<PAGE>

                            MANAGEMENT SERVICES AGREEMENT

     This Management Services Agreement ("Agreement") is entered into on
September 15, 1998, effective as of February 3, 1998, by and among Elgar
Holdings, Inc., a Delaware corporation ("Holdings"), Elgar Electronics
Corporation, a California corporation ("Elgar"), and J.F. Lehman & Company,
Inc., a Delaware corporation ("JFL").

     WHEREAS, Elgar is engaged in the business, INTER ALIA, of designing,
manufacturing, marketing, servicing and repairing power supply systems for both
commercial and military applications.  Elgar conducts such business operations
worldwide, but is focused primarily in the United States.

     WHEREAS, key personnel of JFL have substantial expertise that is useful to
Elgar.  Elgar desires to obtain management services from JFL, and JFL desires to
provide management services to Elgar, all on the terms and conditions of this
Agreement; and

     WHEREAS, Holdings, Elgar and JFL entered into that certain Management
Agreement, dated as of February 3, 1998, which provides for, among other things,
the payment to JFL by Elgar of:  (i) a fee for JFL's efforts in connection with
Holdings' recapitalization; (ii) an annual management services fee (which
portion of the Management Agreement is intended to by superseded by this
Agreement and an amendment to the Management Agreement); (iii) fees in
connection with certain future acquisition and financing transactions; and (iv)
JFL's out-of-pocket expenses for services performed;

     WHEREAS, by entering into this Agreement and the amendment to the
Management Agreement of even date herewith (as amended, the "Management
Agreement"), Holdings, Elgar and JFL intend that (i) this Agreement shall set
forth the terms of the management services to be provided by JFL to Elgar on an
annual basis and the payment by Elgar to JFL therefor and (ii) the Management
Agreement shall continue in full force and effect as so amended.

     NOW, THEREFORE, in consideration of the premises and the covenants and
conditions contained herein, the parties hereto agree as follows:

     1.   AGREEMENT TO PROVIDE MANAGEMENT SERVICES.  JFL hereby agrees to
provide to Elgar and at Elgar's request the management services ("Services")
listed in Schedule "A" attached hereto and hereby made a part hereof.  JFL's key
personnel will devote as much of their business time and effort to the provision
of Services hereunder as is reasonably required for the prompt and efficient
accomplishment of the Services to be provided, and will not, except with Elgar's
express consent, accept undertakings for other clients that are likely to
interfere or conflict with their availability to perform Services when required
hereunder.  JFL agrees further to comply with the reasonable directions of Elgar
and to use its best efforts to promote Elgar's interests.

     2.   MANAGEMENT FEES.  In consideration for the advisory and consulting
services to be rendered by JFL to Elgar hereunder, including services in
connection with strategic financial planning, investment management, management
and administration and other matters relating to the business and operations of
Elgar, Elgar shall pay to JFL a fee (the "Annual Fee") in the

<PAGE>

amount of $500,000 per annum for each year during the period commencing on
February 3, 1998 and ending on the date of termination this Agreement.  The
Annual Fee shall be payable semi-annually in advance on February 3, 1998 and
on the first day of each July and January thereafter during the term of this
Agreement.  Such management fees are allocated among the Services as shown on
Schedule A, and except as otherwise provided in Section 8 below, are fully
earned when paid, whether or not any particular Service, or any Service at
all, is requested or provided in a particular semi-annual period.

     3.   EXPENSES.  Elgar shall reimburse JFL promptly upon request for travel
and other out-of-pocket expenses reasonably incurred in connection with the
performance of Services pursuant to this Agreement, subject to the provision by
JFL of satisfactory documentation of such expenses.  Salaries of JFL employees
and the ordinary expenses of maintaining JFL's offices are not reimbursable
expenses pursuant to this Agreement.

     4.   INTEREST.  In the event that either Holdings or Elgar shall fail to
pay all or any part of the fees or out-of-pocket expenses described in Section 2
or Section 3 hereof within 10 days after the date when due, then JFL shall be
entitled to interest on the unpaid amount thereof at a rate equal to 10% per
annum until paid.

     5.   INDEMNIFICATION.  Holdings and Elgar will jointly and severally
indemnify and hold harmless JFL, its affiliates and their respective partners
(both general and limited), officers, directors, employees, agents and
representatives (each such person being an "INDEMNIFIED PARTY") from and against
any and all losses, claims, damages and liabilities, whether joint or several
(the "LIABILITIES"), related to, arising out of or in connection with the
services contemplated by this Agreement or the engagement of JFL pursuant to,
and the performance by JFL of the services contemplated by, this Agreement.
Holdings and Elgar will jointly and severally reimburse any Indemnified Party
for all reasonable costs and expenses (including reasonable attorneys' fees and
expenses) as are incurred in connection with investigating, preparing, pursuing,
defending or assisting in the defense of any action, claim, suit, investigation
or proceeding for which the Indemnified Party would be entitled to
indemnification under the terms of the previous sentence, or any action or
proceeding arising therefrom, whether or not such Indemnified Party is a party
hereto.  Neither Holdings nor Elgar will be liable under the foregoing
indemnification provision with respect to any Indemnified Party, to the extent
that any loss, claim, damage, liability, cost or expense is determined by a
court, in a final judgment from which no further appeal may be taken, to have
resulted primarily from the gross negligence or willful misconduct of JFL.

