 in the year ended January 2, 1999, $5,286,000 in the fiscal year ended January 1, 2000, $3,935,000 in the fiscal year ended December 30, 2000, $10,360,000 in the fiscal year ended December 29, 2001 and $9,886,000 in the fiscal year ended December 28, 2002.

(3) Adjusted EBITDA is the sum of loss before income taxes, interest, depreciation and amortization expense. Adjusted EBITDA is presented because we believe that it is a widely accepted financial indicator of a company’s ability to service debt. However, adjusted EBITDA should not be considered as an alternative to net income or to cash flows from operating activities, as determined in accordance with generally accepted accounting principles, and should not be construed as an indication of a company’s operating performance or as a measure of liquidity.

(4) Adjusted EBITDA margin is equal to Adjusted EBITDA divided by net sales for the periods presented.

~~The information presented below is qualified in its entirety by, and should be read in conjunction with, Item~~ ITEM 7. MANAGEMENT’S ~~Management's~~DISCUSSION ~~Discussion~~AND ~~and Analysis of Financial Condition and Results~~ANALYSIS ofOF ~~Operations,~~FINANCIAL ~~and~~CONDITION ~~Item~~AND 8.RESULTS ~~Consolidated~~OF ~~Financial Statements and Supplemental Data.~~ OPERATIONS

	Fiscal Year Ended			Nine Months Ended						Fiscal Year Ended
	Mar. 28, 1998			Dec. 27, 1997			Jan. 2, 1999			Jan. 2, 1999			Jan. 1, 2000			Dec 30, 2000			Dec. 29, 2001
				(unaudited)						(unaudited)
	(dollars in thousands)
Operating Data:
Net sales	$	62,496		$	46,615		$	47,136		$	63,017		$	56,059		$	65,786		$	58,696
Cost of sales		32,944			24,325			26,000			34,619			32,032			38,152			36,443
Gross profit		29,552			22,290			21,136			28,398			24,027			27,634			22,253
Selling, general and administrative expenses(1)		9,434			6,781			8,114			10,766			10,005			11,337			11,741
Research and development and engineering expenses		6,242			4,448			4,912			6,707			5,851			6,675			6,170
Amortization expense(2)		1,314			985			1,663			1,991			2,432			2,435			2,435
Operating income		12,562			10,076			6,447			8,934			5,739			7,187			1,907
Interest expense, net		3,341			1,096			8,008			10,253			10,458			10,544			10,642
Income (loss) before income tax provision (benefit)		9,221			8,980			(1,561	)		(1,319	)		(4,719	)		(3,357	)		(8,735	)
Income tax provision (benefit)		4,448			4,410			(191	)		(152	)		(536	)		70			1,449
Net income (loss)	$	4,773		$	4,570		$	(1,370	)	$	(1,167	)	$	(4,183	)	$	(3,427	)	$	(10,184	)
Other Data:
Operating cash flows (uses)	$	7,462		$	4,535		$	4,323		$	7,250		$	(1,350	)	$	(2,637	)	$	(1,206	)
Investing cash flows (uses)		(1,218	)		(933	)		(17,800	)		(18,085	)		(674	)		(1,252	)		(1,085	)
Financing cash flows (uses)		(4,269	)		(4,035	)		17,318			17,084			(4	)		(366	)		4,130
Depreciation		883			615			748			1,024			888			901			896
Amortization of intangibles		2,194			1,117			2,199			3,276			3,166			3,167			3,169
Capital expenditures		1,228			933			294			589			676			1,254			1,093
Ratio of combined earnings and preferred stock dividends to earnings(3)		3.70	x		8.76	x		—			—			—			—			—
Other Non-GAAP Data:
Adjusted EBITDA(4)	$	15,118		$	11,669		$	9,100		$	12,610		$	9,158		$	10,523		$	5,418
Adjusted EBITDA margin(5)		24.2	%		25.0	%		19.3	%		20.0	%		16.3	%		16.0	%		9.2	%
Balance Sheet Data:
Total assets	$	44,912		$	38,922		$	63,754		$	63,754		$	58,545		$	56,985		$	49,662
Total debt		90,000			11,211			104,000			104,000			100,000			99,625			103,798
Stockholders' equity (deficit)		(61,471	)		20,407			(59,589	)		(59,589	)		(61,575	)		(67,002	)		(79,354	)

This report contains certain forward-looking statements and information relating to our business that are based on the beliefs of management as well as assumptions made by and information currently available to management. The words “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends” and similar expressions, as they relate to our operations, are intended to identify forward-looking statements. Such statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statement. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. We do not intend to update these forward-looking statements.

The following discussion and analysis should be read in conjunction with “Selected Historical Consolidated Financial Data” and our consolidated financial statements and the notes thereto included elsewhere in this report.

As a holding company, we operate through our wholly owned subsidiary, Elgar Electronics Corporation.

Recent Developments

Exchange Agreement

On April 16, 2003, we entered into an Exchange Agreement (the “Exchange Agreement”) with J.F. Lehman Equity Investors I, L.P. (“JFL”), Jackson National Life Insurance Company, Old Hickory Fund I, L.L.C., Indosuez Electronics Partners (collectively, the “Consenting Stockholders”) and OCM/GFI Power Opportunities Fund, L.P. and OCM Principal Opportunities Fund II, L.P. (collectively, the “Oaktree Entities”), in their capacity as holders, directly or indirectly, of 73% of the Company’s outstanding Senior Notes. The Exchange Agreement requires the Company to make an exchange offer and consent solicitation to the holders of its $90,000,000 of 9-7/8% Senior Notes, asking such holders to exchange their Senior Notes for an aggregate of (i) $60,000,000 of 9% senior notes due February 1, 2008 (the “New Notes”), (ii) $30,000,000 in stated liquidation value of Series D 10.5% senior cumulative redeemable preferred stock due February 1, 2008 (the “New Preferred Stock”) and (iii) 750,000 shares of new common stock, representing, without giving effect to the transactions described in the immediately succeeding paragraph, 75% of the Company’s common stock to be outstanding upon completion of the restructuring transactions. The Exchange Agreement contemplates that the exchange offer may offer the holders of Senior Notes (other than the Oaktree Entities, JFL or any of their affiliates) the option to have their Senior Notes repurchased by the Company, for an amount of cash to be determined, rather than exchanged for the basket of securities described above. We currently contemplate that the exchange offer will commence on or about May 15, 2003, although that is subject to change.

In addition, the Exchange Agreement requires JFL to make an additional investment in the Company of not less than $4,800,000 in exchange for which it would receive, upon completion of the restructuring, $6,400,000 of New Notes, $3,200,000 in stated liquidation value of additional New Preferred Stock and 80,000 shares of new common stock (to the extent JFL increases its investment in the Company, which it is permitted to do up to $6,000,000, the amount of securities it would obtain upon completion of the restructuring would increase proportionately). Until the restructuring occurs, JFL’s $4,800,000 investment will be used as collateral for the Bridge Notes discussed below.

As provided in the Exchange Agreement, in connection with the exchange offer, the Company will solicit consents from tendering noteholders to approve (i) certain modifications to the existing indenture for the Senior Notes that will remove from the indenture many of the protections for holders of the Senior Notes and (ii) a prepackaged bankruptcy of the Company in the event the exchange offer is not consummated, which prepackaged bankruptcy would seek to replicate the successful completion of the restructuring as described in the Exchange Agreement to the greatest degree possible, except with respect to the possible cash repurchase of Senior Notes by the Company, which is not contemplated as part of the prepackaged bankruptcy plan, and subject to such changes as may be required under applicable bankruptcy laws in order to make the plan of reorganization thereunder confirmable.

Upon issuance of the New Notes, New Preferred Stock and common stock as described above, through an amendment to ~~ITEM~~the 7.Company’s ~~MANAGEMENT'S~~charter ~~DISCUSSION~~to ~~AND~~be ~~ANALYSIS~~effected OFimmediately ~~FINANCIAL~~prior ~~CONDITION~~to ~~AND~~the ~~RESULTS~~completion OFof ~~OPERATIONS~~ the restructuring, (a) the Company’s currently outstanding shares of Series A preferred stock would be converted into (i) an aggregate of $3,500,000 in stated liquidation value of New Preferred Stock and (ii) 125,000 shares of new common stock, and (b) the Company’s currently outstanding shares of common stock and Series B and Series C convertible preferred stock would be converted into an aggregate of 125,000 shares of new common stock, with the allocation of those shares of new common stock to be made pro rata on an as-converted basis, assuming the shares of Series B and Series C preferred stock had been converted into common stock immediately prior to the restructuring.

~~This~~ The ~~report~~Exchange ~~contains~~Agreement ~~certain~~also ~~forward-looking statements and information relating to our business that are based on~~ contemplates the ~~beliefs~~extension of ~~management~~a asbridge ~~well~~loan ~~as assumptions made by~~ and ~~information~~the ~~currently~~repayment ~~available~~of tothe ~~management.~~Company’s ~~The words "anticipates," "believes," "estimates," "expects," "plans," "intends" and similar expressions, as they relate to our~~credit ~~operations,~~facility ~~are intended to identify forward-looking statements. Such statements reflect our current views~~ with ~~respect~~Ableco ~~to future events and are subject to certain risks~~Finance, ~~uncertainties~~LLC ~~and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statement. Should one or more of these risks or uncertainties materialize~~(“Ableco”), oras ~~should underlying assumptions prove incorrect, actual results may vary materially from those~~ described ~~herein~~immediately ~~as anticipated, believed, estimated or expected~~below. ~~We do not intend to update these forward-looking statements.~~

~~The following~~ Bridge discussion and analysis should be read in conjunction with "Selected Historical Consolidated Financial Data" and our consolidated financial statements and the notes thereto included elsewhere in this report. Loan

As On April 16, 2003, in connection with aentering ~~holding~~into ~~company~~the Exchange Agreement, wethe ~~operate~~Company ~~through~~and Elgar ~~Electronics~~entered ~~Corporation~~into a loan agreement (the “Bridge Notes”) with the Oaktree Entities in the amount of $25,000,000, bearing interest at 10% per annum, payable monthly in arrears, and secured by substantially all assets of the Company. The Bridge Notes mature on the earlier of (i) completion of the restructuring transactions contemplated by the Exchange Agreement and (ii) August 1, 2003.

~~Results~~ On the same date, Elgar used approximately $20.6 million of ~~Operations~~ the proceeds from the Bridge Notes to repay in full its credit facility with Ableco, which facility was thereafter terminated. After the payment of fees and expenses related to the Exchange Agreement and Bridge Notes, Elgar retained about $3.2 million of proceeds from the Bridge Notes for cash reserve and working capital purposes.

Upon completion of the transactions contemplated by the Exchange Agreement, unless the Bridge Notes are repaid with the proceeds of a new third-party credit facility, any amounts that remain outstanding under the Bridge Notes would be exchanged for a term note of like amount bearing interest at the greater of 12% or a rate of interest equal to a reference rate plus 8% (the “Term Note”). The ~~following~~Term ~~table~~Note ~~sets~~would ~~forth~~have ~~certain~~a ~~income~~stated ~~statement~~maturity ~~information~~of August 1, 2007, would be secured by substantially all of the assets of the Company and ~~other~~would ~~data~~have asthe benefit of quarterly sinking fund payments of $1,000,000, with the first such payment by Elgar due on November 1, 2003. To the extent the Company refinances a ~~percentage~~portion of ~~net~~the ~~sales~~Term ~~for~~Note subsequent to the ~~periods~~closing ~~indicated.~~of the exchange described above, the Oaktree Entities have agreed under certain circumstances to exchange their interests in the Term Notes for participations in such replacement financing.

	Fiscal Year Ended
	Jan. 1, 2000		Dec. 30, 2000		Dec. 29, 2001
Statement of Operations Data:
Net sales	100.0	%	100.0	%	100.0	%
Cost of sales	57.1		58.0		62.1
Gross profit	42.9		42.0		37.9
Selling, general and administrative expenses	17.9		17.3		20.0
Research and development and engineering expenses	10.5		10.1		10.5
Amortization expense	4.3		3.7		4.1
Operating income	10.2	%	10.9	%	3.3	%
Other Data:
Adjusted EBITDA %	16.3	%	16.0	%	9.2	%

Fiscal Year Ended December 29, 2001 Versus Fiscal Year Ended December 30, 2000

Net sales. Net sales in Fiscal 2001 were $58.7 million, a decrease of $7.1 million, or 10.8%, from net sales of $65.8 million in Fiscal 2000. This decrease was primarily attributable to a decrease in sales of programmable DC power products, predominately sales of Power Ten products and sales to Racal, and sales of Sorensen products, partially offset by an increase in sales of space systems products. In Fiscal 2001, sales of Power Ten products were $7.2 million, a decrease of $5.0 million from Fiscal 2000 sales, due to a significant decrease in sales to semiconductor manufacturers. In Fiscal 2001, net sales attributable to Racal were down approximately $3.0 million compared to Fiscal 2000, also due to a decrease in sales to the semiconductor manufacturers. Sales of space systems products in Fiscal 2001 were $8.3 million, an increase of $3.9 million from Fiscal 2000, principally due to increased sales to Boeing Satellite Systems and, to a lesser degree, Space Systems/Loral.

~~Gross~~Results ~~profit. Gross profit in Fiscal 2001 was $22.3 million, a decrease~~ of $5.3 million, or 19.2%, from gross profit of $27.6 million in Fiscal 2000. The decrease in gross profit was mainly due to the decrease in net sales which resulted in a $3.0 million decrease in gross profit, and partly as result of a decrease in the gross margin due to higher overall production costs when compared to Fiscal 2000. The lower margins in Fiscal 2001 are expected to improve in future periods due to the elimination of certain fixed costs as a result of the consolidation of the Power Ten operations with Elgar's operations at our headquarters in San Diego. Operations

~~Selling,~~ The ~~general &~~following ~~administrative~~table ~~expenses. Selling,~~sets ~~general~~forth ~~and administrative ("SG&A") expenses were~~certain ~~$11.7 million~~statement ~~in Fiscal 2001, an increase~~ of ~~$0.4 million,~~operations orinformation ~~3.5%,~~and ~~from~~other ~~SG&A~~data ~~expenses of $11.3 million in Fiscal 2000. SG&A expenses increased~~ as a percentage of net sales ~~from~~ ~~17.3%~~for ~~in Fiscal 2000 to 20.0% in Fiscal 2001. The dollar increase was primarily due to $1.0 million of costs associated with~~ the ~~Power~~fiscal ~~Ten~~years ~~operations' consolidation, partially offset by lower advertising costs and sales and marketing expenses in Fiscal 2001 compared to Fiscal 2000~~indicated.

Research and development and engineering expenses. Research and development and engineering (R&D&E) expenses in Fiscal 2001 were $6.2 million, a decrease of $0.5 million, or 7.5%, from R&D&E expenses of $6.7 million in Fiscal 2000. R&D&E expenses increased as a percentage of net sales from 10.1% to 10.5%. The decrease in dollars was primarily due to lower headcount and compensation expense in Fiscal 2001 compared to Fiscal 2000, and to a decrease in customer-funded research and development expense in Fiscal 2001 compared to Fiscal 2000. A portion of the Company's R&D&E expenses has historically been funded by customers and the costs associated with the support has been excluded from R&D&E expenses and included in cost of sales.

	Fiscal Year Ended
	Dec . 30, 2000		Dec. 29, 2001		Dec. 28, 2002
Statement of Operations Data:
Net sales	100.0	%	100.0	%	100.0	%
Cost of sales	58.0		62.1		60.0
Gross profit	42.0		37.9		40.0
Selling, general and administrative expenses	17.3		20.0		20.5
Research, development and engineering expenses	10.1		10.5		9.9
Amortization of goodwill and non-compete agreements	3.7		4.1		0.1
Operating income	10.9	%	3.3	%	9.5	%

Other Data:
Adjusted EBITDA%	16.0	%	9.2	%	11.9	%

~~Amortization~~Fiscal ~~expense. Amortization~~Year ~~expense~~Ended ~~was~~December ~~$2.4 million~~28, in2002 ~~each~~Versus of Fiscal ~~2001~~Year ~~and Fiscal 2000. Amortization~~Ended ~~expense~~December ~~is comprised of the amortization of goodwill associated with the April 1996 acquisition of Elgar by Carlyle-EEC Holdings~~29, ~~Inc.,~~ ~~and our May 1998 acquisition of Power Ten.~~ 2001

~~Operating~~ Net ~~income~~sales. ~~Operating~~ Net ~~income~~sales ~~was~~in Fiscal 2002 were $148.~~9 million~~4 ~~in Fiscal 2001~~million, a decrease of $510.3 million, or 7317.65%, from net ~~operating~~sales ~~income~~ of $758.2 7 million in Fiscal ~~2000~~2001. This ~~Operating~~decrease, ~~income~~which ~~decreased~~was asacross avirtually ~~percentage~~all ofproduct ~~net~~lines, ~~sales~~was primarily ~~from~~attributable ~~10.9%~~to the overall decline in ~~Fiscal~~the ~~2000~~economy, but was also due to 3a $1.38 million, or 28%, decrease in sales directly or indirectly to semiconductor manufacturers. In Fiscal 2002, ~~2001~~sales of Sorensen and Power Ten programmable DC power products were $19.7 million ~~The~~and $6.2 million, respectively, a decrease ~~was~~of $1.4 million ~~due~~and to$1.0 million, ~~the~~respectively, ~~factors~~from Fiscal 2001 levels. In Fiscal 2002, sales of other DC power ~~discussed~~products ~~above~~were $1.8 Tomillion, ~~minimize~~a ~~the~~decrease ~~negative~~of ~~impact~~$0.7 million ~~due~~from toFiscal ~~the~~2001, and ~~lower~~AC power product sales ~~volume,~~were ~~management~~$5.3 ~~initiated~~million, a ~~series~~decrease of ~~cost~~$0.8 ~~savings~~million. Space ~~actions~~system product sales were $3.0 ~~These~~million in ~~included~~Fiscal ~~consolidating~~2002, ~~the~~a ~~Sorensen~~decrease ~~and~~of ~~Power~~$5.3 ~~Ten operations~~million ~~into~~from ~~Elgar's~~Fiscal ~~San~~2001, ~~Diego~~principally ~~facility~~due into decreased ~~the~~sales ~~second~~to Boeing Satellite Systems and, ~~third~~to ~~quarters~~a oflesser ~~2001~~degree, ~~respectively~~Space Systems/Loral. In Fiscal 2002, ~~negotiating~~sales attributable ~~raw~~to ~~material~~the ~~price~~U.S. ~~reductions~~Navy’s ~~and~~CASS ~~acquiring~~program ~~automation~~were ~~equipment~~down to$1.0 ~~shorten~~million ~~production~~compared to ~~times~~Fiscal 2001, ~~reduce~~as ~~scrap~~the ~~and~~final ~~lower~~phase of the ~~labor~~contract ~~content~~was completed in the fourth quarter of ~~our~~Fiscal ~~products~~2002.

~~Interest~~ Gross ~~expense~~profit. ~~Net~~ Gross ~~interest~~profit in ~~expense~~Fiscal 2002 was $1019.~~6 million~~4 ~~in Fiscal 2001~~million, ana ~~increase~~decrease of $02.1 9 million, or 113.0%, from gross ~~net~~profit ~~interest expense~~ of $1022.5 3 million in Fiscal ~~2000~~2001. The ~~Net~~decrease ~~interest~~in ~~expense~~gross ~~increased~~profit aswas amainly ~~percentage~~due ofto the decrease in net sales that ~~from~~resulted 16in a $3.0%9 million volume decrease in ~~Fiscal~~gross ~~2000~~profit when compared to 18Fiscal 2001, partially offset by a favorable gross margin increase. The gross profit percentage for Fiscal 2002 was 40.0%, an increase of 2.1%, infrom ~~the~~37.9% ~~comparable~~for Fiscal 2001 ~~period~~. ~~The~~ This percentage increase inwas ~~dollars~~mainly ~~was~~due to the elimination of certain fixed costs as a result of ~~higher~~the ~~outstanding~~consolidation ~~borrowings~~of onthe Power ~~our~~Ten ~~revolving~~operations ~~line~~with ofElgar’s ~~credit~~operations ~~partially~~at ~~offset~~the byCompany’s ~~lower~~headquarters ~~interest~~in San ~~rates~~Diego onand ~~borrowings~~the ~~under~~implementation ~~our~~of ~~credit~~demand ~~facility.~~flow technology and other cost and efficiency savings.

~~Income~~ Selling, ~~taxes. Income~~general ~~taxes~~and ~~for~~administrative ~~Fiscal~~expenses. Selling, ~~2001~~general and ~~Fiscal~~administrative ~~2000~~(“SG&A”) expenses were $~~1,449,000~~9.9 million ~~and~~in ~~$70~~Fiscal 2002,~~000,~~ ~~respectively.~~a ~~Losses~~decrease ~~generated~~of ~~in these~~$1.8 ~~periods~~million, door ~~not~~15.4%, ~~have~~from aSG&A expenses ~~carryback~~of ~~benefit~~$11.7 ~~and~~million ~~thus~~in ~~have~~Fiscal ~~not~~2001. SG&A ~~been~~expenses ~~recognized~~increased ~~because~~slightly ~~future~~as ~~realization~~a ispercentage ~~uncertain.~~of Anet ~~full~~sales ~~valuation~~from 20.0% ~~reserve~~in ~~was~~Fiscal ~~set~~2001 upto on20.5% ~~the~~in ~~deferred~~Fiscal ~~tax~~2002. The ~~asset~~dollar ~~balance~~decrease ~~of $1,449,000~~was primarily due to aapproximately ~~change~~ $1.4 million in ~~management's~~savings ~~assessment~~resulting ~~that~~from the ~~realization~~consolidation of ~~these~~Power ~~deferred~~Ten’s ~~tax~~operations ~~assets was uncertain~~and $0.6 million in

Net loss. Net loss was $10.2 million in Fiscal 2001, an increased loss of $6.8 million from a net loss of $3.4 million in Fiscal 2000, due to the factors discussed above. In order to improve operating results, we have undertaken a number of initiatives to increase sales across our multiple product lines. These include (1) introducing our value-added-integration services to high-tech end customers,

lower commissions ~~(2) introducing~~expense, ~~various~~partially ~~product~~offset ~~line~~by ~~extensions~~increased tocosts ~~our~~associated ~~products~~with recruiting and hiring ~~(3) initiating~~new ~~cost~~chief ~~reduction~~executive ~~efforts in the manufacturing~~ and ~~procurement~~chief ~~processes,~~financial ~~including~~officers ~~the~~during ~~relocation~~Fiscal ~~of our Power Ten operations to our San Diego facilities~~2002.

~~Fiscal~~ Research, ~~Year~~development ~~Ended~~and ~~December~~engineering expenses. 30 Research, ~~2000~~development ~~Versus~~and engineering (“RD&E”) expenses in Fiscal 2002 ~~Year~~were ~~Ended~~$4.8 ~~January~~ million, a decrease of $1.4 million, ~~2000~~ or 22.6%, from RD&E expenses of $6.2 million in Fiscal 2001. RD&E expenses also decreased as a percentage of net sales from 10.5% to 9.9%. The decreases were due to lower headcount in our RD&E department, resulting in lower compensation expense, and approximately $0.8 million in savings resulting from the consolidation of Power Ten’s operations.

~~Net~~ Amortization ~~sales. Net~~of ~~sales~~goodwill inand ~~Fiscal~~non-compete ~~2000 were $65~~agreements.8 ~~million,~~ Amortization anexpense ~~increase~~was of $~~9.7 million~~48,000 orin ~~17.3%~~Fiscal 2002, ~~from~~a ~~net~~decrease ~~sales~~ of $562.14 million infrom Fiscal ~~1999~~2001 levels. Amortization ~~This~~expense ~~increase~~in ~~was~~Fiscal ~~primarily~~2002 ~~attributable~~related to annon-compete ~~increase~~agreements entered ininto ~~sales~~with ofthe ~~programmable~~former DCowners ~~products, including sales~~ of ~~Sorensen and~~ Power Ten, ~~products~~while ~~and~~amortization ~~sales~~expense toin ~~Racal,~~the ~~partially~~prior ~~offset~~period byincluded aamortization ~~decrease~~of ingoodwill ~~sales~~associated with the April 1996 acquisition of ~~Other~~Elgar ~~Products~~by ~~and~~the ~~Services.~~predecessor Into ~~Fiscal~~Elgar ~~2000~~Holdings, ~~sales~~Inc. and the May 1998 acquisition of Power Ten ~~products~~, ~~which~~as ~~are~~well ~~part~~as $48,000 of expense relating to the DCnon-compete ~~product~~agreements. Pursuant to ~~line~~SFAS No. 142, ~~were~~beginning ~~$12.2~~December ~~million~~30, an2001, goodwill is no longer ~~increase~~amortized, ofwhich ~~$4.6 million~~accounts ~~from~~for ~~Fiscal~~the ~~1999~~difference ~~sales.~~between the comparable periods.

In Operating income. Operating ~~Fiscal~~income ~~2000,~~was ~~net~~$4.6 ~~sales~~million ~~attributable~~in toFiscal ~~the CASS Program~~2002, ~~which~~an ~~are~~increase ~~included~~of ~~within Other Products and Services, were approximately~~ $62.7 million, or 142.1%, Wefrom ~~have~~operating ~~been~~income ~~notified~~of ~~that the U~~$1.S.9 ~~Navy~~million isin ~~winding~~Fiscal ~~down~~2001. Operating ~~the~~income ~~CASS~~increased ~~Program,~~as ~~with~~a ~~full-rate~~percentage of ~~production~~net tosales ~~cease~~from 3.3% in ~~the~~Fiscal ~~fourth~~2001 ~~quarter~~to of9.5% in Fiscal 2002. The ~~After~~increase ~~full-rate~~was ~~production~~due ~~ceases,~~to wethe ~~expect~~factors discussed ~~that~~above. To ~~our~~minimize ~~net sales~~the ~~attributable~~negative impact due to the ~~CASS~~lower ~~Program~~sales ~~will~~volume, ~~decrease~~management ~~fairly~~realized ~~significantly~~cost assavings resulting wefrom ~~enter~~consolidating the ~~sustaining~~Power ~~phase~~Ten ~~for~~operations ~~the~~into ~~program,~~Elgar’s ~~where~~San ~~the~~Diego facility ~~emphasis~~and ~~will~~the beimplementation onof ~~small~~demand ~~quantity~~flow ~~orders,~~technology ~~spares~~into ~~and~~the manufacturing ~~service~~operations.

~~Gross~~ Interest ~~profit~~expense. ~~Gross~~ Interest ~~profit~~expense ~~in Fiscal 2000~~ was $2712.6 0 million in Fiscal 2002, an increase of $31.64 million, or 1513.02%, from ~~gross profit~~interest expense of $2410.~~0 million~~6 million in Fiscal ~~1999~~2001. Interest ~~The~~expense increased ~~increase~~as ina ~~gross~~percentage ~~profit~~of ~~was~~net ~~mainly~~sales ~~due~~from to18.2% ~~the increase~~ in ~~net~~Fiscal ~~sales~~2001 ~~which~~to ~~resulted~~24.8% in the acomparable ~~$4.2 million~~Fiscal 2002 period. The increase in ~~gross~~dollars ~~profit,~~was ~~offset~~a byresult aof higher outstanding borrowings and higher ~~$0.6 million~~interest ~~decrease~~rates inon ~~the~~those ~~gross~~borrowing ~~profit~~in ~~margin~~Fiscal ~~due~~2002 as compared to athe year-earlier ~~greater~~period, ~~concentration~~together ofwith ~~sales~~$0.7 ofmillion ~~lower-margin~~in ~~products~~amendment ~~when~~fees ~~compared~~and toan increase ~~Fiscal~~in ~~1999.~~the Inamortization ~~Fiscal~~of ~~2000,~~deferred ~~gross~~financing ~~margins~~costs ondue ~~Power~~to ~~Ten~~the ~~products~~acceleration ~~were~~of ~~$6.0 million,~~outstanding anborrowings ~~increase~~under ofthe ~~$2.1 million~~Company’s ~~from~~former ~~Fiscal~~Deutsche ~~1999~~Bank facility ~~gross~~recognized ~~margins.~~in Fiscal 2002.

~~Selling,~~ Income ~~general &~~taxes. Income ~~administrative~~taxes ~~expenses. SG&A~~for ~~expenses~~Fiscal 2002 were ~~$11.3 million~~zero and infor Fiscal ~~2000,~~2001 anwere ~~increase of~~ $1.~~3 million,~~5 ~~or 13~~million.~~0%,~~ Losses ~~from~~generated ~~SG&A~~in ~~expenses~~these ofperiods ~~$10.0 million~~do innot ~~Fiscal~~have ~~1999.~~a ~~SG&A~~carryback ~~expenses~~benefit ~~decreased~~and the asresulting anet ~~percentage~~operating ofloss ~~net~~carryforwards ~~sales~~have ~~from~~not ~~17.9%~~been inrecognized ~~Fiscal~~as ~~1999~~a benefit tobecause ~~17.3%~~future inrealization ~~Fiscal~~is ~~2000~~uncertain. A ~~The dollar~~full ~~increase~~valuation reserve was ~~primarily~~established ~~due~~in toFiscal 2001 ~~higher~~on the ~~sales~~deferred ~~volume,~~tax ~~generating~~asset ~~higher~~balance ~~commissions~~ of $01.7 4 million, ~~along~~due ~~with~~to ~~higher~~a ~~advertising~~change ~~costs~~in ~~and~~management’s assessment ~~sales~~that ~~and~~the ~~marketing~~realization ~~expenses.~~of these deferred tax assets was uncertain.

~~Research~~ Net ~~and~~loss. Net ~~development~~loss ~~and~~was ~~engineering expenses~~$7. ~~R&D&E~~4 ~~expenses~~million in Fiscal ~~2000 were $6.7 million~~2002, ~~an increase of~~a $02.8 million, orimprovement ~~13.6%,~~ from ~~R&D&E~~a ~~expenses~~net loss of $510.9 2 million in Fiscal ~~1999~~2001, due to the factors discussed above. In order ~~R&D&E~~to ~~expenses~~improve ~~decreased~~operating asresults, we have undertaken a ~~percentage~~number of ~~net~~initiatives, the ~~sales~~benefits ~~from~~of ~~10.5%~~which tohave 10positively impacted our results for Fiscal 2002. These include (1%.) a consolidation ~~The~~of ~~increase~~our insales ~~dollars~~representatives ~~was primarily~~and ~~due~~distributors to ~~higher~~market ~~compensation~~all ~~expense~~three of our name brands: Elgar, Sorensen and Power Ten, (2) an increased ~~consulting~~emphasis on European and ~~material~~other ~~costs~~international sales; at(3) the ~~Power~~introduction ~~Ten,~~of various new products and toproduct aline extensions ~~decrease~~and (4) continued cost reduction efforts through the reduction of indirect headcount, increasing efficiencies in ~~customer-funded~~the ~~research~~manufacturing and procurement ~~development~~processes, ~~expense~~and inthe ~~Fiscal~~relocation ~~2000~~of ~~compared~~our Power Ten operations to our ~~Fiscal~~San ~~1999.~~Diego facilities.

Amortization expense. Amortization expense was $2.4 million in each of Fiscal 2000 and Fiscal 1999. Amortization expense is comprised of the amortization of goodwill associated with the April 1996 acquisition of Elgar by Carlyle-EEC Holdings, Inc., and our May 1998 acquisition of Power Ten.

Interest expense. Net interest expense was $10.5 million in each of Fiscal 2000 and Fiscal 1999. In connection with our swap agreement, on a net basis we paid $43,000 of interest to our swap counterparty in Fiscal 1999, and we received $49,000 in interest from our swap counterparty in Fiscal 2000. As of December 30, 2000, all but $2,125,000 of our long-term bank debt was covered by this swap arrangement.

Operating income. Operating income was $7.2 million in Fiscal 2000, an increase of $1.5 million, or 26.3%, from operating income of $5.7 million in Fiscal 1999. Operating income increased as a percentage of net sales from 10.2% in Fiscal 1999 to 10.9% in Fiscal 2000. The increase was due to the factors discussed above.

~~Income taxes. Income taxes for~~ Fiscal ~~2000~~Year ~~contained~~Ended aDecember ~~tax provision of $0.1 million~~29, ~~compared~~2001 toVersus ~~a tax benefit of $0.5 million for~~ Fiscal ~~1999.~~Year ~~Losses generated in Fiscal 1999 resulted in carryback benefits that were reflected as a benefit. Losses generated in Fiscal 2000 do not have a carryback benefit~~Ended ~~and~~December ~~thus~~30, ~~have not been recognized because future realization is uncertain.~~ 2000

Net ~~loss~~sales. Net ~~loss~~sales ~~was~~in Fiscal 2001 were $358.4 7 million, a decrease of $7.1 million, or 10.8%, from net sales of $65.8 million in Fiscal 2000. This decrease was primarily attributable to a decrease in sales of programmable DC power products, predominately sales of Power Ten products and sales to Racal, and sales of Sorensen products, partially offset by an ~~improvement~~increase in sales of space systems products. In Fiscal 2001, sales of Power Ten products were $07.82 million, ora 19decrease of $5.0%, million from Fiscal 2000 sales, due to a significant decrease in sales to semiconductor manufacturers. In Fiscal 2001, net ~~loss~~sales ofattributable to Racal were down approximately $43.2 0 million incompared to Fiscal ~~1999~~2000, also due to a decrease in sales to the semiconductor ~~factors~~manufacturers. Sales ~~discussed~~of space ~~above~~systems products in Fiscal 2001 were $8.3 million, an increase of $3.9 million from Fiscal 2000, principally due to increased sales to Boeing Satellite Systems and, to a lesser degree, Space Systems/Loral.

~~Liquidity~~ Gross profit. Gross profit in Fiscal 2001 was $22.3 million, a decrease of $5.3 million, or 19.2%, from gross profit of $27.6 million in Fiscal 2000. The decrease in gross profit was mainly due to the decrease in net sales which resulted in a $3.0 million decrease in gross profit, and ~~Capital~~partly ~~Resources~~ as result of a decrease in the gross margin due to higher overall production costs when compared to Fiscal 2000.

Selling, ~~Overview~~ general and administrative expenses. SG&A expenses were $11.7 million in Fiscal 2001, an increase of $0.4 million, or 3.5%, from SG&A expenses of $11.3 million in Fiscal 2000. SG&A expenses increased as a percentage of net sales from 17.3% in Fiscal 2000 to 20.0% in Fiscal 2001. The dollar increase was primarily due to $1.0 million of costs associated with the Power Ten operations’ consolidation, partially offset by lower advertising costs and sales and marketing expenses in Fiscal 2001 compared to Fiscal 2000.

~~Our principal uses of cash are for working capital requirements~~ Research, ~~debt~~development ~~service requirements~~ and ~~capital~~engineering ~~expenditures~~expenses. ~~Based upon current and anticipated levels of~~ ~~operations,~~RD&E ~~and~~expenses ~~after~~in ~~giving~~Fiscal ~~effect~~2001 towere ~~the Ninth Amendment and Waiver to Credit Agreement entered into on January~~$6.2 31million, ~~2002~~a ~~(the~~decrease ~~"Ninth~~of $0.5 ~~Amendment")~~million, asor ~~discussed below~~7.5%, wefrom ~~believe~~RD&E ~~that~~expenses ~~our~~of ~~cash flow~~$6.7 ~~from~~million ~~operations,~~in ~~together~~Fiscal 2000. RD&E ~~with~~expenses ~~amounts~~increased ~~available~~as ~~under~~a percentage ~~our~~of ~~credit~~net ~~facility,~~sales ~~will~~from be10.1% ~~adequate~~ to ~~meet~~10.5%. The ~~our~~decrease ~~anticipated~~in ~~cash~~dollars ~~requirements~~was ~~through~~primarily ~~the~~due ~~end~~to oflower ~~the~~headcount ~~second~~and compensation ~~quarter~~expense ofin ~~2002,~~Fiscal ~~but~~2001 ~~will~~compared ~~not be sufficient~~ to ~~repay~~Fiscal ~~the amounts outstanding under our credit facility on June 28~~2000, ~~2002,~~and asto ~~discussed~~a ~~below.~~decrease in Nocustomer-funded ~~assurance~~research ~~can~~and bedevelopment ~~given,~~expense ~~however,~~in ~~that~~Fiscal ~~this~~2001 ~~will~~compared beto Fiscal ~~the case~~2000. A Asportion ~~a holding company with no operations or assets other than our ownership~~ of ~~Elgar'~~the Company’s RD&E ~~capital~~expenses ~~stock,~~has wehistorically ~~must~~been ~~rely~~funded onby ~~dividends~~customers and ~~other~~the ~~payments~~costs associated ~~from~~with ~~Elgar~~the tosupport ~~generate~~has ~~the~~been ~~funds~~excluded ~~necessary~~from toRD&E ~~meet~~expenses ~~our obligations,~~and ~~including~~included ~~the~~in ~~payment~~cost of ~~principal of and interest on the Senior Notes~~sales.

~~We have~~ Amortization ~~been notified by Bankers Trust, the lender under our credit facility,~~ of ~~its~~goodwill ~~desire~~and tonon-compete ~~have the full amount of the outstanding loans under the credit facility, plus accrued but unpaid interest, repaid on June 28, 2002~~agreements. ~~At March~~ ~~28,~~ Amortization ~~2002,~~expense ~~the outstanding principal amount of the loans under the credit facility~~ was $~~14,597,615~~2.4 Inmillion ~~order~~in ~~for~~each usof toFiscal ~~repay~~2001 ~~the facility~~ and ~~to meet other future debt service and working capital requirements, we will need to obtain other sources of funding~~Fiscal 2000. Amortization ~~Management~~expense is ~~currently pursuing alternative financing sources, and~~comprised ~~has~~of ~~recently retained advisors to help~~ the ~~Company~~amortization inof ~~this~~goodwill ~~endeavor.~~and ~~There~~non-compete ~~can~~agreements beassociated nowith ~~assurance that additional financing will be available on terms satisfactory to~~the ~~us.~~April If1996 weacquisition ~~are~~of ~~unsuccessful~~Elgar inby ~~obtaining~~Carlyle-EEC ~~this~~Holdings, ~~additional financing~~Inc., ~~substantial~~and ~~doubt exists as to~~ our ~~ability~~May to1998 acquisition ~~continue~~of asPower ~~a going concern~~Ten.

Operating ~~Sources~~income. Operating income was $1.9 million in Fiscal 2001, a decrease of ~~Capital~~ $5.3 million, or 73.6%, from operating income of $7.2 million in Fiscal 2000. Operating income decreased as a percentage of net sales from 10.9% in Fiscal 2000 to 3.3% in Fiscal 2001. The decrease was due to the factors discussed above. Management initiated a series of cost savings actions which included consolidating the Sorensen and Power Ten operations into Elgar’s San Diego facility in the second and third quarters of 2001, respectively, negotiating raw material price reductions and acquiring automation equipment to shorten production times, reduce scrap and lower the labor content of our products.

We Interest ~~are party to a credit agreement with Bankers Trust, as agent and sole lender (the "Credit Agreement"), which we entered into in connection with our February 1998 recapitalization~~expense. Interest ~~Elgar~~expense iswas ~~the borrower under the Credit Agreement and EHI is the guarantor~~$10.6 Asmillion ~~amended,~~in ~~the~~Fiscal ~~Credit Agreement consists of (1) a $6~~2001,~~700,000~~ ~~revolving credit~~an ~~facility~~increase ~~(the "Revolving Facility"),~~ of ~~which~~ $~~900,000 was available to be drawn on March~~0.1 28million, ~~2002,~~or ~~and (2) a $15~~1.0%,~~000,000~~ ~~term~~from ~~facility~~interest ~~(the~~expense ~~"Term~~of ~~Facility,"~~$10.5 ~~and collectively with the~~million ~~Revolving~~in ~~Facility,~~Fiscal ~~the "Credit Facility")~~2000. Interest Weexpense increased ~~used~~as ~~the proceeds from the Term Facility to finance~~ a ~~portion~~percentage of ~~the~~net ~~purchase~~sales ~~price~~from ~~for~~16.0% ~~Power Ten~~ in ~~May 1998.~~Fiscal At2000 ~~December 29,~~to ~~2001,~~18.2% ~~the~~in ~~outstanding~~the ~~balance~~comparable ofFiscal ~~the~~2001 ~~Revolving~~period. The increase ~~Facility~~in dollars was ~~$5,015,000,~~a ~~including~~result ~~$15,000~~ of ~~capitalized~~higher ~~interest,~~outstanding ~~and~~borrowings ~~the~~on ~~outstanding~~our revolving ~~balance~~line of ~~the~~credit ~~Term~~partially ~~Facility~~offset ~~was~~by ~~$8,783,000,~~lower ~~including $33,000 of capitalized~~ interest. Atrates ~~February 1, 2002, after making an additional draw~~ on ~~the~~borrowings under ~~Revolving~~our ~~Facility,~~credit ~~the outstanding balance on the Revolving Facility was $5,815,000, including $15,000 of capitalized interest~~facility.

Indebtedness under the Credit Facility bears interest at a floating rate equal to, at our option, the Eurodollar Rate plus a margin of 2.75%, or the Base Rate plus a margin of 1.75%. Pursuant to an earlier amendment to the Credit Agreement, Elgar is to pay Bankers Trust an additional 50 basis points of interest on loans outstanding from and after March 27, 2001, with such payment of additional interest to be made at maturity or upon earlier repayment of the loans. The effective interest rate on the Term Facility was approximately 5.94% at December 29, 2001. We entered into an interest rate

~~swap~~ Income ~~agreement~~taxes. Income intaxes ~~June 1998~~for ~~that~~Fiscal ~~covered~~2001 and Fiscal 2000 were $71,449,000 and $70,000, respectively.~~5 million~~ Losses ofgenerated ~~our~~in ~~term~~these ~~loan~~periods do not have a carryback benefit and thus have not been recognized because future realization is uncertain. A ~~This~~full ~~swap~~valuation ~~agreement~~reserve ~~terminated~~was inestablished during ~~June~~Fiscal 2001. ~~See~~on ~~Item~~the 7Adeferred tax asset balance of $1.4 million due ~~Quantitative~~to ~~and~~a ~~Qualitative~~change ~~Disclosures~~in ~~About~~management’s assessment that the realization of these ~~Market~~deferred ~~Risk.~~tax assets was uncertain.

~~Elgar's~~ Net loss. Net loss was $10.2 million in Fiscal ~~obligations~~2001, ~~under~~an ~~the~~increased ~~Credit~~loss ~~Facility~~of ~~are:~~$6.8 million from a net loss of $3.4 million in Fiscal 2000, due to the factors discussed above.

~~The~~Liquidity Credit Facility contains covenants restricting our ability to, among other things, incur additional indebtedness, create liens or other encumbrances, pay dividends or make other restricted payments, make investments, loans and ~~guarantees~~Capital or sell or otherwise dispose of a substantial portion of assets to, or merge or consolidate with, another entity. The Credit Facility also contains a number of financial covenants that require us to meet certain financial ratios and tests. If we were to be in default under these covenants and Bankers Trust were to demand the final maturity of the outstanding bank debt, and we did not timely pay in full the amount so demanded under the Credit Facility, that would constitute an event of default under the indenture governing the $90 million of our senior notes that are outstanding (the "Senior Notes"). Resources

~~The most~~ Uses ~~recent amendment and waiver to the Credit Facility was the Ninth Amendment, which we entered into with Bankers Trust on January 31, 2002. The Ninth Amendment calls for the full amount~~ of the loans outstanding under the Credit Facility, plus accrued interest, to be repaid on June 28, 2002, or sooner if there is an event of default declared by Bankers Trust. At March 28, 2002, the outstanding principal amount of the loans under the Credit Facility was $14,597,615. The Ninth Amendment also requires us to pay Bankers Trust an amendment fee of up to $300,000, payable in installments. In the Ninth Amendment, Bankers Trust waived compliance with (i) the maximum leverage ratio through January 31, 2002, and then deleted that covenant from the Credit Agreement, (ii) the fixed charge coverage ratio through December 29, 2001, and then deleted that covenant from the Credit Agreement and (iii) the minimum consolidated EDITDA covenant through December 29, 2001, and then reset the measurement periods for consolidated EBITDA to begin on December 30, 2001 and end at the end of each of February, March, April and May 2002. In addition, we agreed to limit capital expenditures in the period from December 30, 2001 through June 28, 2002 to $500,000. Finally, under the Ninth Amendment, Bankers Trust increased the Revolving Facility from $5,000,000 to $6,700,000, but required interest to be paid monthly, rather than quarterly, as was the case in prior periods. Cash

~~A substantial~~ Our ~~portion~~principal uses of cash are for debt service requirements, working capital requirements and capital expenditures. As a holding company with no operations or assets other than our ~~interest~~ownership ~~expense~~of isElgar’s ~~attributable~~capital stock, we rely on dividends and other payments from Elgar to generate the funds necessary to meet our obligations, including the semi-annual interest payments of $904.4 million ofon ~~9.875%~~the Senior Notes. In ~~that~~turn, ~~are~~Elgar ~~due~~relies inon ~~2008.~~cash ~~Interest~~flow isfrom ~~payable~~operations ~~semi-annually~~together onwith ~~the~~funds ~~Senior~~available ~~Notes~~to onit ~~each~~under ~~February 1st~~its ~~and~~senior ~~August 1st.~~secured credit facility with Ableco Finance, LLC (“Ableco”), to dividend funds to us.

On ~~Capital~~each ~~Expenditures~~ of August 1, 2002 and February 1, 2003, the Company made interest payments of approximately $4.4 million to the holders of the Senior Notes.