     6.   CONSULTING RELATIONSHIP.  It is understood and agreed that JFL shall
for all purposes hereof be deemed to be an independent contractor and shall not,
unless otherwise expressly authorized by the Holdings or Elgar, as the case may
be, have any authority to act for or represent Holdings or Elgar in any way,
execute any transaction on behalf of Holdings or Elgar or otherwise be deemed an
agent of Holdings or Elgar.  No federal, state or local withholding deductions
shall be withheld from the fees and other amounts payable to JFL pursuant to
this Agreement unless otherwise required by law.

     7.   TERM AND TERMINATION.  This Agreement shall be effective as of
February 3, 1998 and shall continue in effect until the earliest to occur of (i)
February 3, 2003 and (ii) the

                                      2
<PAGE>

closing of a sale to an entity which is not an "Affiliate" (as defined in
Section 12b-2 of the Securities Exchange Act of 1934) of Holdings or any of
its existing shareholders on the effective date hereof of all or
substantially all of the capital stock or assets of Holdings.  The provisions
of Sections 3, 4 and 5 and otherwise as the context so requires shall survive
the termination of this Agreement.

     8.   REPRESENTATIONS AND WARRANTIES OF JFL.  JFL represents and warrants
that it is not a party to or bound by any agreement or contract or subject to
any restrictions, particularly, but without limitation, in connection with any
previous or other consulting relationship, which prevents JFL from entering into
and performing its obligations under this Agreement.

     9.   MISCELLANEOUS.

          (a)  No amendment or waiver of any provision of this Agreement, or
consent to any departure by either party hereto from any such provision, shall
be effective unless the same shall be in writing and signed by each of the
parties hereto.  Any amendment, waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.

          (b)  Any and all notices hereunder shall, in the absence of receipted
hand delivery, be deemed duly given when mailed, if the same shall be sent by
registered or certified mail, return receipt requested, and the mailing date
shall be deemed the date from which all time periods pertaining to a date of
notice shall run.  Notices shall be addressed to the parties at the following
addresses:


        If to JFL:            J.F. Lehman & Company, Inc.
                              450 Park Avenue
                              New York, New York 10022
                              Attention:  Mr. Donald Glickman

        If to Holdings or     Elgar Electronics Corporation
        Elgar:                9250 Brown Deer Road
                              San Diego, CA 92121
                              Attention:  Mr. Kenneth R. Kilpatrick


          (c)  This Agreement, along with the Management Agreement, shall
constitute the entire agreement between the parties with respect to the subject
matter hereof, and shall supersede all previous oral and written (and all
contemporaneous oral) negotiations, commitments, agreements and understandings
relating hereto.

          (d)  THIS AGREEMENT SHALL BE GOVERNED BY, AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE
AND TO BE PERFORMED IN THAT STATE. This Agreement shall inure to the benefit of,
and be binding upon, JFL, Holdings and Elgar, and their respective successors
and permitted assigns.  None of the rights or obligations of the parties
hereunder may be assigned by either party without the prior written consent of
the

                                      3
<PAGE>

other party hereto, PROVIDED that JFL may assign its rights and obligations
hereunder to any corporation or other entity controlled by or under common
control with JFL.

          (e)  This Agreement may be executed by one or more parties to this
Agreement on any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.

          (f)  The waiver by any party of any breach of this Agreement shall not
operate as or be construed to be a waiver by such party of any subsequent
breach.

          (g)  Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

                                      4
<PAGE>


     IN WITNESS WHEREOF, this Agreement has been executed all as of the date
first above written.

                              ELGAR HOLDINGS, INC.

                              By:  /s/ Kenneth R. Kilpatrick
                                   --------------------------------------
                                   Kenneth R. Kilpatrick
                                   President and Chief Executive Officer


                              ELGAR ELECTRONICS CORPORATION

                              By:  /s/ Kenneth R. Kilpatrick
                                   --------------------------------------
                                   Kenneth R. Kilpatrick
                                   President and Chief Executive Officer


                              J.F. LEHMAN & COMPANY, INC.

                              By:  /s/ Donald Glickman
                                   --------------------------------------
                                   Donald Glickman
                                   Managing Principal


                                      5
<PAGE>

                                     SCHEDULE A

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 DETAILED MANAGEMENT SERVICES                                    SEMI-ANNUAL FEE
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<S>                                                             <C>
 Strategic planning; development of new products for
   U.S. Navy and other Military Branches........................     $40,000.00
--------------------------------------------------------------------------------
 Strategic planning; development of new commercial
   products.....................................................      40,000.00
--------------------------------------------------------------------------------
 Strategic planning--marketing..................................      20,000.00
--------------------------------------------------------------------------------
 Strategic planning--other opportunities........................      20,000.00
--------------------------------------------------------------------------------
 Oversight and supervision; contracting and contract
 compliance.....................................................      40,000.00
--------------------------------------------------------------------------------
 Supervise investor relations...................................       3,000.00
--------------------------------------------------------------------------------
 Security compliance............................................       3,000.00
--------------------------------------------------------------------------------
 Advice on engineering issues...................................      20,000.00
--------------------------------------------------------------------------------
 Application of existing commercial products to
   military operations..........................................      30,000.00
--------------------------------------------------------------------------------
 Arrangement/management of domestic bank facilities.............      10,000.00
--------------------------------------------------------------------------------
 Assistance in identifying/retaining key personnel
   and other service providers..................................      10,000.00
--------------------------------------------------------------------------------
 Advice on cash flow management.................................      10,000.00
--------------------------------------------------------------------------------
 Advice on potential acquisitions...............................       4,000.00
                                                                    -----------
--------------------------------------------------------------------------------
      TOTAL SEMI-ANNUAL MANAGEMENT FEES.........................    $250,000.00
                                                                    -----------
                                                                    -----------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>