~~Our~~ Sources capital expenditures were $676,000 in the year ended January 1, 2000, $1,254,000 in Fiscal 2000 and $1,093,000 in Fiscal 2001. Our expenditures during Fiscal 2001 were primarily for new surface mount manufacturing capability and the consolidation of all manufacturing into one building in connection with the Power Ten consolidation. We have budgeted $500,000 for capital expenditures for fiscal 2002, to be used principally for manufacturing test stations. Cash

Elgar’s principal sources of capital are cash flow from operations together with funds available to it under its senior secured credit facility with Ableco. In turn, Elgar dividends funds to enable us to meet our debt service requirements.

On June 26, 2002, the Company, Elgar, as borrower, and Ableco, as agent, entered into a financing agreement (the “Ableco Facility”) that provided Elgar with (a) a $15,000,000 term loan (the “Term Loan”) that bears interest at a reference rate plus 5.50 percentage points, but in no event at a rate less than 10.25%, and (b) a revolving credit facility not to exceed $10,000,000 outstanding at any time (the “Revolver”) that bears interest at a reference rate plus 3.00 percentage points, but in no event at a rate less than 7.75%. The reference rate means the rate of interest publicly announced by JPMorgan Chase Bank from time to time as its reference rate, base rate or prime rate. Interest is payable monthly on both the Term Loan and the Revolver. Borrowings outstanding under the Ableco Facility have a stated maturity date of June 25, 2006.

Advances under the Revolver are limited to the lesser of (a) $10.0 million and (b)(i) 85% of eligible accounts receivable, less a dilution reserve that relates to bad-debt write downs and discounts and advertising allowances paid to an account debtor, plus (ii) 60% of eligible inventory, less the amount of any reserves that Ableco may deem appropriate in the exercise of its reasonable business judgment based upon its lending practices. In addition, the Ableco Facility provides that it is a condition to any loan made under the Revolver that, after giving effect to such loan, at least $1,000,000 of availability remains undrawn under the Revolver. In effect, this provision reduces the maximum amount outstanding at any time to $9,000,000.

Elgar paid a $500,000 fee to Ableco at closing, and is obligated to pay Ableco (i) a $250,000 fee on the earliest of June 26, 2003, the date on which all of the obligations under the Ableco Facility are accelerated or the date on which all of the obligations under the Ableco Facility are paid in full, (ii) a

~~Critical~~$187,500 ~~Accounting~~fee ~~Policies~~ on the earliest of June 26, 2004 or the date on which the obligations under the Ableco Facility are accelerated and (iii) a $187,500 fee on the earliest of June 26, 2005 or the date on which the obligations under the Ableco Facility are accelerated.

At ~~Revenue~~December 28, ~~Recognition~~ 2002, the Term Loan was fully drawn and the Revolver had an outstanding balance of $5.0 million, resulting in an additional $3.8 million of borrowing capacity remaining under the formula described above.

~~For~~ As ~~products~~discussed under “—Recent Developments” above, wethe ~~recognize~~Ableco ~~revenue~~Facility ~~upon~~terminated ~~shipment~~on ofApril 16, ~~goods~~2003 ~~and~~after ~~the~~it ~~passage~~was repaid ofin ~~title~~full towith the ~~customer~~proceeds of the Bridge Notes. After ~~For~~repayment ~~services,~~of wethe ~~recognize~~Ableco ~~revenue~~Facility asand the ~~related~~payment ~~services~~of ~~are~~fees ~~performed.~~and ~~Our~~expenses ~~revenue~~related ~~recognition~~to ~~policies~~the ~~are~~Exchange inAgreement ~~accordance~~and ~~with~~the ~~SEC~~Bridge ~~Staff~~Notes, ~~Accounting~~Elgar retained ~~Bulletin~~approximately No$3.2 ~~101,~~million ~~"Revenue~~of ~~Recognition~~proceeds infrom ~~Financial~~the ~~Statements"~~Bridge Notes for cash reserve and working capital purposes. See “—Recent Developments” above.

Upon ~~Intangibles~~completion of the transactions contemplated by the Exchange Agreement and ~~Other~~based ~~Intangible~~upon ~~Assets~~ current and anticipated levels of operations, as well as additional funds available under the Bridge Notes, we believe that our cash resources will be adequate to meet our anticipated cash requirements through the fiscal year ending January 3, 2004 (“Fiscal 2003”). No assurance can be given, however, that this will be the case.

~~Intangible~~ Capital assets represent (1) the excess of purchase price over net book value of assets acquired in connection with acquisitions, (2) deferred financing costs incurred in connection with our February 1998 recapitalization and May 1998 acquisition of Power Ten and (3) agreements not to compete relating to the Power Ten acquisition. We are amortizing the components of intangible assets on a straight-line basis over their estimated useful lives, ranging from five to 15 years. The debt issuance costs we incurred in connection with issuing the Senior Notes and entering into the Credit Facility are subject to this amortization policy. The original amount of debt issuance costs being amortized was approximately $6.5 million, the accumulated amortization was approximately $2.8 million, and the amount of amortization that was booked in Fiscal 2001 was approximately $725,000. Expenditures

~~We periodically~~ Our ~~re-evaluate~~capital ~~the~~expenditures ~~original~~were ~~assumptions~~$1,254,000 in ~~and~~Fiscal ~~rationale~~2000, ~~utilized~~$1,093,000 in ~~the~~Fiscal ~~establishment~~2001 ofand ~~the~~$437,000 ~~carrying~~in ~~value~~Fiscal ~~and~~2002. Our ~~estimated~~expenditures ~~useful~~during ~~lives~~Fiscal of2002 ~~these assets. The~~were ~~criteria~~primarily wefor ~~use~~new ~~for~~test ~~these~~and ~~evaluations~~burn-in ~~include~~capabilities ~~management's~~in ~~estimate~~connection ofwith the ~~assets'~~Power Ten ~~continuing~~consolidation. We ~~ability~~have tobudgeted $600,000 ~~generate~~for ~~income~~capital ~~from~~expenditures ~~operations~~for ~~and~~fiscal ~~positive~~2003, ~~cash~~to ~~flows~~be inused ~~future~~principally ~~periods as well as the~~for ~~strategic~~manufacturing ~~significance of the intangible assets to our business activity~~automation.

Critical Accounting Policies and Estimates

The methods, estimates and judgments we use in applying the accounting policies most critical to our financial statements have a significant impact on the results we report in our financial statements. The U.S. Securities and Exchange Commission has defined the most critical accounting policies as the ones that are most important to the portrayal of our financial condition and results, and require us to make our most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, our critical policies and estimates include the evaluation of goodwill and other intangible assets for impairment, doubtful account allowances, inventory reserves and warranty reserves. Below, we discuss these policies further, as well as the estimates and judgments involved. We also have other key accounting policies, including policies for revenue recognition. We believe that these other policies either do not generally require us to make estimates and judgments that are as difficult or as subjective, or it is less likely that they would have a material impact on our reported financial position or results of operations for a given period. For additional information see Note 3 “Summary of Significant Accounting Policies” in our consolidated financial statements included in Item 15 of this report. Although we believe that our estimates and assumptions are reasonable, they are based upon information presently available. Actual results may differ significantly from our estimates, and our estimates could be different using different assumptions or conditions.

Goodwill and Other Assets

Goodwill represents the excess of purchase price over net book value of assets acquired in connection with acquisitions. Other assets represent (1) deferred financing costs incurred in connection with our February 1998 recapitalization and entering into the Ableco Facility in June 2002 and

(2) agreements not to compete relating to the Power Ten acquisition. We are amortizing the components of other assets on a straight-line basis over their estimated useful lives, ranging from four to 10 years. The debt issuance costs we incurred in connection with issuing the Senior Notes and entering into the Ableco Facility are subject to this amortization policy. The original amount of debt issuance costs being amortized was approximately $7.5 million and the accumulated amortization was approximately $2.7 million as of December 28, 2002, and the amount of amortization that was recorded in Fiscal 2002 was approximately $1.5 million, of which $559,000 related to accelerated amortization from our prior credit facility.

We periodically re-evaluate the original assumptions and rationale utilized in the establishment of the carrying value and estimated useful lives of these assets. The criteria we use for these evaluations include management’s estimate of the assets’ continuing ability to generate income from operations and positive cash flows in future periods as well as the strategic significance of the intangible assets to our business activity.

Doubtful Accounts

We maintain allowances for doubtful accounts based on our estimate of losses that will result from the inability of our customers to pay us and for the refusal of customers to pay us because of disputes regarding our products and services. If the financial condition of a customer were to deteriorate, resulting in their inability to make payments to us, or if a customer were dissatisfied with our products or services resulting in their refusal to make payments to us, additional allowances may be required. Significant increases in required reserves may occur in the future if there is a continued decline in the general economic environment that negatively affects the financial condition of our customers or an increase in the number of customers that are dissatisfied with our products or services.

Inventory Reserves

We periodically re-evaluate all inventory for potential excess and obsolete material. We reserve excess material based on a percentage of the inventory that is deemed to be in excess of one year'’s forecast demand, while we reserve obsolete inventory at 100% of carrying value. We also periodically adjust our standard costs for material purchase costs, labor hours and wage rates, and overhead burden applied. We reserve for these standard cost changes based on a combined estimate of the future inventory change.

Warranty Reserves

We periodically re-evaluate warranty liability to ensure that the liability recorded at period end is sufficient to cover future claims for repair or replacement of product. The reserve balance takes into account the warranty period of the product, which ranges from one year to five years.

Inflation and General Economic Conditions; Backlog

Although we cannot accurately anticipate the effect of inflation on our operations, we do not believe that inflation has had, or is likely in the foreseeable future to have, a material impact on our results of operations. We do not have a significant number of fixed-price contracts where we bear the risk of cost increases. As of December 28, 2002, we had no backlog for which shipments under those contracts are scheduled after December 31, 2003.

results of operations. We do not have a significant number of fixed-price contracts where we bear the risk of cost increases. As of December 29, 2001, we had no backlog for which shipments under those contracts are scheduled after December 31, 2002.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have had only limited involvement in derivative financial instruments in the past. We do not hold or issue derivative financial instruments for trading purposes. At December 29, 2001, $13,798,000 of outstanding borrowings under the Credit Facility, including letters of credit, were at variable interest rates. We are subject to market risk resulting from interest rate fluctuations with respect to our variable-rate borrowings. We had previously entered into an interest rate swap arrangement, which matured in June 2001, and we may consider entering into such arrangements in the future in order to alter interest rate exposures. In general, interest rate swaps allow a company to raise long-term borrowings at floating rates and effectively swap them into fixed rates that are lower than those available if fixed-rate borrowings were made directly. Under interest rate swaps, a company agrees with another party to exchange, at specified intervals, the difference between fixed-rate and floating-rate amounts calculated by reference to an agreed notional principal amount. At December 29, 2001, none of our debt was covered by interest-rate swap arrangements.

The tables below provide information as of December 29, 2001 about our financial instruments that are sensitive to changes in interest rates.

Long-Term Bank Debt (Variable Rate)
Principal amount		$13,798,000
Variable interest rate		6.07%(1)
Maturity—tranche		January 2, 2002 through June 28, 2002
Maturity—loan and capitalized interest (2)		June 28, 2002
Remaining principal payments:
	June 28, 2002 (term debt)	$8,783,000
	June 28, 2002 (revolving line of credit)	$5,015,000

Recent Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets”. This statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes Accounting Principles Board (“APB”) Opinion No. 17, “Intangible Assets.” SFAS No. 142 addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. This statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. Upon adoption of SFAS No. 142, goodwill is no longer subject to amortization over its estimated useful life but is instead subject to periodic testing for impairment. The Company completed its initial impairment test for goodwill as of December 30, 2001. This test confirmed that the fair value of the Company exceeds the carrying value, and that no goodwill impairment loss needed to be recognized upon adoption of SFAS No. 142. The Company adopted SFAS No. 142 effective December 30, 2001, the effect of which was to classify goodwill separately on the accompanying consolidated balance sheets and to cease the amortization of such goodwill, which would have amounted to $2,387,000 of amortization expense for Fiscal 2002. Net loss for Fiscal 2002, including amortization of goodwill, would have been $9,795,000, compared to $7,408,000.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” for the disposal of a segment of a business (as previously defined in that opinion). The Company adopted SFAS No. 144 effective December 30, 2001. The adoption of SFAS No. 144 did not have a material impact on the Company’s financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes Emerging Issues Task Force (“EITF”) Issue 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue 94-3, a liability for an exit cost was recognized at the date of an entity’s commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. The Company will adopt the provisions of SFAS No. 146 for exit or disposal activities that are initiated after December 31, 2002.

In November 2002, the FASB issued Financial Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires that a guarantor must recognize, at the inception of a guarantee, a liability for the fair value of the obligation that it has undertaken in issuing a guarantee. FIN 45 also addresses the disclosure requirements that a guarantor must include in its financial statements for guarantees issued, including matters such as commercial product warranties. The disclosure requirements in this interpretation are effective for financial statements ending after December 15, 2002. The initial recognition and measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. We have not completed our evaluation of FIN 45 and we have not assessed the impact the adoption may have on our financial position or results of

operations. Refer to Note 3 of the Consolidated Financial Statements for the additional disclosure information as required by FIN 45.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have had only limited involvement in derivative financial instruments in the past. We do not hold or issue derivative financial instruments for trading purposes. We are subject to market risk resulting from interest rate fluctuations with respect to our variable-rate borrowings. At December 28, 2002, all $20,000,000 of our outstanding borrowings under the Ableco Facility was at variable interest rates. A one percentage point increase in interest rates would be expected to have an estimated impact on net loss and cash flows in fiscal 2003 of approximately $100,000. At December 28, 2002, the blended interest rate on our $20,000,000 of debt outstanding under the Ableco Facility was 9.625%.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements required in response to this Item are listed under Item 14 15(a) of Part IV of this Report.

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

~~None.~~ As disclosed in our Current Reports on Form 8-K filed on June 14, 2002 and August 14, 2002, respectively, the Company terminated Arthur Andersen LLP as its independent public accountants in June 2002 and engaged Deloitte & Touche LLP in August 2002 as its independent public accountants to audit its financial statements as of and for the fiscal year ended December 28, 2002.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth the name, age and position of each person who is one of our directors or executive officers as of December 29 28, ~~2001~~2002. Each director holds office until the next annual meeting of the stockholders or until his successor has been elected and qualified. Officers are elected by the Board of Directors and serve at the discretion of the Board.

Name	Age	Positions
Kenneth R. Kilpatrick	64	President and Chief Executive Officer, EHI, Elgar and Power Ten; Director, EHI, Elgar and Power Ten
Joseph A. Budano	41	President and Chief Executive Officer, EHI and Elgar
Samuel A. Lewis	53	Vice President—Sales and Marketing, Elgar
John P. Mei	37	Vice President-Finance, Chief Financial Officer, EHI and Elgar
Christopher W. Kelford	51	Vice President—Finance, Chief Financial Officer and Treasurer, EHI and Elgar
Samuel A. Lewis	54	Vice President-Sales, Elgar
Normand E. Precourt	5960	Vice President—-Engineering, Elgar
John J. Santospirito	6162	Vice President—-Operations, Elgar
Daniel E. Donati	4445	Vice President—-Program Management, Elgar
Thomas Erickson	5859	Vice President—-Human Resources, Elgar
Gerald D. Price	53	Vice President—Sales and Marketing, Power Ten
Dr. John F. Lehman	60	Director, EHI and Elgar
David C. Hoffman	50	Vice President—Engineering, Power Ten
Donald Glickman	69	Vice President, EHI and Elgar; Chairman of the Board, EHI and Elgar
Dr. John F. Lehman	59	Director, EHI and Elgar
Kenneth R. Kilpatrick	65	Vice Chairman of the Board, EHI and Elgar
Donald Glickman	68	Vice President, EHI and Elgar; Chairman of the Board, EHI and Elgar; Director, Power Ten
George Sawyer	71	Director, EHI and Elgar
George Sawyer	70	Director, EHI and Elgar
Thomas G. Pownall	81	Director, EHI and Elgar
Thomas G. Pownall	79	Director, EHI and Elgar
Oliver C. Boileau, Jr.	75	Director, EHI and Elgar
Oliver C. Boileau, Jr.	74	Director, EHI and Elgar
Stephen L. Brooks	31	Director and Secretary, EHI and Elgar
Stephen L. Brooks	30	Director and Secretary, EHI and Elgar
Joseph A. Stroud	47	Director, EHI and Elgar
Joseph A. Stroud	46	Director, EHI and Elgar
William Paul	66	Director, EHI and Elgar
William Paul	65	Director, EHI and Elgar
Bruce D. Gorchow	44	Director, EHI and Elgar
Bruce D. Gorchow	43	Director, EHI and Elgar
Tig H. Krekel	49	Director, EHI and Elgar
Tig H. Krekel	48	Director, EHI and Elgar

~~Kenneth~~ Joseph R.Budano has ~~Kilpatrick,~~been ~~who~~our is President and Chief Executive Officer ~~and~~since aAugust 26, ~~director~~2002, ofwhen ~~EHI,~~our ~~Elgar~~former President and ~~Power~~Chief Executive ~~Ten~~Officer, ~~has~~Kenneth ~~been~~R. ~~with~~Kilpatrick, ~~Elgar~~retired ~~since~~as an officer of the Company. From July ~~1991~~17, in2002 ~~his~~until August 26, ~~current~~2002, ~~position.~~ Mr. ~~Kilpatrick~~Budano ~~was~~served ~~appointed~~as ~~President~~our ~~and~~ Chief ~~Executive~~ Operating Officer. Prior ofto ~~EHI~~joining inus, ~~May 1998~~Mr. Budano founded Acuity Consulting, a consulting firm focused on business plan development and ~~Power~~funding ~~Ten~~for inearly-stage companies, which he ran from April 2001 to June ~~1999~~ 2002. From ~~Prior~~April 2000 to ~~joining Elgar,~~March 2001, Mr. ~~Kilpatrick~~ ~~was~~Budano ~~President~~served ofas ~~Machine~~the ~~Industries~~Group President, ~~Inc.,~~ anMulti-Media ~~aerospace~~Group, ~~parts~~for ~~manufacturer~~Acterna Corporation, ~~from~~a ~~1989~~Maryland-based toproducer ~~1991,~~of communications test instruments and systems. From ~~with~~June 1996 ~~ACDC~~to April 2000, ~~Electronics~~Mr. Budano served as the Senior Vice President, aNorth ~~division~~American Operations, offor ~~Emerson~~Wavetek ~~Electric~~Wandel ~~Co.~~& ~~and~~Golterman, also a ~~manufacturer~~ producer of communications ~~fixed~~test ~~power~~instruments ~~supplies~~and systems, ~~from~~which ~~1964~~merged tointo ~~1989~~Acterna in May 2000. From ~~After~~March 1994 ~~beginning~~to June 1996, he served as anVice ~~Assistant~~President and General Manager of ~~ACDC~~the Communications ~~Electronics~~Division inof ~~1964~~Wavetek, ~~Mr. Kilpatrick~~which ~~was~~merged ~~appointed~~with ~~President~~Wandel of& ~~the~~Golterman ~~company~~ in ~~1972~~October 1998. Prior to joining Wavetek, Mr. ~~Kilpatrick~~Budano isworked as ~~active~~a inmanagement ~~all~~consultant ~~aspects~~for ofThe ~~Elgar'~~Boston Consulting Group from 1991 to 1994, and before that worked as Engineering Manager for Motorola’s ~~business.~~Land Mobile Products sector from 1983 to 1989.

~~Samuel~~ John AP. ~~Lewis,~~Mei has been our Vice President—~~Sales~~Finance and ~~Marketing~~Chief ofFinancial ~~Elgar,~~Officer ~~with 25~~since September ~~years~~16, of2002. Prior ~~experience in the test and measurement~~to ~~equipment~~joining ~~industry~~us, ~~including 21~~Mr. ~~years~~Mei ~~with~~worked ~~Elgar,~~at isActerna ~~responsible~~Corporation ~~for~~since ~~leading~~January 26, 1999,

2022

~~Elgar's~~where ~~sales~~he ~~efforts.~~most ~~Mr. Lewis,~~recently held ~~who began his career with Elgar in 1972, re-joined Elgar in January 1988 after spending~~ the ~~prior~~position ~~six~~of ~~years~~Group asController ~~the North American Sales Manager~~ for ~~Wavetek~~the ~~Corporation,~~Multimedia ~~a test and measurement company~~Group. Prior Atto ~~Wavetek~~that time, Mr. ~~Lewis~~Mei ~~spearheaded~~was ~~the creation of~~ a ~~central sales management organization, set up area sales offices, and~~ ~~managed~~Manager 18of ~~representative~~Finance ~~organizations~~in ~~with~~General ~~130~~Electric’s ~~sales~~Industrial ~~people~~Systems Division. He ~~Prior~~began tohis ~~beginning~~financial ~~work~~career with ~~Wavetek~~Coopers & inLybrand’s ~~1982,~~audit practice. Mr. ~~Lewis~~ ~~spent nine years with Elgar in the positions of Customer Service Manager~~Mei ~~and~~is ~~National~~a ~~Sales~~certified ~~Manager.~~public accountant.

~~Christopher~~ Samuel WA. ~~Kelford~~Lewis, Vice President—~~Finance,~~Sales ~~Chief~~of ~~Financial~~Elgar, ~~Officer~~with ~~and~~over ~~Treasurer~~25 years of experience ~~EHI,~~in ~~Elgar~~the test and ~~Power~~measurement ~~Ten~~equipment industry, ~~has~~including ~~been~~22 years with Elgar, ~~since~~is ~~August 1990~~responsible for leading Elgar’s sales efforts. ~~Prior~~Mr. toLewis, ~~joining~~who began his career with Elgar in 1972, ~~Mr. Kelford~~re-joined ~~spent~~Elgar 12 in January 1988 after spending the prior six years ~~with~~as ~~TRW~~the ~~LSI~~North ~~Products~~American Sales Manager for Wavetek Corporation, ~~Inc~~ a test and measurement company. At Wavetek, Mr. Lewis spearheaded the creation of a ~~semiconductor~~central ~~manufacturer~~sales management organization, ~~advancing~~set ~~from~~up ~~Finance~~area ~~Manager~~sales tooffices, ~~Controller~~and ~~during~~managed ~~that~~18 ~~time.~~representative Mrorganizations with 130 sales people. ~~Kelford~~ Prior ~~had~~to ~~significant~~beginning ~~experience~~work inwith ~~modernizing~~Wavetek ~~information~~in ~~infrastructures~~1982, ~~overseeing~~Mr. ~~foreign~~Lewis ~~operations~~spent ~~and~~nine ~~managing~~years ~~the~~with Elgar ~~due~~in ~~diligence~~the ~~phases~~positions of ~~five merger~~Customer Service Manager and ~~acquisition~~National ~~transactions.~~Sales Manager.

Normand E. Precourt, Vice President—Engineering of Elgar, has been with Elgar since July 1990. Prior to that time, Mr. Precourt was with Cipher Data Products, a computer peripherals company, advancing from Engineering Group Leader to Vice President, Engineering Technology during that time.

John J. Santospirito, Vice President—Operations of Elgar, joined Elgar in July 2000. Prior to that time, Mr. Santospirito was a senior operations executive with GNP Computers from 1998 to 2000, with Artecon, Inc. from 1996 to 1998, with Encad, Inc. from 1995-1996 and with Scientific-Atlantic, Inc. from 1988 to 1995.

Daniel E. Donati, Vice President—Program Management of Elgar, joined Elgar in September 1991 and is responsible for overseeing Elgar'’s Space Systems and CASS Program operations. Prior to that time, Mr. Donati spent over 12 ~~years~~ years with Aerojet Electronics Systems and Walt Disney where he gained valuable program management, operations and engineering experience.

Thomas Erickson, Vice President—Human Resources of Elgar, joined Elgar in October 1983. Prior to that time, he spent seven years at Solar Turbines as its Human Resources Manager.

~~Gerald~~ Dr. DJohn F. ~~Price~~Lehman, ~~has~~who ~~been~~is ~~the~~a ~~Vice~~director ~~President—Sales~~of EHI and ~~Marketing~~Elgar, ofis ~~Power~~a ~~Ten~~Managing Principal ~~since~~of ~~November~~J.F. ~~1998,~~Lehman ~~having~~& ~~joined~~Company ~~the~~(“Lehman”). Prior to founding ~~Company~~Lehman in 1991, Dr. Lehman was an investment banker with ~~20 years~~PaineWebber Incorporated offrom ~~experience~~1988 to 1991, and served as a Managing Director in Corporate Finance. Dr. Lehman served for six years as Secretary of the ~~sales~~Navy, ~~and~~was ~~marketing~~a member of ~~semiconductor~~the ~~equipment.~~National ~~Prior~~Security Council Staff, served as a delegate to ~~joining~~the ~~Power~~Mutual Balanced ~~Ten,~~Force ~~Mr. Price~~Reductions ~~spent~~negotiations and was the ~~previous~~Deputy ~~ten~~Director ~~years~~of inthe ~~regional~~Arms Control ~~sales~~and ~~management~~Disarmament Agency. Dr. Lehman ~~positions~~served ~~with~~as ~~Advanced~~Chairman ~~Energy~~of ~~Industries~~the Board of Directors of Sperry Marine, aInc., ~~manufacturer~~and is Chairman of ~~power~~the ~~supplies~~Board ~~used~~of byDirectors ~~semiconductor~~of ~~equipment~~Special ~~companies~~Devices, ~~for~~Incorporated, ~~generating~~OAO Technology ~~plasma~~Solutions, Inc. ~~Prior~~and toRacal ~~that time~~Instruments, MrInc. Dr. ~~Price~~Lehman ~~spent~~is ~~ten~~also ~~years~~a ~~in product~~director ~~marketing~~of ~~management~~Ball Corporation ~~with~~and ~~Varian~~ISO ~~Associates~~Inc. and ~~KLA-Tencor,~~is ~~two~~Chairman ~~companies~~of ~~heavily~~the ~~involved~~Princess inGrace ~~the~~Foundation, ~~manufacture~~a director of ~~capital~~OpSail ~~equipment~~Foundation ~~used~~and ina ~~semiconductor~~trustee ~~fabrication.~~of LaSalle College High School.

~~David~~ Donald C.Glickman, ~~Hoffman~~who ~~has~~is ~~been~~Chairman of the Board and a Vice President~~—Engineering~~ of both ~~Power~~EHI ~~Ten~~and ~~since~~Elgar, ~~April 1995.~~is ~~Mr. Hoffman~~a ~~has~~Managing ~~amassed 25 years~~Principal of ~~experience~~Lehman. From inFebruary ~~the~~1998 ~~power~~to ~~electronics~~May ~~industry~~1998, Mr. ~~Prior~~Glickman was toPresident ~~joining~~of ~~Power~~EHI. ~~Ten~~Prior into ~~1995~~joining Lehman, Mr. ~~Hoffman~~ Glickman was ~~Director~~a principal of the ~~Engineering~~Peter atJ. ~~Netframe~~Solomon ~~Systems~~Company, ~~Inc.,~~ a ~~manufacturer~~Managing Director of Shearson Lehman Brothers ~~network~~Merchant ~~file~~Banking ~~servers.~~Group Heand ~~founded~~Senior ~~Modular~~Vice ~~Power~~President ~~Corporation,~~and aRegional ~~producer~~Head of ~~state-of-the-art~~The ~~100kW~~First National ~~uninterruptible~~Bank ~~power~~of ~~supplies~~Chicago. ~~Before~~Mr. ~~founding~~Glickman ~~Modular~~served ~~Power,~~as an armored cavalry officer in the Seventh U.S. Army. Mr. ~~Hoffman~~ ~~was~~Glickman ~~manager~~is ofcurrently ~~power~~a ~~systems~~director atof ~~Trilogy~~the ~~Systems~~MSC ~~and~~Software Corporation, ~~was~~Special ~~applications~~Devices, ~~manager~~Incorporated, atRacal ~~Siliconix~~Instruments, Inc. ~~Mr. Hoffman~~and ~~has~~Monroe Muffler ~~been~~Brake, ~~awarded~~Inc. He ~~eight~~is ~~patents~~also ~~for~~a trustee ~~his~~of ~~engineering contributions~~MassMutual inCorporate ~~the~~Investors ~~power~~and ~~electronics~~MM ~~industry.~~Participation Investors.

Dr. John F. Lehman, who is a director of EHI and Elgar, is a Managing Principal of J.F. Lehman & Company ("Lehman"). Prior to founding Lehman in 1991, Dr. Lehman was an investment banker with PaineWebber, Incorporated from 1988 to 1991, and served as a Managing Director in Corporate Finance. Dr. Lehman served for six years as Secretary of the Navy, was a member of the National Security Council Staff, served as a delegate to the Mutual Balanced Force Reductions negotiations and was the Deputy Director of the Arms Control and Disarmament Agency. Dr. Lehman served as

Chairman of the Board of Directors of Sperry Marine, Inc., and is Chairman of the Board of Directors of Special Devices, Incorporated, OAO Technology Solutions, Inc. and Racal Instruments, Inc. Dr. Lehman is also a director of Ball Corporation, Burke Industries, Inc. and ISO Inc. and is Chairman of the Princess Grace Foundation, a director of OpSail Foundation and a trustee of LaSalle College High School.

Donald Glickman, who is Chairman of the Board and a Vice President of both EHI and Elgar and a director of Power Ten, is a Managing Principal of Lehman. From February 1998 to May 1998, Mr. Glickman was President of EHI. Prior to joining Lehman, Mr. Glickman was a principal of the Peter J. Solomon Company, a Managing Director of Shearson Lehman Brothers Merchant Banking Group and Senior Vice President and Regional Head of The First National Bank of Chicago. Mr. Glickman served as an armored cavalry officer in the Seventh U.S. Army. Mr. Glickman is currently a director of the MSC Software Corporation, Special Devices, Incorporated, Burke Industries, Inc., Racal Instruments, Inc. and Monroe Muffler Brake, Inc. He is also a trustee of MassMutual Corporate Investors and MM Participation Investors.

George Sawyer, who is a director of EHI and Elgar, is a Managing Principal of Lehman, and has been affiliated with Lehman for the past eleven years. From 1993 to 1996, Mr. Sawyer served as the President and Chief Executive Officer of Sperry Marine, Inc. Prior to that time, Mr. Sawyer held a number of prominent positions in private industry and in the U.S. government, including serving as the President of John J. McMullen Associates, the President and Chief Operating Officer of TRE Corporation, Executive Vice President of General Dynamics Corporation, the Vice President of International Operations for Bechtel Corporation and the Assistant Secretary of the Navy for Shipbuilding and Logistics under Dr. Lehman. Mr. Sawyer is a director of Blacklight Power, Inc., Racal Instruments, Inc. and Special Devices, Incorporated and Chairman of the Board of Burke Industries, Inc. He also serves on the Board of Trustees of Webb Institute and the Mariners' Museum.

Thomas G. Pownall, who became a director of EHI and Elgar in July 1998, is a member of the investment advisory board of Lehman. Mr. Pownall was Chairman of the Board of Directors of Martin Marietta Corporation from 1983 until 1992 and Chief Executive Officer of Martin Marietta from 1982 until his retirement in 1988. Mr. Pownall joined Martin Marietta in 1963 as President of its Aerospace Advanced Planning unit, became President of Aerospace Operations and, in succession, Vice President then President and Chief Operating Officer of Martin Marietta. Mr. Pownall is also a director of the Titan Corporation, Burke Industries, Inc. and Special Devices, Incorporated, Director Emeritus of Sundstrand Corporation, and is Chairman Emeritus of the American-Turkish Council. He is also a director of the U.S. Naval Academy Foundation and the Naval Academy Endowment Trust and a trustee of Salem-Teikyo University.

Oliver C. Boileau, Jr. became a director of EHI and Elgar in December 1998. He joined Boeing Company in 1953 as a research engineer and progressed through several technical and management positions and was named Vice President in 1968 and then President of Boeing Aerospace in 1973. In 1980, he joined General Dynamics Corporation as President and a member of the Board of Directors. He retired in May 1988. Mr. Boileau joined Northrop Grumman Corporation ("Northrop Grumman") in December 1989 as President and General Manager of the B-2 Division. He also served as President and Chief Operating Officer of the Grumman Corporation, a subsidiary of Northrop Grumman, and as a member of the Board of Directors of Northrop Grumman. Mr. Boileau retired from Northrop Grumman in 1995. He is an Honorary Fellow of the American Institute of Aeronautics and Astronautics, a fellow of the Royal Aeronautical Society, a Senior Member of the Institute of Electrical and Electronic Engineers, a member of the National Academy of Engineering, the Board of Trustees of St. Louis University, and a Trustee of the University of Wyoming Foundation. Mr. Boileau is also a director of Burke Industries, Inc. and Special Devices, Incorporated.

Stephen L. Brooks, who is Secretary and a director of EHI and Elgar, is a Vice President of Lehman, having joined Lehman in 1998. Mr. Brooks's responsibilities at Lehman include investment sourcing and execution as well as the financial and capital market aspects of portfolio companies' management. Prior to joining Lehman, Mr. Brooks was an investment banker with Bowles Hollowell Conner & Co. from 1996 to 1998 where he was a founding member of the firm's aerospace and defense mergers and acquisition practice. Mr. Brooks is currently a director of Racal Instruments, Inc.

Joseph A. Stroud, who is a director of EHI and Elgar, has been a member and limited partner of various affiliates of J.F. Lehman & Company since 1992. Mr. Stroud was the Chief Financial Officer of Sperry Marine, Inc. from 1993 until the company was purchased by Litton Industries, Inc. in 1996. From 1989 to 1993, Mr. Stroud was Chief Financial Officer of the Accudyne and Kilgore Corporations. Mr. Stroud is also a director of Burke Industries, Inc. and Special Devices, Incorporated.

William Paul is a director of EHI and Elgar. Mr. Paul began his career with United Technologies Corporation ("UTC") at its Sikorsky Aircraft division in 1955. Mr. Paul progressed through a succession of several technical and managerial positions while at Sikorsky, including Vice President of Engineering and Programs and Executive Vice President and Chief Operating Officer, and in 1983 was named President and Chief Executive Officer of Sikorsky Aircraft. In 1994, Mr. Paul was appointed as the Executive Vice President of UTC, Chairman of UTC's international operations and became a member of UTC's management executive committee. Mr. Paul retired from those positions in 1997. Mr. Paul is a Member of the Board of St. Vincent's Medical Center and a presidential appointee to the United States Access Board. Mr. Paul is also a director of Special Devices, Incorporated.

Bruce D. Gorchow, who is a director of EHI and Elgar, is a member of the investment advisory board of Lehman. Since 1991, Mr. Gorchow has been Executive Vice President of PPM America, Inc. In 1999, he became President of PPM America Capital Partners, LLC. Prior to his position at PPM America, Mr. Gorchow was a Vice President at Equitable Capital Management, Inc. Mr. Gorchow is also a director of Global Imaging Systems, Inc., Leiner Health Products, Inc., Examination Management Services, Inc., Elizabeth Arden Salon and Spa Holdings, Inc., PPM America, Inc. and Burke Industries, Inc., and is an investment advisor for several investment limited partnerships.

Tig H. Krekel, who is a director of EHI and Elgar, is the former President of Boeing Satellite Systems and former President and Chief Executive Officer of Hughes Space and Communications, the world's largest manufacturer of commercial communications satellites. Mr. Krekel also served as a Senior Vice President and member of the Executive Committee of Hughes Electronics Corporation. Before joining Hughes in 1999, Mr. Krekel was the President and Chief Executive Officer of AlliedSignal's $3.0 billion Aerospace Equipment Systems group, which served the commercial transport, regional airline, general aviation, military and space markets. Prior to joining Allied Signal, Mr. Krekel served in senior executive positions at Decair Corporation, an aviation/aerospace holding company, Poloron Products, a diversified manufacturing concern and Jet America, a domestic and international air carrier. He holds an Airline Transport Pilot's license and has more than 3,000 hours of flight time in jet and rotary-wing aircraft. Mr. Krekel spent five years as a Naval Officer holding various assignments including nuclear engineering duty on the aircraft carrier USS Enterprise, and aide in the office of the Chief of Naval Operations at the Pentagon. Mr. Krekel graduated from the U.S. Naval Academy with a B.S. in Mechanical Engineering and from the U.S. Naval Nuclear Power School as a licensed nuclear engineer. Additionally, he earned a M.B.A. from the Stanford Graduate School of Business with concentration in finance and international strategic management. Mr. Krekel is a National Trustee of the Boys and Girls Club of America and a director of Derco Aerospace, Inc. and Racal Instruments, Inc.

Kenneth R. Kilpatrick, who is Vice Chairman of the Board of EHI and Elgar, was President and Chief Executive Officer of Elgar from July 1991 until August 26, 2002, and the President and Chief Executive Officer of EHI from May 1998 until August 26, 2002. Prior to joining Elgar, Mr. Kilpatrick was President of Machine Industries, Inc., an aerospace parts manufacturer, from 1989 to 1991, and with ACDC Electronics, a division of Emerson Electric Co. and a manufacturer of fixed power supplies, from 1964 to 1989. After beginning as an Assistant General Manager of ACDC Electronics in 1964, Mr. Kilpatrick was appointed President of the company in 1972. Mr. Kilpatrick remains active in all aspects of Elgar’s business.

George Sawyer, who is a director of EHI and Elgar, is a Managing Principal of Lehman, and has been affiliated with Lehman for the past eleven years. From 1993 to 1996, Mr. Sawyer served as the President and Chief Executive Officer of Sperry Marine, Inc. Prior to that time, Mr. Sawyer held a number of prominent positions in private industry and in the U.S. government, including serving as the President of John J. McMullen Associates, the President and Chief Operating Officer of TRE Corporation, Executive Vice President of General Dynamics Corporation, the Vice President of International Operations for Bechtel Corporation and the Assistant Secretary of the Navy for Shipbuilding and Logistics under Dr. Lehman. Mr. Sawyer is a director of Blacklight Power, Inc., Racal Instruments, Inc., OAO Technology Solutions, Inc., American Automar, Inc. and Special Devices, Incorporated. He also serves on the Board of Trustees of Webb Institute and the Mariners’ Museum.

Thomas G. Pownall, who became a director of EHI and Elgar in July 1998, is a member of the investment advisory board of Lehman. Mr. Pownall was Chairman of the Board of Directors of Martin Marietta Corporation from 1983 until 1992 and Chief Executive Officer of Martin Marietta from 1982 until his retirement in 1988. Mr. Pownall joined Martin Marietta in 1963 as President of its Aerospace Advanced Planning unit, became President of Aerospace Operations and, in succession, Vice President then President and Chief Operating Officer of Martin Marietta. Mr. Pownall is also a director of the Titan Corporation and Special Devices, Incorporated, Director Emeritus of Sundstrand Corporation, and is Chairman Emeritus of the American-Turkish Council. He is also a director of the U.S. Naval Academy Foundation and the Naval Academy Endowment Trust and a trustee of Salem-Teikyo University.

Oliver C. Boileau, Jr. became a director of EHI and Elgar in December 1998. He joined Boeing Company in 1953 as a research engineer and progressed through several technical and management positions and was named Vice President in 1968 and then President of Boeing Aerospace in 1973. In 1980, he joined General Dynamics Corporation as President and a member of the Board of Directors. He retired in May 1988. Mr. Boileau joined Northrop Grumman Corporation (“Northrop Grumman”) in December 1989 as President and General Manager of the B-2 Division. He also served as President and Chief Operating Officer of the Grumman Corporation, a subsidiary of Northrop Grumman, and as a member of the Board of Directors of Northrop Grumman. Mr. Boileau retired from Northrop Grumman in 1995. He is an Honorary Fellow of the American Institute of Aeronautics and Astronautics, a fellow of the Royal Aeronautical Society, a Senior Member of the Institute of Electrical and Electronic Engineers, a member of the National Academy of Engineering, the Board of Trustees of St. Louis University, and a Trustee of the University of Wyoming Foundation. Mr. Boileau is also a director of Special Devices, Incorporated.

Stephen L. Brooks, who is Secretary and a director of EHI and Elgar, is a Vice President of Lehman, having joined Lehman in 1998. Mr. Brooks’s responsibilities at Lehman include investment sourcing and execution as well as the financial and capital market aspects of portfolio companies’ management. Prior to joining Lehman, Mr. Brooks was an investment banker with Bowles Hollowell Conner & Co. from 1996 to 1998 where he was a founding member of the firm’s aerospace and defense mergers and acquisition practice. Mr. Brooks is currently a director of Racal Instruments, Inc.

Joseph A. Stroud, who is a director of EHI and Elgar, has been a member and limited partner of various affiliates of J.F. Lehman & Company since 1992. In June 2000, Mr. Stroud was appointed as the Chief Financial Officer and Chief Operating Officer of Burke Industries, Inc., charged with guiding Burke through a bankruptcy proceeding, which concluded successfully. Mr. Stroud held those positions with Burke until 2002. Mr. Stroud was the Executive Vice President, Chief Financial Officer and Chief Operating Officer of Special Devices, Incorporated from 1998 to 2000, and an Executive Vice President from 2000 to 2001. Mr. Stroud was the Chief Financial Officer of Sperry Marine, Inc. from 1993 until the company was purchased by Litton Industries, Inc. in 1996. From 1989 to 1993, Mr. Stroud was Chief Financial Officer of the Accudyne and Kilgore Corporations. Mr. Stroud is also a director of Burke Industries, Inc. and Special Devices, Incorporated.

William Paul is a director of EHI and Elgar. Mr. Paul began his career with United Technologies Corporation (“UTC”) at its Sikorsky Aircraft division in 1955. Mr. Paul progressed through a succession of several technical and managerial positions while at Sikorsky, including Vice President of Engineering and Programs and Executive Vice President and Chief Operating Officer, and in 1983 was named President and Chief Executive Officer of Sikorsky Aircraft. In 1994, Mr. Paul was appointed as the Executive Vice President of UTC, Chairman of UTC’s international operations and became a member of UTC’s management executive committee. Mr. Paul retired from those positions in 1997. Mr. Paul is a Member of the Board of St. Vincent’s Medical Center and a presidential appointee to the United States Access Board. Mr. Paul is also a director of Special Devices, Incorporated.

Bruce D. Gorchow, who is a director of EHI and Elgar, is a member of the investment advisory board of Lehman. Since 1991, Mr. Gorchow has been Executive Vice President of PPM America, Inc. In 1999, he became President of PPM America Capital Partners, LLC. Prior to his position at PPM America, Mr. Gorchow was a Vice President at Equitable Capital Management, Inc. Mr. Gorchow is also a director of Global Imaging Systems, Inc., Leiner Health Products, Inc., Examination Management Services, Inc., Elizabeth Arden Salon and Spa Holdings, Inc. and PPM America, Inc., and is an investment advisor for several investment limited partnerships.

Tig H. Krekel, who is a director of EHI and Elgar, is the former President of Boeing Satellite Systems and former President and Chief Executive Officer of Hughes Space and Communications, the world’s largest manufacturer of commercial communications satellites. Mr. Krekel also served as a Senior Vice President and member of the Executive Committee of Hughes Electronics Corporation. Before joining Hughes in 1999, Mr. Krekel was the President and Chief Executive Officer of AlliedSignal’s $3.0 billion Aerospace Equipment Systems group, which served the commercial transport, regional airline, general aviation, military and space markets. Prior to joining Allied Signal, Mr. Krekel served in senior executive positions at Decair Corporation, an aviation/aerospace holding company, Poloron Products, a diversified manufacturing concern and Jet America, a domestic and international air carrier. He holds an Airline Transport Pilot’s license and has more than 3,000 hours of flight time in jet and rotary-wing aircraft. Mr. Krekel spent five years as a Naval Officer holding various assignments including nuclear engineering duty on the aircraft carrier USS Enterprise, and aide in the office of the Chief of Naval Operations at the Pentagon. Mr. Krekel graduated from the U.S. Naval Academy with a B.S. in Mechanical Engineering and from the U.S. Naval Nuclear Power School as a licensed nuclear engineer. Additionally, he earned a M.B.A. from the Stanford Graduate School of Business with concentration in finance and international strategic management. Mr. Krekel is a National Trustee of the Boys and Girls Club of America and a director of Derco Aerospace, Inc. and Racal Instruments, Inc.

Certain Rights of Holders of Redeemable Preferred Stock

Under certain circumstances, the holders of the Series A Redeemable Preferred Stock may have the right to elect a majority of EHI'’s directors. See "“Certain Relationships and Related Transactions—Shareholders Agreement." ”

Committees of the Board of Directors

Audit Committee. The Audit Committee of the Board of Directors is comprised of Messrs. ~~Paul~~ Boileau (Chairman), Paul, Sawyer, Pownall and Brooks. The Audit Committee makes recommendations concerning the engagement of independent public accountants, reviews with the independent public accountants the scope and results of the audit engagement, approves professional services provided by the independent public accountants, reviews the independence of the independent public accountants, considers the range of audit and non-audit fees and reviews the adequacy of our internal accounting controls.

Human Resources and Compensation Committee. The Human Resources and Compensation Committee of the Board of Directors is comprised of Dr. Lehman (Chairman) and Messrs. Glickman, Sawyer, Kilpatrick and Stroud. This committee makes recommendations concerning the salaries and incentive compensation of our employees and consultants.

The Stock Option Committee. The Stock Option Committee of the Board of Directors is comprised of Dr. Lehman and Messrs. Glickman and Sawyer. This committee oversees the issuance of options under our stock option plan.

The Executive Committee. The Executive Committee of the Board of Directors is comprised of Dr. Lehman and Messrs. Glickman (Chairman), Pownall, Sawyer and ~~Kilpatrick~~Budano. This committee has the ability to take action on behalf of the full Board of Directors in certain circumstances.

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ITEM 11. EXECUTIVE COMPENSATION

The following summary compensation table sets forth for ~~1999~~2000, ~~2000~~2001 and ~~2001~~2002 the historical compensation for services to the Company of the current and former Chief Executive Officer and the four ~~most~~other most highly compensated executive officers for Fiscal 2002 (collectively, the "“Named Executive Officers"”) ~~for Fiscal 2001~~.

Summary Compensation ~~SUMMARY COMPENSATION TABLE~~ Table

Name and Principal Position	Year	Salary ($)		Bonus ($)(3)	~~Bonus($)(1)~~	Securities Underlying Options	~~Securities~~All ~~Underlying~~Other ~~Options~~Compensation ($)(4)	~~All Other Compensation ($)(2)~~
Kenneth R. Kilpatrick President and Chief Executive Officer, EHI and Elgar	2001 2000 1999	$	234,014 225,930 197,498		$	— 103,850 83,742	160,000 160,000 80,000	— — —
Joseph A. Budano (1) President and Chief Executive Officer, EHI and Elgar	2002	105,878		50,000		—	—
Samuel A. Lewis Vice President—Sales and Marketing of Elgar	2001 2000 1999		138,008 134,773 124,500			— 42,460 39,600	78,000 78,000 39,000	— — —
Kenneth R. Kilpatrick (2) Former President and Chief Executive Officer, EHI and Elgar	2002 2001 2000	248,422 234,014 225,930		78,170 — 103,850		— 160,000 160,000	— — —
Gerald D. Price Vice President—Sales and Marketing of Power Ten	2001 2000 1999		134,992 126,352 121,327			— 46,057 49,220	50,000 50,000 15,000	— — —
Normand E. Precourt Vice President-Engineering of Elgar	2002 2001 2000	145,749 145,018 141,777		33,585 — 44,620		— 76,000 76,000	— — —
Normand E. Precourt Vice President—Engineering of Elgar	2001 2000 1999		145,018 141,777 129,997			— 44,620 36,953	76,000 76,000 38,000	— — —
Samuel A. Lewis Vice President-Sales and Marketing of Elgar	2002 2001 2000	138,244 138,008 134,773		32,081 — 42,460		— 78,000 78,000	— — —
David C. Hoffman Vice President—Engineering of Power Ten	2001 2000 1999		139,548 129,550 124,671			— 36,437 39,476	40,000 40,000 12,000	— — —
John J. Santospirito Vice President-Operations of Elgar	2002 2001 2000	125,610 125,589 55,317		28,954 — 19,230		— 35,000 35,000	— — —

(1) Mr. Budano’s employment with the Company began on July 16, 2002.

(2) Mr. Kilpatrick resigned as the President and Chief Executive Officer of the Company and Elgar effective August 26, 2002.

(3) Annual bonuses are indicated for the year in which they were earned. Annual bonuses for any year are generally paid in the following year. With the exception of Mr. Budano, bonuses granted for 2002 related to consummating the refinancing of Elgar’s prior credit facility with the Ableco Facility. Mr. Budano’s bonus was in the nature of a signing bonus contained in his employment agreement.

(4) Perquisites and other personal benefits paid in the periods presented for the Named Executive Officers aggregated less than the lesser of (i) $50,000 and (ii) 10% of the total annual salary and bonus set forth in the columns entitled “Salary” and “Bonus” for each Named Executive Officer and, accordingly, are omitted from the table as permitted by the rules of the Commission.

Options Granted in the Last Fiscal Year

There were no grants of options to the Named Executive Officers in Fiscal ~~2001~~2002.

Aggregate Option Purchases in Last Fiscal Year-End and Fiscal Year End Option Values

The ~~following~~Named ~~table~~Executive ~~summarizes~~Officers ~~information~~did ~~with~~not ~~respect~~hold any tooptions ~~the~~at fiscal year-end, ~~values~~as ofthe ~~all~~Company’s stock option plan, and all options ~~held~~grants bythereunder, ~~the~~were ~~Named~~terminated ~~Executive~~effective ~~Officers.~~November 15, 2002.

Name	Number of Securities Underlying Unexercised Options at Fiscal Year-End (#) Exercisable/ Unexercisable	Value of Unexercised In-The-Money Options at Fiscal Year-End ($)(1)
Kenneth R. Kilpatrick	160,000/0	$0
Samuel A. Lewis	78,000/0	$0
Gerald D. Price	37,000/13,000	$0
Normand E. Precourt	76,000/0	$0
David C. Hoffman	30,000/10,000	$0

Employment, Severance and Bonus Agreements

In Kenneth ~~connection with the Recapitalization, the Company entered into employment agreements (each, an "Employment Agreement") with several key executives~~R. Generally, each Employment Agreement provides for the executive's continued employment with the Company post-Recapitalization at an annual salary, bonus and with such other employment-related benefits comparable to those received by such executive immediately prior to the Recapitalization. Each Employment Agreement may be terminated by either party upon 30 days' prior written notice. If an executive is terminated without cause (as set forth in the agreements) or for no reason at all, then the executive shall be entitled to payment of his annual base salary for a period of one year following the date of such termination. Each Employment Agreement contains provisions prohibiting the executive, during the period of his employment with the Company and for two years thereafter, from directly or indirectly engaging in competition with the Company. Each Employment Agreement also contains provisions requiring the executive to maintain the confidentiality of certain information related to the Company. Kilpatrick

Effective August 26, 2002, Kenneth R. Kilpatrick resigned as the President and Chief Executive Officer of the Company and Elgar. In connection therewith, Mr. Kilpatrick entered into a Severance Agreement and General and Special Release with Elgar, dated the same date (the “Severance Agreement”). In the Severance Agreement, Elgar agreed to continue Mr. Kilpatrick’s salary through December 31, 2002, and to continue his health benefits and automobile allowance through that date as well. In addition, Elgar agreed to pay Mr. Kilpatrick a bonus of $78,170 relating to the work Mr. Kilpatrick performed in refinancing Elgar’s former credit facility with the Ableco Facility. The Severance Agreement further provides that Mr. Kilpatrick will remain on the boards of both the Company and Elgar in the capacity of Vice Chairman, and for that service will receive the standard annual retainer paid to non-executive directors of $15,000. Finally, both Mr. Kilpatrick and Elgar released any claims for previous actions or inactions they might have against the other (including affiliates of Elgar). Mr. Kilpatrick remains bound by the confidentiality, non-solicitation and non-compete agreements contained in his employment agreement.

Joseph Budano — Employment Agreement

Effective July 17, 2002, Joseph Budano entered into an Employment Agreement, dated as of that date, with the Company and Elgar, as amended on April 15, 2003 (the “Budano Agreement”), pursuant to which Mr. Budano currently serves as the President and Chief Executive Officer of the Company and Elgar. The term of the Budano Agreement is indefinite, although either party may terminate on 30 days’ prior written notice. Mr. Budano’s annual salary is $250,000, although that may be increased by the Board from time to time. Mr. Budano received a commencement bonus of $25,000, and an additional bonus of $25,000 when he became President and Chief Executive Officer on August 26, 2002. Mr. Budano will be eligible to receive annual performance bonuses at the discretion of the Board. The Company agreed to reimburse Mr. Budano for up to $20,000 of relocation expenses, grossed-up to cover any tax expense Mr. Budano realizes as the result of such reimbursement.

If the Company terminates the Budano Agreement without cause, or Mr. Budano terminates for good reason, Mr. Budano will be entitled to the continuation of salary and benefits for a period of 12 months thereafter. If, however, Mr. Budano is terminated within 12 months following a change of control, as defined, then the terms of Mr. Budano’s severance compensation will be as described below. A change of control will not be deemed to occur in connection with any transaction in which the holders of the Company’s debt securities exchange those securities for consideration involving the Company’s equity securities.

If the Company terminates the Budano Agreement without cause within 12 months after a change of control, and the change of control occurs (i) on or before July 17, 2003, Mr. Budano will be entitled to the continuation of salary and benefits for a period of six months following his termination, (ii) after July 17, 2003 but on or before July 17, 2004, Mr. Budano will be entitled to the continuation of salary and benefits for a period of nine months following his termination or (iii) after July 17, 2004, Mr. Budano will be entitled to the continuation of salary and benefits for a period of 12 months following his termination.

Mr. Budano has agreed to non-solicit and non-compete provisions that survive for a year after termination of the agreement, and to standard confidentiality obligations.

Joseph Budano — Bonus Agreement

In March 2003, the Company entered into a bonus agreement with Mr. Budano that would provide for the payment to him of $135,000 if the Company’s obligations under its $90 million of Senior Notes are restructured as contemplated by the Exchange Agreement. In order for Mr. Budano to receive this payment, which is payable ratably over six months, the restructuring must be completed on or prior to August 2, 2003.

John P. Mei — Employment Agreement

On December 30, 2002, but effective September 16, 2002, John P. Mei entered into an Employment Agreement with the Company and Elgar, as amended on April 15, 2003 (the “Mei Agreement”), pursuant to which Mr. Mei currently serves as the Chief Financial Officer of the Company and Elgar. Mr. Mei replaced our former Chief Financial Officer, Christopher Kelford, who resigned from that position in June 2002 to take a similar position with another employer. The term of the Mei Agreement is indefinite, although either party may terminate on 30 days’ prior written notice. Mr. Mei’s annual salary is $140,000, although that may be increased by the Board from time to time. Mr. Mei received a commencement bonus of $10,000, and he will be eligible to receive annual performance bonuses at the discretion of the Board. The Company agreed to reimburse Mr. Mei for certain prescribed relocation expenses, grossed-up to cover any tax expense Mr. Mei realizes as the result of such reimbursement. In Fiscal 2002, those relocation expenses paid or reimbursed on behalf of Mr. Mei, as grossed up, amounted to $14,208. If, prior to September 16, 2003, the Company terminates the Mei Agreement for cause or Mr. Mei terminates without good reason, Mr. Mei will be obligated to reimburse the Company for a pro rata portion of such relocation expenses, based on the number of days employed by the Company divided by 365.

In addition, the Company has agreed to extend a $60,000 relocation loan to Mr. Mei within seven days of the date on which he closes on the purchase of a home in the San Diego area. Mr. Mei has yet to borrow these funds. This loan will accrue interest at an annual rate of 7%. One third of the principal amount, or $20,000, shall be forgiven if Mr. Mei remains employed with the Company on September 16, 2003. One half of the remaining principal amount, or $20,000, shall be forgiven if Mr. Mei remains employed with the Company on September 16, 2004. If Mr. Mei remains employed with the Company on September 16, 2005, the remainder of the principal amount and all accrued interest on the loan shall be forgiven. If, on the other hand, prior to September 16, 2005, the Company terminates the Mei Agreement for cause or Mr. Mei terminates without good reason, then Mr. Mei shall promptly repay in full all outstanding principal and accrued interest on the loan. If, prior to September 16, 2005, the Company terminates the Mei Agreement other than for cause or Mr. Mei terminates for good reason, then, as of the date of termination, the outstanding principal balance and accrued interest thereon shall be forgiven.

If the Company terminates the Mei Agreement without cause, or Mr. Mei terminates for good reason, Mr. Mei will be entitled to the continuation of salary and benefits for a period of 12 months thereafter.

Mr. Mei has agreed to non-solicit and non-compete provisions that survive for a year after termination of the agreement, and to standard confidentiality obligations.

John Mei — Bonus Agreement

In March 2003, the Company entered into a bonus agreement with Mr. Mei that would provide for the payment to him of $40,000 if the Company’s obligations under its $90 million of Senior Notes are restructured as contemplated by the Exchange Agreement. In order for Mr. Mei to receive this payment,

which is payable ratably over six months, the restructuring must be completed on or prior to August 2, 2003.

Stock Option Plan

As of December ~~29,~~ ~~2001~~28, ~~there were outstanding options granted under the Elgar Holdings~~2002, ~~Inc.~~ ~~1998 Stock Option Plan (~~the ~~"Stock~~stock ~~Option Plan") to~~option ~~purchase~~plan ~~896,800~~has ~~shares of common stock. All options have~~ been ~~granted at fair value, or at a premium thereto, as determined by the Board of Directors of the Company on the date of grant~~cancelled. Each ~~Options vest~~former ~~ratably~~holder ~~over~~of ~~three~~options orunder ~~four years and generally expire on~~ the ~~tenth~~plan ~~anniversary~~agreed ofto the ~~date~~termination of ~~grant.~~their ~~The Stock Option Plan is administered by the Stock Option Committee, which is composed solely of~~option ~~non-employee directors~~grant. The ~~Stock~~Company ~~Option~~intends ~~Committee has the authority~~ to ~~interpret the Stock Option Plan; to determine the terms and conditions of options granted under the Stock Option~~implement ~~Plan;~~a tonew ~~prescribe,~~management ~~amend~~incentive ~~and~~plan ~~rescind the rules and regulations of the Stock Option Plan; and to make all other determinations necessary or advisable~~ for the ~~administration~~benefit of ~~the~~its ~~Stock~~key ~~Option~~employees ~~Plan. Subject to limitations imposed by law, the Stock Option Committee may amend or terminate the Stock Option Plan~~ at ~~any~~ some time ~~and~~ in ~~any manner. However, no such amendment or termination may deprive~~ the ~~recipient~~ ofnear ~~an award previously granted under the Stock Option Plan of any rights thereunder without his or her consent~~future. ~~Under the Stock Option Plan, as amended, 1,164,082 shares of common stock are reserved for issuance upon the exercise of options.~~

The Stock Option Plan provides for grants of incentive stock options ("ISOs") to employees (including officers and employee directors) which are intended to qualify under the provisions of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and nonstatutory stock options to nonemployee directors of the Company. The Stock Option Committee selects the eligible persons to whom options will be granted and determines the dates, amounts, exercise prices, vesting periods and other relevant terms of the options, provided that the exercise price for each option is determined by the Stock Option Committee at a price per share not less than the fair market value of common stock on the date of grant. Options granted under the Stock Option Plan are generally not transferable during the life of the optionee.

Options granted under the Stock Option Plan to an employee may include a provision conditioning or accelerating the receipt of benefits upon the occurrence of specified events, such as a change of control of the Company or a dissolution, liquidation, sale of substantially all of the property and assets of the Company or other significant corporate transaction.

Options granted under the Stock Option Plan vest and become exercisable as determined by the Stock Option Committee in its discretion. Options granted under the Stock Option Plan may be exercised at any time after they vest and before the expiration date determined by the Stock Option Committee, provided that no option may be exercised more than ten years after its grant. In the absence of a specific agreement to the contrary, (i) if an optionee ceases to be employed by the Company or one of its subsidiaries for any reason other than death or disability, the optionee shall be entitled to exercise, for a period of 30 days after the date such optionee ceases to be such an employee, that number of options that were vested on such date and (ii) if an optionee dies or becomes disabled while still an employee of the Company and its subsidiaries, such optionee or his estate may exercise the option to the extent vested at the date of death or disability and prior to the expiration of such option.

Options may be granted under the Stock Option Plan until the tenth anniversary of its adoption, on which date the Stock Option Plan will terminate. Although any option that was duly granted prior to such date may thereafter be exercised or settled in accordance with its terms, no shares of common stock may be issued pursuant to any award on or after the twentieth anniversary of its adoption.

401(k) Plan

We maintain a defined contribution 401(k) plan ~~which~~that covers all of our full-time employees. The employees become eligible to participate in the 401(k) ~~plan~~ plan at the beginning of the first quarter after hire. Participants may elect to contribute up to 15% of their compensation to this plan, subject to Internal Revenue Service limits. We currently match 40% of the first 6% of compensation ~~employee contributions~~contributed.

Compensation of Directors

~~Other~~ Directors ~~than Mr. Kilpatrick, directors~~ receive a $15,000 annual retainer, $1,500 for each board meeting attended ($500 for each committee meeting attended) and reimbursement of reasonable expenses incurred in attending such meetings. In addition, we pay J.F. Lehman & Company certain fees for various management, consulting and financial planning services, including assistance in strategic planning, providing market and financial analyses, negotiating and structuring financing and exploring expansion opportunities. See "Certain Relationships and Related Transactions." Recent amendments to our Credit Facility preclude the Company from paying any management fees to Lehman and its affiliates for services rendered during the period that Bankers Trust is waiving events of default by the Company. However, Lehman continues to provide such services to the Company.

2730

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the ownership of our common stock as of March 1, 2002 by (i) each director, (ii) each of the Named Executive Officers, (iii) all executive officers and directors as a group and (iv) each person who is the beneficial owner of more than 5% of the Common Stock.

Name of Individual or Entity(1)	Number of Shares(2)		Percentage of Shares Outstanding(3)
JFL-EEC(4)	3,802,800		64.8	%
JFL-EEC LLC(4)	3,802,800		82.6	%
John F. Lehman(5)	3,802,800		6482.86
Donald Glickman(5)	3,802,800		6482.86
George Sawyer(5)	3,802,800		6482.86
Stephen L. Brooks(5)	3,802,800		6482.86
Joseph Stroud(5)	3,802,800		6482.86
Thomas G. Pownall(6)	—		—
Oliver C. Boileau, Jr.(7)	—		—
William Paul(8)	—		—
Bruce D. Gorchow(9)	—		—
Tig H. Krekel(10)	—		—
Kenneth R. Kilpatrick	280,000	(11)	4.8
Joseph Budano	—		—
Samuel A. Lewis	158,000	(11)	2.7
Kenneth R. Kilpatrick	120,000		2.6
Gerald D. Price	37,000	(11)	*
Samuel A. Lewis	80,000		1.7
Normand E. Precourt	~~126~~50,000	~~(11)~~	21.1
David C. Hoffman	30,000	(11)	*
John J. Santospirito	—		—
Jackson National Life Insurance Company(12)	557,500		9.5
Jackson National Life Insurance Company(11)	557,500		10.8
All directors and executive officers as a group (18 persons)	4,~~572~~152,~~300~~800	~~(11)~~	7890.02

28* Less than 1%

29(1) The address of JFL-EEC and Messrs. Lehman, Glickman, Sawyer, Brooks and Stroud is 2001 Jefferson Davis Highway, Suite 607, Arlington, Virginia 22202. The address of Mr. Pownall is 1800 K Street, N.W., Suite 724, Washington, D.C. 20006. The address of Mr. Boileau is 202 North Brentwood Boulevard, Apt. 3A, St. Louis, Missouri 63105. The address of Mr. Paul is 21 Springwood Drive, Trumbull, Connecticut 06611. The address of Mr. Gorchow and Jackson National Life Insurance Company (“Jackson National”) is 225 West Wacker Drive, Suite 1200, Chicago, Illinois 60606. The address of Mr. Krekel is 2 Via Pergela, Rancho Palos Verdes, California 90275.

(2) As used in this table, beneficial ownership means the sole or shared power to vote, or to direct the voting of a security, or the sole or shared power to dispose, or direct the disposition of, a security.

(3) Computed based upon the total number of shares of Common Stock outstanding on March 1, 2003 (4,602,433) and the number of shares of Common Stock underlying options or warrants held by that person exercisable within 60 days of March 1, 2003. In accordance with Rule 13(d)-3 of the Exchange Act, any Common Stock that will not be outstanding within 60 days of March 1, 2003 that is subject to options or warrants exercisable within 60 days of March 1, 2003 is deemed to be outstanding for the purpose of computing the percentage of outstanding shares of the Common Stock owned by the person holding such

options or warrants, but is not deemed to be outstanding for the purpose of computing the percentage of outstanding shares of the Common Stock owned by any other person.

(4) JFL-EEC LLC is a Delaware limited liability company that is an affiliate of J.F. Lehman & Company. Through JFL-EEC, J.F. Lehman Equity Investors I, L.P. (“JFLEI”), also an affiliate of J.F. Lehman & Company, beneficially owns 71.7% of the Common Stock. Each of Messrs. Lehman, Glickman, Sawyer, Brooks and Stroud, either directly (whether through ownership interest or position) or through one or more intermediaries, may be deemed to control JFL-EEC, J.F. Lehman and JFLEI. J.F. Lehman and JFLEI may be deemed to control the voting and disposition of the shares of the Common Stock owned by JFL-EEC. Accordingly, for certain purposes, Messrs. Lehman, Glickman, Sawyer, Brooks and Stroud may be deemed to be beneficial owners of the shares of Common Stock owned by JFL-EEC.

(5) Includes the shares beneficially owned by JFL-EEC, of which Messrs. Lehman, Glickman, Sawyer, Brooks and Stroud are affiliates.

(6) Mr. Pownall is a member of a limited partner of JFLEI and is on the investment advisory board of J.F. Lehman.

(7) Mr. Boileau is a member of a limited partner of JFLEI.

(8) Mr. Paul is a member of a limited partner of JFLEI.

(9) Mr. Gorchow is on the investment advisory board of J.F. Lehman and is President of PPM AmericaCapital Partners, the agent for Jackson National.

(10) Mr. Krekel is a member of a limited partner of JFLEI.

(11) All shares are obtainable upon the exercise of warrants with an exercise price of $2.50 per share, which are immediately exercisable. Some of the warrants are held by affiliates of Jackson National, which is a non-controlling member of JFL-EEC.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Management Agreement ; Contributed Management Services

~~Pursuant~~ In toFebruary 1998, the ~~terms~~Company entered ofinto a ~~Management~~management ~~Agreement~~agreement ~~entered~~with ~~into~~J.F. Lehman ~~among~~& ~~Lehman~~Company, ~~EHI~~an affiliate ~~and Elgar upon consummation~~ of the ~~Recapitalization~~Company’s principal stockholder (the "“Management Agreement"”)~~, (1) we~~. Under ~~paid Lehman a transaction fee in~~ the ~~amount~~terms of $1the Management Agreement,~~000,000~~ ~~in connection with~~ the ~~Recapitalization~~Company ~~and~~was ~~(2) we~~obligated ~~agreed~~ to pay Lehman ana ~~annual management fee of~~ $500,000 ~~that~~annual ~~commenced~~management ~~accruing~~fee ~~on February 3, 1998 and is payable~~ in advance on a semi-annual basis ~~thereafter~~. In AsSeptember ~~consideration~~1998, ~~for services rendered in connection with~~ the ~~Power~~Company ~~Ten acquisition,~~and ~~we paid~~ Lehman ~~an acquisition fee of $425,000 pursuant to the Management Agreement. In September 1998, we~~ amended the Management Agreement ~~with Lehman~~ and concurrently entered into a ~~Management~~management ~~Services~~services ~~Agreement~~agreement with Lehman, the combined effect of which was to further delineate the management services to be provided by Lehman and to reduce the term of the Management ~~Agreement~~ Agreement from ten years to five years. ~~Recent amendments to our Credit Facility preclude the Company from paying any management fees to Lehman and its affiliates for services rendered during the period that~~ ~~Bankers~~The ~~Trust~~Management isAgreement ~~waiving~~terminated ~~events~~on ~~of default by the Company. However~~February 3, ~~Lehman continues to provide such services to the Company~~2003.

~~Shareholders~~ Under ~~Agreement~~ the Company’s old credit facility with Deutsche Bank, the Company was precluded from paying management fees to Lehman during recent periods when Deutsche Bank had waived events of default, although Lehman continued to provide management services to the Company during such times. Under the Ableco Facility, the Company was prohibited from paying management fees to Lehman, although Lehman continued to provide those management services to the Company. Beginning December 30, 2001, the Company recorded the contributed management services as an expense and a corresponding capital contribution. The total amount of expense and additional paid-in capital recorded for these services during Fiscal 2002 was $500,000.

In During ~~connection~~Fiscal ~~with the Recapitalization~~2002, the Company reimbursed ~~and~~Lehman ~~JFL-EEC~~$217,000 ~~the~~for ~~Continuing~~expenses ~~Shareholders~~Lehman ~~and,~~incurred in ~~their~~connection ~~capacity~~with replacing asthe ~~Warrantholders,~~old ~~Jackson National,~~credit ~~Indosuez~~facility ~~Electronics~~with ~~Partners~~the ~~("Indosuez")~~Ableco ~~and~~Facility. Such ~~Old~~amount ~~Hickory~~was ~~Fund~~capitalized I,and ~~L.L.C.~~is ~~("Old~~included in ~~Hickory")~~deferred ~~(collectively~~financing fees. In addition, the ~~"Shareholders")~~Company ~~entered~~reimbursed ~~into~~Lehman a$109,000 ~~Shareholders~~for ~~Agreement~~fees ~~(the~~and ~~"Shareholders~~expenses Lehman ~~Agreement"),~~incurred ~~the~~to ~~principal~~a ~~terms~~third ofparty ~~which~~executive ~~are~~search ~~summarized~~firm ~~below:~~in connection with the hiring of Joseph Budano.

~~Certain~~Shareholder ~~Voting Rights. Pursuant to the Shareholders~~ Agreement, so long as Jackson National holds in the aggregate warrants and shares obtained upon exercise of the warrants representing at least seventy-five percent (75%) of the warrants initially issued to it, Jackson National shall have the right to designate one Director. So long as the common stock held by the Non-Management Continuing Shareholders constitutes in the aggregate at least five percent (5%) of the issued and outstanding common stock, then the Non-Management Continuing Shareholders shall have the right to designate one Director. Subject to the rights of the holders of the Redeemable Preferred Stock to elect Directors upon the occurrence of certain events pursuant to the Certificate of Designations governing the Redeemable Preferred Stock, JFL-EEC is entitled to designate all Directors of the Company not designated by Jackson National or the Non-Management Continuing Shareholders.

~~Restrictions on Transfer.~~ The ~~shares~~holders of the Company’s common stock ~~held by each of the parties to the Shareholders Agreement, and~~ ~~certain~~and ofwarrants ~~their transferees, are subject~~ to ~~restrictions~~purchase ~~on transfer. Shares of~~ common stock ~~may~~are beparty ~~transferred only~~ to ~~certain~~a ~~related~~Shareholder ~~transferees~~Agreement, ~~including, (i) in the case of individual~~ ~~Shareholders,~~dated ~~family members or their legal representatives or guardians, heirs and legatees and trusts, partnerships and corporations the sole beneficiaries, partners or shareholders,~~ as ~~the case may be,~~ of ~~which are family members, (ii)~~February ~~in the case of partnership or limited liability company Shareholders~~3, ~~the partners or members of such partnership or limited liability company~~1998, as ~~the~~amended ~~case may be,~~ (~~iii) in~~ the ~~case~~“Shareholder ~~of corporate Shareholders, affiliates of such corporation and (iv~~Agreement”) ~~transferees of shares sold in transactions complying with~~ , the ~~applicable~~principal ~~provisions~~terms of ~~the Right~~which ofare ~~First~~summarized ~~Offer or the Tag-Along or Drag-Along Rights (as each term is defined~~ below). :

~~Rights~~ Certain ofVoting ~~First Offer~~Rights. If Pursuant ~~any~~to the Shareholder ~~desires~~Agreement, toso ~~transfer~~long ~~any~~as ~~shares~~Jackson ofNational ~~the~~holds ~~common~~in ~~stock~~the or aggregate warrants ~~(other~~and ~~than~~shares ~~pursuant to~~obtained ~~certain~~upon ~~permitted~~exercise ~~transfers),~~of ~~all~~the ~~other~~warrants ~~Shareholders~~representing ~~have~~at least a75% ~~right~~ of ~~first~~the ~~offer~~warrants ~~(the~~initially ~~"Right~~issued ofto ~~First~~it, ~~Offer")~~Jackson toNational ~~purchase~~shall have the ~~shares~~right orto ~~warrants~~designate ~~(the~~one "director. Subject ~~Shares")~~to ~~upon~~the ~~such~~rights ~~terms~~of ~~and~~the ~~subject to~~holders ~~such~~of ~~conditions~~the asSeries ~~are~~A ~~set~~10% ~~forth~~Cumulative Redeemable inPreferred aStock ~~notice~~ (athe ~~"First~~“Redeemable ~~Offer~~Preferred ~~Notice"~~Stock”) ~~sent~~to byelect directors upon the ~~selling~~occurrence ~~Shareholder~~of certain events pursuant to ~~such~~the ~~other~~certificate ~~Shareholders.~~of designations Ifgoverning the ~~Shareholders~~Redeemable ~~elect~~Preferred toStock, ~~exercise~~JFL-EEC ~~their~~is ~~Rights~~entitled to designate all directors of the Company not designated by Jackson National.

30 Restrictions on Transfer. The shares of the common stock held by each of the parties to the Shareholder Agreement, and certain of their transferees, are subject to restrictions on transfer. Shares of common stock may be transferred only to certain related transferees, including, (i) in the case of individual shareholders, family members or their legal representatives or guardians, heirs and legatees and trusts, partnerships and corporations the sole beneficiaries, partners or shareholders, as the case may be, of which are family members, (ii) in the case of partnership or limited liability company shareholders, the partners or members of such partnership or limited liability company, as the case may be, (iii) in the case of corporate shareholders, affiliates of such corporation and (iv) transferees of shares sold in transactions

First Offer with respect to less than all of the Subject Shares, EHI has a right to purchase all of the Subject Shares that the Shareholders have not elected to purchase. If the Shareholders receiving the First Offer Notice and EHI wish to exercise their respective rights of first offer with respect to less than all of the Subject Shares, the selling Shareholder may solicit offers to purchase all (but not less than all) of the Subject Shares upon such terms and subject to such conditions as are, in the aggregate, no less favorable to the selling Shareholder than those set forth in the First Offer Notice. 33

~~Subscription~~complying ~~Offer~~with ~~With Respect to Primary Issuances. The Shareholders Agreement provides that EHI is not permitted to issue~~the ~~equity~~applicable ~~securities,~~provisions ~~or securities convertible into equity securities, to any person unless EHI has offered to issue to each~~ of the ~~other~~Right ~~Shareholders,~~of onFirst aOffer ~~pro~~or ~~rata~~the ~~basis,~~Tag-Along ~~an opportunity to purchase~~or ~~such~~Drag-Along ~~securities~~Rights ~~on the same terms, including price, and subject to the same conditions~~ (as ~~those~~each ~~applicable~~term tois ~~such~~defined ~~person~~below).

~~Tag-Along~~ Rights of First Offer. ~~The~~ If ~~Shareholders~~any shareholder ~~Agreement~~desires ~~provides~~to ~~that~~transfer any shares of the common stock or warrants (other than pursuant to certain permitted transfers), ifall other shareholders have a right of first offer (the ~~Shareholders~~“Right of First Offer”) to purchase the shares or warrants (the “Subject Shares”) upon such terms and ~~EHI~~subject ~~fail~~to such conditions as are set forth in a notice (a “First Offer Notice”) sent by the selling shareholder to such other shareholders. If the shareholders elect to exercise their Rights of First Offer with respect to less than all of the Subject Shares, the Company has a right to purchase all of the Subject Shares that the shareholders have not elected to purchase. If the shareholders receiving the First Offer Notice and the Company wish to exercise their respective rights of first ~~refusal~~offer with respect to less than all of the Subject Shares, the ~~Shareholders~~selling shareholder ~~have~~may ~~the~~solicit ~~right~~offers to ~~"tag~~purchase ~~along"~~all (~~the~~but ~~"Tag-Along~~not ~~Right"~~less than all) ~~upon~~of the Subject ~~sale~~Shares ofupon ~~the~~such ~~common~~terms ~~stock~~and bysubject to such conditions as are, in the ~~certain~~aggregate, ~~Shareholders~~no ~~pursuant~~less favorable to athe ~~third-party~~selling ~~offer.~~shareholder than those set forth in the First Offer Notice.

~~Drag~~ Tag-Along Rights. The Shareholder ~~Shareholders~~ Agreement provides that, ~~subject~~if tothe ~~certain~~shareholder ~~conditions,~~and ifthe ~~one~~Company orfail ~~more~~to ~~Shareholders~~exercise ~~holding~~their arespective ~~majority~~rights of ~~the~~first ~~common~~refusal ~~stock~~with ~~(the~~respect ~~"Majority Shareholders") propose~~ to ~~sell~~ all of the Subject ~~common~~Shares, ~~stock owned by~~ the ~~Majority~~shareholders ~~Shareholders,~~have the ~~Majority~~right ~~Shareholders~~to ~~have~~“tag ~~the~~along” ~~right~~ (the ~~"Drag~~“Tag-Along Right"”) toupon ~~compel~~ the ~~other~~sale ~~Shareholders to sell all~~ of the ~~shares of~~ common stock ~~held~~ by ~~such~~certain ~~other~~shareholders ~~Shareholders~~pursuant ~~upon the same terms and subject~~ to ~~the same conditions~~a asthird-party ~~the terms and conditions applicable to the sale by the Majority Shareholders~~offer.

~~Registered~~ Drag-Along ~~Offerings~~Rights. The Shareholder ~~shares~~Agreement provides that, subject to certain conditions, if one or more shareholders holding a majority of the common stock ~~may~~(the be“Majority Shareholders”) ~~transferred~~propose into asell ~~bona~~all ~~fide~~of ~~public~~the ~~offering~~common ~~for~~stock ~~cash~~owned ~~pursuant~~by tothe anMajority ~~effective~~Shareholders, ~~registration~~the ~~statement~~Majority Shareholders have the right (athe ~~"Registered~~“Drag-Along ~~Offering"~~Right”) to ~~without~~compel ~~compliance~~the ~~with~~other shareholders to sell all of the ~~provisions~~shares of common stock held by such other shareholders upon the ~~Shareholders~~same ~~Agreement~~terms ~~related~~and subject to the ~~Right~~same conditions ofas ~~First~~the ~~Offer~~terms orand conditions applicable to the ~~Tag-Along~~sale ~~or Drag-Along~~by ~~Rights.~~the Majority Shareholders.

~~Legends~~ Subscription Offer With Respect to Primary Issuances. The ~~shares~~Shareholder ofAgreement ~~common~~provides ~~stock~~that subject to certain exceptions, the ~~Shareholders~~Company ~~Agreement~~is ~~bear~~not apermitted ~~legend related~~ to ~~the~~issue ~~Right~~equity ofsecurities, ~~First~~or ~~Offer~~securities ~~and~~convertible ~~the~~into ~~Tag-Along~~equity ~~and~~securities, ~~Drag-Along~~to ~~Rights,~~any ~~which~~person ~~legend~~unless ~~will~~the beCompany ~~removed~~has offered ~~when~~to ~~the~~issue ~~shares~~to each of ~~common~~the ~~stock~~other ~~are~~shareholders, ~~pursuant~~on a pro rata basis, an opportunity to ~~the~~purchase ~~terms~~such ofsecurities on the ~~Shareholders~~same ~~Agreement~~terms, noincluding ~~longer~~price, and subject to the ~~restrictions~~same onconditions ~~transfer~~as ~~imposed~~those byapplicable ~~the~~to ~~Shareholders~~such ~~Agreement~~person.

~~Registration~~ Registered ~~Rights~~Offerings. ~~Pursuant~~ The toshares of ~~the~~common ~~terms~~stock ofmay ~~the~~be ~~Shareholders~~transferred ~~Registration~~in ~~Rights~~a ~~Agreement,~~bona ~~dated~~fide aspublic ofoffering ~~February 3,~~for cash ~~1998,~~pursuant ~~among~~to ~~the~~an ~~Company~~effective ~~and~~registration ~~the~~statement ~~Shareholders,~~(a ~~JFL-EEC~~“Registered ~~and~~Offering”) without ~~certain~~compliance ~~other~~with ~~shareholders~~the ~~are~~provisions ~~entitled~~of tothe ~~one~~Shareholder ~~"demand"~~Agreement ~~and~~related ~~unlimited~~to the ~~piggyback~~Right ~~registration~~of ~~rights,~~First ~~subject~~Offer toor ~~additional customary~~the ~~rights~~Tag-Along ~~and~~or ~~limitations.~~Drag-Along Rights.

Term. The term of the ~~Shareholders~~ Shareholder Agreement is 10 years from the Closing Date, subject to earlier termination ~~under~~ under certain conditions and upon certain events.

Shareholder Registration Rights Agreement

Pursuant to the terms of the Shareholders Registration Rights Agreement, dated as of February 3, 1998, among the Company and the holders of its common stock, JFL-EEC and certain other shareholders are entitled to one “demand” and unlimited piggyback registration rights, subject to additional customary rights and limitations.

Registration Rights for Warrantholders

The holders of the shares issuable upon exercise of the warrants are entitled to one "“demand"” registration right at any time on or after the later of (i) February 3, 2003 and (ii) the 181st day after completion of ~~EHI'~~the Company ‘s initial public offering of its common stock, subject to additional customary rights and limitations. In addition, holders of the shares issuable upon exercise of the warrants are entitled to unlimited "“piggyback" ” registration rights after the date of ~~EHI'~~the Company ‘s initial public offering of its common stock, subject to customary rights and limitations.

Indemnification of Officers and Directors

~~EHI'~~ The Company ‘s Certificate of Incorporation contains provisions eliminating the personal liability of directors for monetary damages for breaches of their duty of care, except in certain prescribed circumstances. The Company ~~EHI'~~‘s Bylaws also provide that directors and officers will be indemnified to the fullest extent authorized by Delaware law, as it now stands or may in ~~the~~ the future be amended, against all expenses and liabilities reasonably incurred in connection with service for or on behalf of the Company. The ~~EHI'~~Company ‘s Bylaws provide that the rights of directors and officers to indemnification is not exclusive of any other right now possessed or hereinafter acquired under any statute, agreement or otherwise.

Racal Instruments

Racal Instruments (“Racal”), a ~~significant~~ customer of ~~ours~~the Company, was acquired on November 2, 2001 by a group of investors that includes affiliates of ~~our~~J.F. Lehman ~~largest~~Equity Investors I, L.P. ~~shareholder~~(“JFLEI”). In addition, certain members of ~~our~~the Company’s board of directors are also members of Racal'’s board of directors. As a result, Racal is considered a related party. Sales by the usCompany to Racal were approximately $~~803~~1,~~000~~984, ~~$4,977,~~000 and $1530,~~984,~~000 during Fiscal 2001 ~~1999, Fiscal 2000~~ and Fiscal ~~2001~~2002, respectively.

3235

PART IV

ITEM 14. CONTROLS ~~EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES,~~ AND ~~REPORTS ON FORM 8-K~~ PROCEDURES

Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s chief executive officer and chief financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the chief executive officer and the chief financial officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiary) required to be included in the Company’s periodic SEC filings, and that there were no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

ITEM 15. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) Consolidated Financial Statements:

The following consolidated financial statements of the Company are included in response to Item 8 of this report.

		Page Reference Form 10-K
Report of Independent Public Accountants		F-1
Consolidated Balance Sheets as of December 30, 2000 and December 29, 2001		F-2
Consolidated Statements of Operations for the years ended January 1, 2000, December 30, 2000 and December 29, 2001		F-3
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended January 1, 2000, December 30, 2000 and December 29, 2001		F-4
Consolidated Statements of Cash Flows for the years ended January 1, 2000, December 30, 2000 and December 29, 2001		F-5
Notes to Consolidated Financial Statements		F-6
(a)(2) Consolidated Financial Statement Schedules:
	Schedule II—Valuation and Qualifying Accounts	S-1

Independent Auditors’ Report (Deloitte & Touche LLP)

Report of Independent Public Accountants (Arthur Andersen LLP)

Consolidated Balance Sheets as of December 29, 2001 and December 28, 2002

Consolidated Statements of Operations for the years ended December 30, 2000, December 29, 2001 and December 28, 2002

Consolidated Statements of Stockholders’ Deficit for the years ended December 30, 2000, December 29, 2001 and December 28, 2002

Consolidated Statements of Cash Flows for the years ended December 30, 2000, December 29, 2001 and December 28, 2002

Notes to Consolidated Financial Statements

~~Schedules~~(a)(2) Consolidated ~~other~~Financial ~~than~~Statement ~~those listed above have been omitted since they are either not required, not applicable or the information is otherwise included.~~ Schedules:

Schedule II-Valuation and Qualifying Accounts

Schedules other than the one listed above have been omitted since they are either not required, not applicable or the information is otherwise included.

(b) Reports on Form 8-K.

None.

Exhibit No.		Description
1.1		Purchase Agreement, dated January 30, 1998, between the Company and the Initial Purchaser(1)
2.1		Agreement and Plan of Merger, dated as of January 2, 1998, by and among the Company, JFL-EEC LLC, JFL-EEC Merger Sub Co. and T.C. Group, L.L.C.(1)
3.1		Amended and Restated Certificate of Incorporation of the Company(1)
3.2		Certificate of Designations for the Series A 10% Cumulative Redeemable Preferred Stock(1)
3.3		Certificate of Designations for the Series B 6% Cumulative Convertible Preferred Stock(1)
3.4		Certificate of Designations for the Series C 6% Cumulative Convertible Preferred Stock(2)
3.5		Amended and Restated Bylaws of the Company(1)
3.6		Articles of Incorporation of Elgar Electronics Corporation(1)
3.7		Bylaws of Elgar Electronics Corporation(1)
3.8		Articles of Incorporation of Power Ten(1)
3.9		Bylaws of Power Ten(1)

4.1		Indenture, dated as of February 3, 1998, between the Company and United States Trust Company of New York(1)
4.2		First Supplemental Indenture, dated as of February 3, 1998, among the Company, Elgar Electronics Corporation and United States Trust Company of New York(1)
4.3		Second Supplemental Indenture, dated as of May 29, 1998, among the Company, Elgar Electronics Corporation, Power Ten and United States Trust Company of New York(1)
4.4		Form of Note (included in Exhibits 4.1 and 4.2)(1)
4.5		Registration Rights Agreement, dated February 3, 1998, between the Company and the Holders of Old Notes(1)
4.6		Form of Warrant Certificate(1)
10.1		Assumption Agreement, dated as of February 3, 1998, between the Company and Elgar Electronics Corporation, assuming, among other things, the obligations of MergerCo under the Purchase Agreement and the Registration Rights Agreement(1)
10.2		Investment Agreement, dated as of February 3, 1998, between the Company and Series A preferred shareholders(1)
10.3		Shareholders Agreement, dated as of February 3, 1998, between the Company and the shareholders(1)
10.4		Shareholders Registration Rights Agreement, dated as of February 3, 1998, between the Company and the shareholders(1)
10.5		Warrantholders' Registration Rights Agreement, dated as of February 3, 1998, between the Company and the warrantholders(1)
10.6		Management Agreement, dated as of February 3, 1998, among the Company, Elgar Electronics Corporation and J. F. Lehman & Company(1)
10.7		Amendment No. 1 to Management Agreement, entered into on September 15, 1998, effective as of February 3, 1998, among the Company, Elgar Electronics Corporation and J. F. Lehman & Company(4)
10.8		Management Services Agreement, entered into on September 15, 1998, effective as of February 3, 1998, among the Company, Elgar Electronics Corporation and J. F. Lehman & Company(4)
10.9		Employment Agreement, dated as of May 29, 1998, between Elgar Electronics Corporation and Joseph A. Varozza, Jr.(1)
10.10		Employment Agreement, dated as of May 29, 1998, between Elgar Electronics Corporation and Vincent S. Mutascio(1)
10.11		Employment Agreement, dated as of February 3, 1998, between Elgar Electronics Corporation and Kenneth R. Kilpatrick(1)
10.12		Form of Employment Agreement entered into between Elgar Electronics Corporation and certain of its executive officers (other than Kenneth R. Kilpatrick) on February 3, 1998(1)
10.13		Lease Agreement, dated February 1, 1984, between the Company and Carroll Park Ridge, for the Company's principal facilities(1)

10.14		First Amendment to Lease, dated November 5, 1992, between RREEF WEST-IV and the Company(1)
10.15		Second Amendment to Lease, dated February 12, 1998, between The Irvine Company and the Company(1)
10.16		Third Amendment to Lease, dated July 2, 1998, between The Irvine Company and the Company(3)
10.17		Amended and Restated Credit Agreement, dated as of February 3, 1998 and amended and restated as of May 29, 1998, among the Company, Elgar Electronics Corporation and Bankers Trust Company, as Agent(1)
10.18		First Amendment and Waiver, dated as of February 12, 1999, among the Company, Elgar Electronics Corporation, the lenders party to the Credit Agreement and Bankers Trust Company, as Agent(2)
10.19		Second Amendment, dated as of March 24, 1999, among the Company, Elgar Electronics Corporation, the lenders party to the Credit Agreement and Bankers Trust Company, as Agent(2)
10.20		Amended and Restated Pledge Agreement, dated as of February 3, 1998 and amended and restated as of May 29, 1998, among the Company, Elgar Electronics Corporation and Bankers Trust Company, as Pledgee and Collateral Agent(1)
10.21		Amended and Restated Security Agreement, dated as of February 3, 1998 and amended and restated as of May 29, 1998, among the Company, Elgar Electronics Corporation, Power Ten and Bankers Trust Company, as Collateral Agent(1)
10.22		Subsidiaries Guaranty, dated as of May 29, 1998, made by Power Ten in favor of Bankers Trust Company, as Agent(1)
10.23		Amended and Restated Capital Call Agreement, dated as of May 29, 1998 and amended and restated as of February 12, 1999, among J.F. Lehman Equity Investors L.P., the Company, Elgar Electronics Corporation and Bankers Trust Company, as Agent(2)
10.24		Form of Term Loan Note(1)
10.25		Form of Revolving Note(1)
10.26		Form of Swingline Note(1)
10.27		Elgar Holdings, Inc. 1998 Stock Option Plan(2)
10.28		Form of Stock Option Agreement(1)
10.29		Third Amendment, dated as of March 10, 2000, among the Company, Elgar Electronics Corporation, the lenders party to the Credit Agreement and Bankers Trust Company, as Agent(5)
10.30		Fourth Amendment, dated as of March 27, 2001, among the Company, Elgar Electronics Corporation, the lenders party to the Credit Agreement and Bankers Trust Company, as Agent(6)
10.31		Waiver, dated as of July 25, 2001, among the Company, Elgar Electronics Corporation, the lenders party to the Credit Agreement and Bankers Trust Company, as agent(7)

10.32		Fifth Amendment and Waiver, dated as of September 28, 2001, among the Company, Elgar Electronics Corporation, the lenders party to the Credit Agreement and Bankers Trust Company, as agent(8)
10.33		Sixth Amendment and Waiver to Credit Agreement and First Amendment to Capital Call Agreement, dated as of October 5, 2001, among the Company, Elgar Electronics Corporation, the lenders party to the Credit Agreement and Bankers Trust Company, as agent and J.F. Lehman Equity Investors I, L.P. as Contributor
10.34		Waiver to Credit Agreement and Second Amendment to Capital Call Agreement, dated as of November 13, 2001, among the Company, Elgar Electronics Corporation, the lenders party to the Credit Agreement and Bankers Trust Company, as agent and J.F. Lehman Equity Investors I, L.P. as Contributor
10.35		Seventh Amendment and Waiver to Credit Agreement, dated as of December 20, 2001, among the Company, Elgar Electronics Corporation, the lenders party to the Credit Agreement and Bankers Trust Company, as agent and acknowledged and agreed to by Power Ten as subsidiary guarantor
10.36		Eighth Amendment and Waiver to Credit Agreement, dated as of January 23, 2002, among the Company, Elgar Electronics Corporation, the lenders party to the Credit Agreement and Bankers Trust Company, as agent
10.37		Ninth Amendment and Waiver to Credit Agreement, dated as of January 31, 2002, among the Company, Elgar Electronics Corporation, the lenders party to the Credit Agreement and Bankers Trust Company, as agent, and acknowledged and agreed to for limited purposes by J.F. Lehman Equity Investors I, L.P.
12.1		Statement re: Computation of Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Stock Dividends
21.1		Subsidiaries of the Company

~~No annual report or proxy material covering our last fiscal year has been or will be sent to security holders of the Company.~~ (c) Exhibits

Exhibit No.		Description
1.1		Purchase Agreement, dated January 30, 1998, between the Company and the Initial Purchaser(1)

2.1		Agreement and Plan of Merger, dated as of January 2, 1998, by and among the Company, JFL-EEC LLC, JFL-EEC Merger Sub Co. and T.C. Group, L.L.C.(1)

3.1		Amended and Restated Certificate of Incorporation of the Company(1)

3.2		Certificate of Designations for the Series A 10% Cumulative Redeemable Preferred Stock(1)

3.3		Certificate of Designations for the Series B 6% Cumulative Convertible Preferred Stock(1)

3.4		Certificate of Designations for the Series C 6% Cumulative Convertible Preferred Stock(2)

3.5		Amended and Restated Bylaws of the Company(1)

3.6		Articles of Incorporation of Elgar Electronics Corporation(1)

3.7		Bylaws of Elgar Electronics Corporation(1)

3.8		Articles of Incorporation of Power Ten(1)

3.9		Bylaws of Power Ten(1)

4.1		Indenture, dated as of February 3, 1998, between the Company and United States Trust Company of New York(1)

4.2		First Supplemental Indenture, dated as of February 3, 1998, among the Company, Elgar Electronics Corporation and United States Trust Company of New York(1)

4.3		Second Supplemental Indenture, dated as of May 29, 1998, among the Company, Elgar Electronics Corporation, Power Ten and United States Trust Company of New York(1)

4.4		Form of Note (included in Exhibits 4.1 and 4.2)(1)

4.5		Registration Rights Agreement, dated February 3, 1998, between the Company and the Holders of Old Notes(1)

4.6		Form of Warrant Certificate(1)

10.1		Assumption Agreement, dated as of February 3, 1998, between the Company and Elgar Electronics Corporation, assuming, among other things, the obligations of MergerCo under the Purchase Agreement and the Registration Rights Agreement(1)

10.2		Investment Agreement, dated as of February 3, 1998, between the Company and Series A preferred shareholders(1)

10.3		Shareholders Agreement, dated as of February 3, 1998, between the Company and the shareholders(1)

10.4		Shareholders Registration Rights Agreement, dated as of February 3, 1998, between the Company and the shareholders(1)

10.5		Warrantholders’ Registration Rights Agreement, dated as of February 3, 1998, between the Company and the warrantholders(1)

10.6		Management Agreement, dated as of February 3, 1998, among the Company, Elgar Electronics Corporation and J. F. Lehman & Company(1)

10.7		Amendment No. 1 to Management Agreement, entered into on September 15, 1998, effective as of February 3, 1998, among the Company, Elgar Electronics Corporation and J. F. Lehman & Company(3)

10.8		Management Services Agreement, entered into on September 15, 1998, effective as of February 3, 1998, among the Company, Elgar Electronics Corporation and J.F. Lehman & Company(3)

10.9		Employment Agreement, dated as of February 3, 1998, between Elgar Electronics Corporation and Kenneth R. Kilpatrick(1)

10.10		Form of Employment Agreement entered into between Elgar Electronics Corporation and certain of its executive officers (other than Kenneth R. Kilpatrick) on February 3, 1998(1)

10.11		Lease Agreement, dated February 1, 1984, between the Company and Carroll Park Ridge, for the Company’s principal facilities(1)

10.12		First Amendment to Lease, dated November 5, 1992, between RREEF WEST-IV and the Company(1)

10.13		Second Amendment to Lease, dated February 12, 1998, between The Irvine Company and the Company(1)

10.14		Third Amendment to Lease, dated July 2, 1998, between The Irvine Company and the Company(4)

10.15		Severance Agreement and General and Special Release, dated as of August 26, 2002, between Elgar Electronics Corporation and Kenneth R. Kilpatrick(5)

10.16		Employment Agreement, dated as of July 17, 2002, among Elgar Holdings, Inc., Elgar Electronics Corporation and Joseph Budano(5)

10.17		Employment Agreement, dated as of December 30, 2002 but effective as of September 16, 2002, among Elgar Holdings, Inc., Elgar Electronics Corporation and John P. Mei

10.18		Financing Agreement, dated as of June 26, 2002, by and among Elgar Holdings, Inc., Elgar Electronics Corporation, the financial institutions party thereto, Ableco Finance LLC, as administrative agent and Ableco Finance LLC, as collateral agent(6)

10.19		Security Agreement, dated as of June 26, 2002, by and among Elgar Electronics Corporation, Elgar Holdings, Inc. and Ableco Finance LLC(7)

10.20		Patent Security Agreement, dated as of June 26, 2002, by and between Elgar Electronics Corporation and Ableco Finance LLC(7)

10.21		Trademark Security Agreement, dated as of June 26, 2002, by and between Elgar Electronics Corporation and Ableco Finance LLC(7)

10.22		Stock Pledge Agreement, dated as of June 26, 2002, by and among Elgar Holdings, Inc., Elgar Electronics Corporation and Ableco Finance LLC(7)

10.23		Intercompany Subordination Agreement, dated as of June 26, 2002, by and among Elgar Holdings, Inc., Elgar Electronics Corporation and Ableco Finance LLC(7)

10.24		Capital Call Agreement, dated as of June 26, 2002, by and among J.F. Lehman Equity Investors I, L.P., Ableco Finance LLC, as collateral agent and Ableco Finance LLC, as administrative agent(7)

12.1		Statement re: Computation of Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Stock Dividends

21.1		Subsidiaries of the Company

(1) Incorporated by reference to the registrant’s Registration Statement on Form S-4, File No. 333-557797, as filed with the Securities and Exchange Commission on June 2, 1998, as amended on July 14, 1998, July 23, 1998 and July 29, 1998.

(2) Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended April 3, 1999, as filed with the Securities and Exchange Commission on May 18, 1999.

(3) Incorporated by reference to the Transition Report on Form 10-K for the nine-month transitional period ended January 2, 1999, as filed with the Securities and Exchange Commission on June 22, 1999.

(4) Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended June 27, 1998, as filed with the Securities and Exchange Commission on September 11, 1998.

(5) Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 28, 2002, as filed with the Securities and Exchange Commission on November 12, 2002.

(6) Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 15, 2002.

(7) Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended June 29, 2002, as filed with the Securities and Exchange Commission on August 19, 2002.

No annual report or proxy material covering our last fiscal year has been or will be sent to security holders of the Company.

INDEPENDENT AUDITORS’ REPORT

To the Stockholders and Board of Directors of

Elgar Holdings, Inc.

We have audited the accompanying consolidated balance sheet of Elgar Holdings, Inc. and subsidiary (the “Company”) as of December 28, 2002, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the year then ended. Our audit also included the 2002 financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the 2002 financial statements and financial statement schedule based on our audit. The financial statements and financial statement schedules as of December 29, 2001, and for the years ended December 30, 2000 and December 29, 2001, before the inclusion of the additional disclosures discussed in Note 3 to the financial statements, were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements and stated that such 2000 and 2001 financial statement schedules, when considered in relation to the 2000 and 2001 basic financial statements taken as a whole, presented fairly, in all material respects, the information set forth therein, in their report dated February 22, 2002, which included an explanatory paragraph relating to the Company’s ability to continue as a going concern.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides a reasonable basis for our opinion.

In our opinion, the 2002 consolidated financial statements present fairly, in all material respects, the financial position of Elgar Holdings, Inc. and subsidiary as of December 28, 2002, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the 2002 financial statement schedule, when considered in relation to the 2002 basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 3 to the financial statements, the Company changed its method of accounting for goodwill as of December 30, 2001 to conform to Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”).

As discussed above, the financial statements of the Company as of December 29, 2001, and for the years ended December 30, 2000 and December 29, 2001, were audited by other auditors who have ceased operations. As described in Note 3 to the financial statements, these financial statements have been revised to include the transitional disclosures required by SFAS No. 142, which was adopted by the Company as of December 30, 2001. Our audit procedures with respect to the disclosures in Note 3 to the financial statements with respect to 2000 and 2001 included i) agreeing the previously reported net loss to the previously issued financial statements and agreeing the adjustment to reported net loss, representing amortization expense recognized in those years related to goodwill that is no longer being amortized as a result of initially applying SFAS No. 142, to the Company’s underlying records obtained from management, and ii) proving the mathematical accuracy of the reconciliation of adjusted net loss to reported net loss. In our opinion, the disclosures for 2000 and 2001 are appropriate. However, we were

F-1

not engaged to audit, review, or apply any procedures to the 2000 or 2001 financial statements of the Company other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2000 or 2001 financial statements taken as a whole.

/s/ Deloitte & Touche LLP

San Diego, California

April 17, 2003

F-2

The following report is a copy of a report previously issued by Arthur Andersen LLP (“Andersen”), which report has not been reissued by Andersen.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Elgar Holdings, Inc.:

We have audited the accompanying consolidated balance sheets of ELGAR HOLDINGS, INC. (a Delaware corporation) and subsidiaries (the "“Company"”) as of December 30, 2000 and December 29, 2001, and the related consolidated statements of operations, stockholders'’ deficit and cash flows for the years ended January 1, 2000, December 30, 2000 and December 29, 2001. 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 auditing standards generally accepted in the United States. 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, the financial statements referred to above present fairly, in all material respects, the financial position of Elgar Holdings, Inc. and subsidiaries as of December 30, 2000 and December 29, 2001, and the results of their operations and their cash flows for the years ended January 1, 2000, December 30, 2000 and December 29, 2001, in conformity with accounting principles generally accepted in the United States.

The ~~accompanying~~ accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered losses from operations and expects that losses may continue in 2002. In addition, certain of the Company'’s debt is due on June 28, 2002, and the existing cash balances at December 29, ~~2001~~ 2001 plus management'’s forecast operating cash flows for Fiscal 2002 are not expected to be sufficient to pay off the debt when it comes due. Therefore, the Company will be required to restructure or obtain additional sources of funding to replace the existing debt and provide sufficient operating cash flow for the remainder of Fiscal 2002. There can be no assurances that the Company will be successful in restructuring or securing such additional financing. If it should be unsuccessful, substantial doubt exists regarding the Company'’s ability to continue as a going concern. Management'’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II-Valuation and Qualifying Accounts is presented for purposes of complying with the Securities and Exchange Commission's rules, and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

/s/ ARTHUR ANDERSEN LLP

ARTHUR ANDERSEN LLP San Diego, California February 22, 2002

F-1

ELGAR HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands)

			December 30, 2000			December 29, 2001
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents		$	224		$	2,063
	Accounts receivable, net of allowance for doubtful accounts of $163 and $204, respectively			10,252			6,942
	Inventories			10,700			9,580
	Deferred tax assets			615			—
	Prepaids and other			424			325
		Total current assets		22,215			18,910
PROPERTY, PLANT AND EQUIPMENT, net				2,690			2,674
INTANGIBLE ASSETS, net of accumulated amortization of $11,243 and $14,413, respectively				31,247			28,078
DEFERRED TAX ASSETS, net of current portion				834			—
			$	56,986		$	49,662
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
	Accounts payable		$	3,379		$	2,576
	Accrued liabilities			8,858			10,237
	Line of credit			—			5,015
	Current portion of long-term debt			3,625			8,783
		Total current liabilities		15,862			26,611
LONG-TERM DEBT, net of current portion				96,000			90,000
	Total liabilities			111,862			116,611
SERIES A 10% CUMULATIVE REDEEMABLE PREFERRED STOCK, no par value, 20,000 shares authorized; 10,000 shares issued and outstanding				12,126			12,405
STOCKHOLDERS' DEFICIT:
	Series B 6% Cumulative Convertible Preferred Stock, no par value, 5,000 shares authorized, issued and outstanding			5,000			5,000
	Series C 6% Cumulative Convertible Preferred Stock, no par value, 4,000 shares authorized, issued and outstanding			4,000			4,000
	Common Stock, $.01 par value, 15,000,000 shares authorized; 4,601,533 and 4,602,433 shares issued and outstanding, respectively			46			46
	Additional paid-in capital			(68,572	)		(68,567	)
	Accumulated deficit			(7,476	)		(19,833	)
		Total stockholders' deficit		(67,002	)		(79,354	)
			$	56,986		$	49,662

The accompanying notes are an integral part of these consolidated financial statements.

F-2

ELGAR HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands)

		Year Ended January 1, 2000			Year Ended December 30, 2000			Year Ended December 29, 2001
Net sales		$	56,059		$	65,786		$	58,696
Cost of sales			32,032			38,152			36,443
	Gross profit		24,027			27,634			22,253
Selling, general and administrative expenses			10,005			11,337			11,741
Research and development and engineering expenses			5,851			6,675			6,170
Amortization expense			2,432			2,435			2,435
	Operating income		5,739			7,187			1,907
Interest expense, net			10,458			10,544			10,642
Loss before income taxes			(4,719	)		(3,357	)		(8,735	)
Income tax (benefit) provision			(536	)		70			1,449
	Net loss	$	(4,183	)	$	(3,427	)	$	(10,184	)

The accompanying notes are an integral part of these consolidated financial statements.

F-3

Our audits were made for ~~ELGAR~~the ~~HOLDINGS~~purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II-Valuation and Qualifying Accounts is presented for purposes of complying with the Securities and Exchange Commission’s rules, ~~INC~~ and is not part of the basic financial statements. ~~AND~~The ~~SUBSIDIARIES CONSOLIDATED~~schedule ~~STATEMENTS~~has OFbeen ~~STOCKHOLDERS'~~subjected ~~DEFICIT (dollars~~to the auditing procedures applied in ~~thousands~~the audits of the basic financial statements and, ~~except~~in ~~share~~our ~~amounts)~~ opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

	Series B Preferred Stock			Series C Preferred Stock
							Common Stock						Retained Earnings (Accumulated Deficit)
										Additional Paid-In Capital
	Shares	Amount		Shares	Amount		Shares	Amount								Total
BALANCE, January 2, 1999	5,000	$	5,000	—	$	—	4,600,000	$	46	$	(68,581	)	$	3,946		$	(59,589	)
Issuance of Series C preferred stock	—		—	4,000		4,000	—		—		—			—			4,000
Series A preferred stock dividend-in-kind	—		—	—		—	—		—		—			(1,135	)		(1,135	)
Series B preferred stock dividend accrual	—		—	—		—	—		—		—			(316	)		(316	)
Series C preferred stock dividend accrual	—		—	—		—	—		—		—			(186	)		(186	)
Accretion of discount on Series A preferred stock	—		—	—		—	—		—		—			(166	)		(166	)
Net loss	—		—	—		—	—		—		—			(4,183	)		(4,183	)
BALANCE, January 1, 2000	5,000		5,000	4,000		4,000	4,600,000		46		(68,581	)		(2,040	)		(61,575	)
Exercise of stock options	—		—	—		—	1,533		—		9			—			9
Series A preferred stock dividend-in-kind	—		—	—		—	—		—		—			(1,252	)		(1,252	)
Series B preferred stock dividend accrual	—		—	—		—	—		—		—			(335	)		(335	)
Series C preferred stock dividend accrual	—		—	—		—	—		—		—			(255	)		(255	)
Accretion of discount on Series A preferred stock	—		—	—		—	—		—		—			(167	)		(167	)
Net loss	—		—	—		—	—		—		—			(3,427	)		(3,427	)
BALANCE, December 30, 2000	5,000		5,000	4,000		4,000	4,601,533		46		(68,572	)		(7,476	)		(67,002	)
Exercise of stock options	—		—	—		—	900		—		5			—			5
Series A preferred stock dividend-in-kind	—		—	—		—	—		—		—			(113	)		(113	)
Series A preferred stock dividend accrual	—		—	—		—	—		—		—			(1,268	)		(1,268	)
Series B preferred stock dividend accrual	—		—	—		—	—		—		—			(355	)		(355	)
Series C preferred stock dividend accrual	—		—	—		—	—		—		—			(271	)		(271	)
Accretion of discount on Series A preferred stock	—		—	—		—	—		—		—			(166	)		(166	)
Net loss	—		—	—		—	—		—		—			(10,184	)		(10,184	)
BALANCE, December 29, 2001	5,000	$	5,000	4,000	$	4,000	4,602,433	$	46	$	(68,567	)	$	(19,833	)	$	(79,354	)

/s/ Arthur Andersen LLP

~~The~~ARTHUR ~~accompanying~~ANDERSEN ~~notes are an integral part of these consolidated financial statements.~~ LLP

San Diego, California

February 22, 2002

F-4

ELGAR HOLDINGS, INC. AND ~~SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)~~ SUBSIDIARY

					Year Ended Jan. 1, 2000			Year Ended Dec. 30, 2000			Year Ended Dec. 29, 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net loss				$	(4,183	)	$	(3,427	)	$	(10,184	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Amortization of intangibles				3,166			3,167			3,169
		Depreciation and amortization of property, plant and equipment				888			901			896
		Loss on sale of property, plant and equipment				23			4			205
		Provision for Deferred Income Taxes				—			—			1,449
		Changes in operating assets and liabilities:
			Accounts receivable			(2,085	)		(2,999	)		3,310
			Inventories			1,472			(3,077	)		1,120
			Prepaids and other			372			560			99
			Accounts payable			(1,416	)		1,631			(803	)
			Accrued liabilities			413			603			(467	)
				Net cash used in operating activities		(1,350	)		(2,637	)		(1,206	)
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of property, plant and equipment					(676	)		(1,254	)		(1,093	)
	Proceeds from sales of property, plant and equipment					2			2			8
				Net cash used in investing activities		(674	)		(1,252	)		(1,085	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from preferred stock issuance					4,000			—			—
	Proceeds from exercise of options					—			9			5
	Proceeds from line of credit					—			—			5,000
	Repayment on debt					(4,000	)		(375	)		(875	)
	Payments under capital leases					(4	)		—			—
				Net cash provided by (used in) financing activities		(4	)		(366	)		4,130
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS						(2,028	)		(4,255	)		1,839
CASH AND CASH EQUIVALENTS, beginning of period						6,507			4,479			224
CASH AND CASH EQUIVALENTS, end of period					$	4,479		$	224		$	2,063
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
	Cash paid for interest				$	9,826		$	9,843		$	9,674
	Cash paid (received) for income taxes, net					(581	)		(779	)		4
NON-CASH INVESTING & FINANCING ACTIVITIES:
	Series A preferred stock dividend-in-kind				$	1,135		$	1,252		$	113
	Series A, B and C preferred stock dividend accrual					502			590			1,894
	Accretion of discount on Series A preferred stock					166			167			166

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

	December 29, 2001			December 28, 2002
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	2,063		$	1,697
Accounts receivable, net of allowance for doubtful accounts of $204 and $163, respectively	6,942			7,330
Inventories	9,580			6,627
Prepaids and other	325			269
Total current assets	18,910			15,923

PROPERTY, PLANT AND EQUIPMENT, net	2,674			2,300
GOODWILL, net of accumulated amortization of $11,419	24,381			24,381
OTHER ASSETS, net of accumulated amortization of $2,994 and $2,955, respectively	3,697			4,810
	$	49,662		$	47,414

LIABILITIES AND STOCKHOLDERS’ DEFICIT

CURRENT LIABILITIES:
Accounts payable	$	2,576		$	1,432
Accrued liabilities	10,237			12,317
Line of credit	5,015			—
Current portion of long-term debt	8,783			—
Total current liabilities	26,611			13,749

LONG-TERM DEBT, net of current portion	90,000			110,000
Total liabilities	116,611			123,749
COMMITMENTS AND CONTINGENCIES (Notes 12 and 13)

SERIES A 10% CUMULATIVE REDEEMABLE PREFERRED STOCK, no par value, 20,000 shares authorized; 13,449 shares issued and outstanding	12,405			12,572

STOCKHOLDERS’ DEFICIT:
Series B 6% cumulative convertible preferred stock, no par value, 5,000 shares authorized, issued and outstanding	5,000			5,000
Series C 6% cumulative convertible preferred stock, no par value, 4,000 shares authorized, issued and outstanding	4,000			4,000
Common stock, $.01 par value, 15,000,000 shares authorized, 4,602,433 shares issued and outstanding	46			46
Additional paid-in capital	(68,567		)	(68,067		)
Accumulated deficit	(19,833		)	(29,886		)
Total stockholders’ deficit	(79,354		)	(88,907		)
	$	49,662		$	47,414

The accompanying notes are an integral part of these consolidated financial statements.

F-5

ELGAR HOLDINGS, INC. ~~NOTES~~ TOAND ~~CONSOLIDATED FINANCIAL STATEMENTS~~ SUBSIDIARY

~~1. Company~~CONSOLIDATED STATEMENTS ~~Operations~~ OF OPERATIONS

~~Elgar Holdings, Inc., a Delaware corporation~~ (~~the~~dollars ~~"Company"), manufactures and sells programmable power supply units through its wholly owned subsidiary,~~in ~~Elgar Electronics Corporation ("Elgar"~~thousands)~~, for commercial and military applications. The Company's primary sales are within the United States and Europe. The Company operates in one business segment.~~

In April 1996, the Company acquired all of the outstanding common stock of Elgar (the "Acquisition"). The Acquisition was accounted for as a purchase and, accordingly, the purchase price of $33 million was allocated to the assets acquired and liabilities assumed at their fair values. The excess of purchase price over the net assets acquired of approximately $19.7 million was recorded as goodwill, and is being amortized over 15 years on a straight line basis. The acquisition was funded with $14 million in cash and the proceeds from $19 million in term debt, which was paid off in connection with the Recapitalization (as defined below).

	Year Ended December 30, 2000			Year Ended December 29, 2001			Year Ended December 28, 2002
Net sales	$	65,786		$	58,696		$	48,355
Cost of sales	38,152			36,443			28,999
Gross profit	27,634			22,253			19,356
Selling, general and administrative expenses	11,337			11,741			9,943
Research, development and engineering expenses	6,675			6,170			4,793
Amortization of goodwill and non-compete agreements	2,435			2,435			48
Operating income	7,187			1,907			4,572
Interest expense	10,544			10,642			11,980
Loss before income taxes	(3,357		)	(8,735		)	(7,408		)
Provision for income taxes	70			1,449			—
Net loss	$	(3,427	)	$	(10,184	)	$	(7,408	)

In January 1998, the Company entered into an Agreement and Plan of Merger (the "Recapitalization Agreement") pursuant to which the Company was recapitalized on February 3, 1998 (the "Recapitalization"). Pursuant to the Recapitalization Agreement, all shares of the predecessor company's then-existing common stock, other than those retained by certain members of management and certain other stockholders (the "Continuing Shareholders"), were converted into the right to receive cash based upon a formula. The ~~Continuing~~accompanying ~~Shareholders agreed to retain approximately 15% of the common equity of the Company. In order to finance the Recapitalization, the Company (i) issued $90 million of senior~~ notes ~~in a debt offering,~~ ~~(ii) received~~are ~~$19 million in cash from~~ an ~~investor~~integral ~~group~~part ~~for common stock and (iii) received $10 million in cash for the issuance~~ of ~~redeemable~~these ~~preferred~~consolidated ~~stock.~~financial statements.

In May 1998, Elgar acquired all issued and outstanding shares of capital stock of Power Ten for $17.8 million in cash. The acquisition has been accounted for as a purchase. In connection with the acquisition, Elgar entered into non-compete agreements with the two former stockholders of Power Ten. At closing, Elgar paid each former stockholder $120,000 as consideration for their agreement not to compete. The acquisition was financed by the issuance of 5,000 shares of Series B Convertible Preferred Stock for $5 million in cash and borrowings of $15 million under the amended credit facility (see Note 6 and Note 7). In connection with the Power Ten acquisition and the financing thereof, Elgar recorded approximately $16.1 million of goodwill (representing the excess of purchase price over the net assets acquired) and approximately $0.9 million of deferred financing costs, both of which are included in intangible assets as of December 30, 2000 and December 29, 2001.

2. Going Concern Assumptions

The Company's financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the Company's financial statements during the years ended January 1, 2000, December 30, 2000 and December 29, 2001, the Company has incurred losses of $4.2 million, $3.4 million, and $10.2 million, respectively. The Company expects to continue to incur losses in Fiscal 2002.

The Company believes that its present cash balances will be sufficient to pay ongoing cash expenses only until approximately the end of the second quarter of 2002, and will not be sufficient to repay the amounts outstanding under the Company's credit facility on June 28, 2002. The Company has been notified by Bankers Trust, the lender under its credit facility, of its desire to have the full amount

F-6

ofELGAR ~~the outstanding loans under the credit facility~~HOLDINGS, ~~plus accrued but unpaid interest, repaid on June 28, 2002~~INC. ~~The~~AND Company expects to generate positive cash flows from operations by the end of fiscal 2002. However, given the Company's current cash balances, expected cash requirements for the credit facility repayment on June 28, 2002, the bond interest payment on August 1, 2002 and ongoing operations after the second quarter, the Company believes that it will be necessary for it to raise additional funds before the end of the second quarter of 2002 in order for the Company to continue its operations. Management is currently pursuing alternative financing sources, and has recently retained advisors to help the Company in this endeavor. Although the Company is currently in discussions with potential financing sources and investors, there can be no assurance that the Company will be able to obtain additional funding in the near future on acceptable terms, or at all. SUBSIDIARY

~~If the~~CONSOLIDATED ~~Company~~STATEMENTS ~~were~~OF ~~unsuccessful~~STOCKHOLDERS’ in obtaining this additional financing, substantial doubt exists as to the Company's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. The Company's continuation as a going concern is also dependent upon its ability to generate sufficient cash flows to meet its obligations on a timely basis, to obtain additional financing as may be required, and ultimately to attain profitability. DEFICIT

(dollars in thousands)

	Series B Preferred Stock			Series C Preferred Stock			Common Stock
	No. of Shares	Dollar Amount		No. of Shares	Dollar Amount		No. of Shares	Dollar Amount		Additional Paid— In Capital			Accumulated Deficit			Total
BALANCE, January 1, 2000	5,000	$	5,000	4,000	$	4,000	4,600,000	$	46	$	(68,581	)	$	(2,040	)	$	(61,575	)
Exercise of stock options	—	—		—	—		1,533	—		9			—			9
Series A preferred stock dividend-in-kind	—	—		—	—		—	—		—			(1,252		)	(1,252		)
Series B preferred stock dividend accrual	—	—		—	—		—	—		—			(335		)	(335		)
Series C preferred stock dividend accrual	—	—		—	—		—	—		—			(255		)	(255		)
Accretion of discount on Series A preferred stock	—	—		—	—		—	—		—			(167		)	(167		)
Net loss	—	—		—	—		—	—		—			(3,427		)	(3,427		)

BALANCE, December 30, 2000	5,000	5,000		4,000	4,000		4,601,533	46		(68,572		)	(7,476		)	(67,002		)
Exercise of stock options	—	—		—	—		900	—		5			—			5
Series A preferred stock dividend-in-kind	—	—		—	—		—	—		—			(113		)	(113		)
Series A preferred stock dividend accrual	—	—		—	—		—	—		—			(1,268		)	(1,268		)
Series B preferred stock dividend accrual	—	—		—	—		—	—		—			(355		)	(355		)
Series C preferred stock dividend accrual	—	—		—	—		—	—		—			(271		)	(271		)
Accretion of discount on Series A preferred stock	—	—		—	—		—	—		—			(166		)	(166		)
Net loss	—	—		—	—		—	—		—			(10,184		)	(10,184		)

BALANCE, December 29, 2001	5,000	5,000		4,000	4,000		4,602,433	46		(68,567		)	(19,833		)	(79,354		)
Contributed management services	—	—		—	—		—	—		500			—			500
Series A preferred stock dividend accrual	—	—		—	—		—	—		—			(1,814		)	(1,814		)
Series B preferred stock dividend accrual	—	—		—	—		—	—		—			(377		)	(377		)
Series C preferred stock dividend accrual	—	—		—	—		—	—		—			(287		)	(287		)
Accretion of discount on Series A preferred stock	—	—		—	—		—	—		—			(167		)	(167		)
Net loss	—	—		—	—		—	—		—			(7,408		)	(7,408		)
BALANCE, December 28, 2002	5,000	$	5,000	4,000	$	4,000	4,602,433	$	46	$	(68,067	)	$	(29,886	)	$	(88,907	)

The accompanying notes are an integral part of these consolidated financial statements.

F-7

ELGAR HOLDINGS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

	Year Ended December 30, 2000			Year Ended December 29, 2001			Year Ended December 28, 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(3,427	)	$	(10,184	)	$	(7,408	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of goodwill	2,387			2,387			—
Amortization of deferred financing costs and non-compete agreements	780			782			1,547
Depreciation and amortization of property, plant and equipment	901			896			810
Loss (gain) on sale of property, plant and equipment	4			205			(5		)
Contributed management services	—			—			500
Provision for deferred income taxes	—			1,449			—
Changes in operating assets and liabilities:
Accounts receivable	(2,999		)	3,310			(388		)
Inventories	(3,077		)	1,120			2,953
Prepaids and other assets	560			99			56
Accounts payable	1,631			(803		)	(1,144		)
Accrued liabilities	603			(467		)	(398		)
Net cash used in operating activities	(2,637		)	(1,206		)	(3,477		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(1,254		)	(1,093		)	(437		)
Proceeds from sales of property, plant and equipment	2			8			6
Net cash used in investing activities	(1,252		)	(1,085		)	(431		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options	9			5			—
Proceeds from borrowings	—			5,000			22,000
Repayments of borrowings	(375		)	(875		)	(15,798		)
Deferred financing costs	—			—			(2,660		)
Net cash provided by (used in) financing activities	(366		)	4,130			3,542
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(4,255		)	1,839			(366		)
CASH AND CASH EQUIVALENTS, beginning of year	4,479			224			2,063
CASH AND CASH EQUIVALENTS, end of year	$	224		$	2,063		$	1,697
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	9,843		$	9,674		$	10,378

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Series A preferred stock dividend-in-kind	$	1,252		$	113		$	—
Series A, B and C preferred stock dividend accrual	590			1,894			2,478
Accretion of discount on Series A preferred stock	167			166			167

The accompanying notes are an integral part of these consolidated financial statements.

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ELGAR HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Company Operations

Elgar Holdings, Inc., a Delaware corporation (the “Company”), manufactures and sells programmable power supply units through its wholly owned subsidiary, Elgar Electronics Corporation (“Elgar”), for commercial and military applications. The Company’s primary sales are within the United States and Europe. The Company operates in one business segment.

In April 1996, the Company acquired all of the outstanding common stock of Elgar (the “Acquisition”). The Acquisition was accounted for as a purchase and, accordingly, the purchase price of $33 million was allocated to the assets acquired and liabilities assumed at their fair values. The excess of purchase price over the net assets acquired of approximately $19.7 million was recorded as goodwill. The acquisition was funded with $14 million in cash and the proceeds from $19 million in term debt, which was paid off in connection with the Recapitalization (as defined below).

In January 1998, the Company entered into an Agreement and Plan of Merger (the “Recapitalization Agreement”) pursuant to which the Company was recapitalized on February 3, 1998 (the “Recapitalization”). Pursuant to the Recapitalization Agreement, all shares of the predecessor company’s then-existing common stock, other than those retained by certain members of management and certain other stockholders (the “Continuing Stockholders”), were converted into the right to receive cash based upon a formula. The Continuing Stockholders agreed to retain approximately 15% of the common equity of the Company. In order to finance the Recapitalization, the Company (i) issued $90 million of senior notes in a debt offering, (ii) received $19 million in cash from JFLEI for common stock and (iii) received $10 million in cash for the issuance of redeemable preferred stock.

In May 1998, Elgar acquired all issued and outstanding shares of capital stock of Power Ten for $17.8 million in cash. The acquisition has been accounted for as a purchase. In connection with the acquisition, Elgar entered into non-compete agreements with the two former stockholders of Power Ten. At closing, Elgar paid each former stockholder $120,000 as consideration for their agreement not to compete. The acquisition was financed by the issuance of 5,000 shares of Series B convertible preferred stock for $5 million in cash and borrowings of $15 million under a former credit facility. In connection with the Power Ten acquisition, Elgar recorded approximately $16.1 million of goodwill (representing the excess of purchase price over the net assets acquired).

2. Liquidity and Capital Resources

For the Fiscal Year Ended December 29, 2001

The Company’s financial statements for the year ended December 29, 2001 (“Fiscal 2001”) were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the Company’s financial statements during the years ended December 30, 2000 and December 29, 2001, the Company incurred losses of $3.4 million, and $10.2 million, respectively. The Company expected to continue to incur losses during the year ended December 28, 2002 (“Fiscal 2002”).

As of December 29, 2001, the Company believed that its cash balances were sufficient to pay ongoing cash expenses only until approximately the end of the second quarter of Fiscal 2002, and would not be sufficient to repay the amounts outstanding under the Company’s old credit facility due on June 28, 2002. The Company had been notified by Bankers Trust, the lender under the old credit facility, of its desire to have the full amount of the outstanding loans under the old credit facility, plus accrued but unpaid interest, repaid on June 28, 2002. The Company expected to generate positive cash flows from operations by the end of Fiscal 2002. However, given the Company’s cash balances at the end of Fiscal

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2001, expected cash requirements for the old credit facility repayment on June 28, 2002, the interest payment on Senior Notes due August 1, 2002 and ongoing operations after the second quarter, the Company believed it would be necessary for it to raise additional funds before the end of the second quarter of Fiscal 2002 in order for the Company to continue its operations. Management pursued alternative financing sources subsequent to December 29, 2001.

Due to the uncertainty as of December 29, 2001 of securing alternative financing sources, substantial doubt existed as to the Company’s ability to continue as a going concern. The financial statements did not include any adjustments relating to the recoverability and classification of assets and liabilities that might be necessary had the Company been unable to continue as a going concern. The Company’s continuation as a going concern was also dependent upon its ability to generate sufficient cash flows to meet its obligations on a timely basis, to obtain additional financing as may be required, and ultimately to attain profitability.

For the Fiscal Year Ended December 28, 2002

As more fully described in Note 6, on June 26, 2002 the Company obtained alternative financing through Ableco Finance, LLC (“Ableco”). Throughout Fiscal 2002, using a combination of operating cash flows and funds available under its revolving credit facility with Ableco, the Company was able to generate sufficient cash flows to meet its obligations as they were due, including interest payments on the Senior Notes.

Events Subsequent to the Fiscal Year Ended December 28, 2002

Exchange Agreement

On April 16, 2003, the Company entered into an Exchange Agreement (the “Exchange Agreement”) with J.F. Lehman Equity Investors I, L.P. (“JFL”), Jackson National Life Insurance Company, Old Hickory Fund I, L.L.C., Indosuez Electronics Partners (collectively, the “Consenting Stockholders”) and OCM/GFI Power Opportunities Fund, L.P. and OCM Principal Opportunities Fund II, L.P. (collectively, the “Oaktree Entities”), in their capacity as holders, directly or indirectly, of 73% of the Company’s outstanding Senior Notes. The Exchange Agreement requires the Company to make an exchange offer and consent solicitation to the holders of its $90,000,000 of 9-7/8% Senior Notes, asking such holders to exchange their Senior Notes for an aggregate of (i) $60,000,000 of 9% senior notes due February 1, 2008 (the “New Notes”), (ii) $30,000,000 in stated liquidation value of Series D 10.5% senior cumulative redeemable preferred stock due February 1, 2008 (the “New Preferred Stock”) and (iii) 750,000 shares of new common stock, representing, without giving effect to the transactions described in the immediately succeeding paragraph, 75% of the Company’s common stock to be outstanding upon completion of the restructuring transactions. The Exchange Agreement contemplates that the exchange offer may offer the holders of Senior Notes (other than the Oaktree Entities, JFL or any of their affiliates) the option to have their Senior Notes repurchased by the Company, for an amount of cash to be determined, rather than exchanged for the basket of securities described above. The Company currently contemplates that the exchange offer will commence on or about May 15, 2003, although that is subject to change.

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completion of the restructuring would increase proportionately). Until the restructuring occurs, JFL’s $4,800,000 investment will be used as collateral for the Bridge Notes discussed below.

Upon issuance of the New Notes, New Preferred Stock and common stock as described above, through an amendment to the Company’s charter to be effected immediately prior to the completion of the restructuring, (a) the Company’s currently outstanding shares of Series A preferred stock would be converted into (i) an aggregate of $3,500,000 in stated liquidation value of New Preferred Stock and (ii) 125,000 shares of new common stock, and (b) the Company’s currently outstanding shares of common stock and Series B and Series C convertible preferred stock would be converted into an aggregate of 125,000 shares of new common stock, with the allocation of those shares of new common stock to be made pro rata on an as-converted basis, assuming the shares of Series B and Series C preferred stock had been converted into common stock immediately prior to the restructuring.

The Exchange Agreement also contemplates the extension of a bridge loan and the repayment of the Company’s credit facility with Ableco Finance, LLC (“Ableco”), as described immediately below.

Bridge Loan

On April 16, 2003, in connection with entering into the Exchange Agreement, the Company and Elgar entered into a loan agreement (the “Bridge Notes”) with the Oaktree Entities in the amount of $25,000,000, bearing interest at 10% per annum, payable monthly in arrears, and secured by substantially all assets of the Company. The Bridge Notes mature on the earlier of (i) completion of the restructuring transactions contemplated by the Exchange Agreement and (ii) August 1, 2003.

On the same date, Elgar used approximately $20.6 million of the proceeds from the Bridge Notes to repay in full its credit facility with Ableco, which facility was thereafter terminated. After the payment of fees and expenses related to the Exchange Agreement and Bridge Notes, Elgar retained about $3.2 million of proceeds from the Bridge Notes for cash reserve and working capital purposes.

Upon completion of the transactions contemplated by the Exchange Agreement, unless the Bridge Notes are repaid with the proceeds of a new third-party credit facility, any amounts that remain outstanding under the Bridge Notes would be exchanged for a term note of like amount bearing interest at the greater of 12% or a rate of interest equal to a reference rate plus 8% (the “Term Note”). The Term Note would have a stated maturity of August 1, 2007, would be secured by substantially all of the assets of the Company and would have the benefit of quarterly sinking fund payments of $1,000,000, with the first such payment by Elgar due on November 1, 2003. To the extent the Company refinances a portion of the Term Note subsequent to the closing of the exchange described above, the Oaktree Entities have agreed under certain circumstances to exchange their interests in the Term Notes for participations in such replacement financing.

Upon completion of the transactions contemplated by the Exchange Agreement and based upon current and anticipated levels of operations, as well as additional funds available under the Bridge Notes, the Company believes that its cash resources will be adequate to meet its anticipated cash requirements through the year ending January 3, 2004 (“Fiscal 2003”).

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3. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Elgar. All significant intercompany accounts and transactions have been eliminated in consolidation.

Fiscal Year

The Company operates and reports financial results on a fiscal year of 52 or 53 weeks that ends on the Saturday closest to December 31.

Cash and Cash Equivalents

Cash equivalents at December 30 29, ~~2000~~2001 and December 29 28, ~~2001~~2002 consist of a money market ~~account~~accounts in a financial institution.

Inventories

Inventories, which include materials, direct labor and manufacturing overhead, are stated at the lower of cost (first-in, first-out) or market.

Property, Plant and Equipment

Property, plant and equipment is recorded at cost. Depreciation of property, plant and equipment is provided using the straight-line method over the estimated useful lives of the related assets. Maintenance, ~~repairs~~ and ~~betterments~~repairs are expensed as incurred.

~~F-7~~ Goodwill and Other Assets

Goodwill ~~Intangible~~represents the excess of purchase price over net book value of assets acquired in connection with acquisitions and was amortized on a straight-line basis over its estimated useful life of 15 years through December 29, 2001. Effective December 30, 2001, under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets ”, goodwill is no longer amortized. Other assets, as reflected on the Company’s balance sheet, consist of deferred financing costs incurred in connection with the Recapitalization, the non-compete agreements relating to the Power Ten acquisition and the June 2002 refinancing of Elgar’s prior credit facility with a new credit facility. The components of other assets are being amortized on a straight-line basis over their estimated useful lives, ranging from 4 to 10 years.

~~Intangible~~ The ~~assets~~Company ~~represent~~periodically ~~(i)~~ re-evaluates the original ~~excess~~assumptions ofand ~~purchase~~rationale ~~price~~utilized ~~over~~in ~~net~~the ~~book~~establishment ~~value~~ of ~~assets~~the carrying ~~acquired~~value inand ~~connection~~estimated ~~with~~useful ~~acquisitions,~~lives ~~(ii) deferred financing~~of ~~costs~~these ~~incurred~~assets. inThe ~~connection~~criteria ~~with~~used for ~~the~~these ~~Recapitalization~~evaluations ~~and~~include ~~the~~management’s ~~Power~~estimate ~~Ten~~of ~~acquisition~~the ~~and~~assets’ ~~(iii) agreements~~continuing ability ~~not~~ to ~~compete~~generate ~~relating~~income tofrom ~~the~~operations ~~Power~~and ~~Ten~~positive ~~acquisition.~~cash ~~The~~flows ~~components~~in offuture ~~intangible~~periods ~~assets~~as ~~are~~well ~~being~~as ~~amortized~~the onstrategic asignificance ~~straight-line~~of ~~basis~~the ~~over~~intangible ~~their~~assets ~~estimated~~to ~~useful~~the Company’s ~~lives,~~business ~~ranging from 5 to 15 years~~activity.

~~The Company~~ Inventory periodically re-evaluates the original assumptions and rationale utilized in the establishment of the carrying value and estimated useful lives of these assets. The criteria used for these evaluations include management's estimate of the assets' continuing ability to generate income from operations and positive cash flows in future periods as well as the strategic significance of the intangible assets to the Company's business activity. Reserves

We periodically re-evaluate all inventory for potential excess and obsolete material. We reserve excess material based on a percentage of the inventory that is deemed to be in excess of one year’s

F-12

forecast demand, while we reserve obsolete inventory at 100% of carrying value. We also periodically adjust our standard costs for material purchase costs, labor hours and wage rates, and overhead burden applied. We reserve for these standard cost changes based on a combined estimate of the future inventory change.

Warranty

In the normal course of business, the Company issues product warranties of one to five years for specific product lines and provides for the estimated future warranty cost in the period in which the sale is recorded. The Company provides for the estimate of warranty cost based on contract terms and historical warranty loss experience that is periodically adjusted for recent and actual experience. Because warranty estimates are forecasts that are based on the best available information, claims costs may differ from amounts provided. Adjustments to initial obligations for warranties are made as changes in the obligations become reasonably estimable. The following is an analysis of the product warranty accrual in for the year ended December 28, 2002 (in thousands):

Balance at beginning of year	$	490
Provisions	914
Usage	(931		)
Balance at end of year	$	473

Income Taxes

The Company accounts for income taxes in accordance with ~~Statement of Financial Accounting Standards (~~SFAS) No. 109, "“Accounting for Income Taxes,"” which requires the use of the asset and liability method in providing for income taxes. Under the asset and liability method, deferred tax assets and liabilities are established to recognize the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which temporary differences are expected to be recovered or settled. The effects on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded for deferred tax assets when their realization is not reasonably assured.

Revenue Recognition

For sales of products, the Company recognizes revenue upon shipment of goods and the passage of title to the customer. For sales of services, the Company recognizes revenue as the related services are performed. The Company'’s revenue recognition policies are in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 101, "“Revenue Recognition in Financial Statements"” ("“SAB 101"”).

Customer-Funded Research and Development

The Company capitalizes certain costs associated with customer-funded research and development. Revenue is recorded when earned under such projects and costs incurred are charged to cost of sales. Customer-funded research and development was $0.7 5 million for the year ended ~~January 1~~December 30, 2000 (“Fiscal 2000”), $0.5 3 million for the year ended December 30 29, ~~2000~~2001 (“Fiscal 2001”) and $0.34 million for the year ended December 29 28, ~~2001.~~2002 (“Fiscal 2002”).

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Stock-Based Compensation Accounting

The Company accounts for stock-based compensation in accordance with the provisions of SFAS No. 123, "“Accounting for Stock-based Compensation." ” The Company has elected to measure compensation expense for its stock-based employee compensation plans using the intrinsic value method prescribed by Accounting Principles Board (“APB”) Opinion No. 25, "“Accounting for Stock Issued to Employees",” and has provided pro forma disclosure as if the fair value based method prescribed by SFAS No. 123 had been utilized.

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Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The carrying value of ~~certain of~~ the Company'’s ~~financial instruments, including~~ accounts receivable, accounts payable and accrued liabilities, approximates fair value due to their short term nature. The carrying amount of the term loan and revolver under the Ableco Facility approximates fair value because the actual interest rates do not significantly differ from current rates offered for similar instruments.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board ("“FASB"”) issued SFAS No. ~~141~~ 142, ~~"Business~~“Goodwill and ~~Combinations"~~Other ~~("SFAS~~Intangible NoAssets”. ~~141").~~

Filing Compare · ELGAR HOLDINGS INC