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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549


FORM 10-K

|                                    |  |                                                                                                                                          
|----------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|(Mark one)                         
|x                                   |  | ANNUAL REPORT PURSUANT TO SECTION 13 or
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR
    ENDED DECEMBER 31, 2002.
|                                   
|o                                   |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.                                            
|Commission file Number 333-49429-01

Prestolite Electric Holding, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                            
|------------------------------------------------------------------ |  | -------------------------------------------
|Delaware                                                           |  | 94-3142033                                 
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification Number)
|                                                                  
|2311 Green Rd., Ste B, Ann Arbor,
    Michigan                     |  | 48105                                      
|(Address of principal executive offices)                           |  | (Zip Code)                                 

(734) 913-6600

(Registrants telephone number, including
area code)


Not Applicable

(Former name, address, and former fiscal year, if
changed since last report)


Indicate 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 the filing requirements for the
past 90 days.

Yes ü               No

As of
March 26, 2003, there were 1,969,000 shares of the
registrants common stock outstanding. There is no public
market for the registrants common stock.



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TABLE OF CONTENTS



|                                                         |  |  |  |  |  |  |  | 
|-------------------------------------------------------- |  |  |  |  |  |  |  | 
|PART I                                                  
|PART II                                                 
|Report of Independent Accountants                       
|CONSOLIDATED BALANCE SHEETS                             
|CONSOLIDATED STATEMENT OF OPERATIONS                    
|CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (DEFICIT)
|CONSOLIDATED STATEMENT OF CASH FLOWS                    
|NOTES TO FINANCIAL STATEMENTS                           
|SCHEDULE II                                             
|PART III                                                
|PART IV                                                 
|SIGNATURES                                              
|Amendment No. 3 to the Credit Agreement                 
|Commercial Variable Rate Loan Agreement                 
|Advice of Borrowing Terms                               
|Interest Rate Swap Agreement                            
|Argentina Financial Statements and Notes                
|Sec. 906 Certification of Chief Executive Officer       
|Sec. 906 Certification of Chief Financial Officer       



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This annual report on Form 10-K of
Prestolite Electric Holding, Inc. includes forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements other than
statements of historical fact included in this report may
contain forward-looking statements. Forward-looking statements
generally can be identified by the use of forward-looking
terminology such as may, will,
expect, intend, estimate,
anticipate, believe or
continue or the negative thereof or variations
thereon or similar terminology. Such forward-looking statements
are based upon information currently available in which our
management shares its knowledge and judgment about factors that
they believe may materially affect our performance. We make the
forward-looking statements in good faith and believe them to
have a reasonable basis. However, such statements are
speculative, speak only as of the date made and are subject to
certain risks, uncertainties and assumptions. Should one or more
of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results could
vary materially from those anticipated, estimated or expected.
Factors that might cause actual results to differ materially
from those in such forward-looking statements include, but are
not limited to, those discussed in Item 1.
Business  Risk Factors and Item 7.
Managements Discussion and Analysis of Financial
Condition and Results of Operations. All subsequent
written and oral statements that we make are qualified in their
entirety by these factors.

Readers are urged to carefully review and
consider disclosures made in this and other reports that we file
with the Securities and Exchange Commission that discuss factors
germane to our business.



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PART I


Item 1. Business

We are a global manufacturer and distributor of
alternators and starter motors for heavy duty, automotive,
defense and industrial markets. We sell our products primarily
to the aftermarket and to original equipment manufacturers
(OEMs). On January 22, 1998, we acquired three
businesses from a subsidiary of LucasVarity plc. As a result of
the Lucas acquisition, we consolidated a leadership position in
our primary markets, expanded our global reach and improved our
aftermarket distribution capabilities. We conduct our business
through our operating subsidiary Prestolite Electric
Incorporated and its subsidiaries.

We believe that our position in our primary
markets can be attributed to the following factors:

Product Quality and Brand
Recognition.We believe our products
are generally recognized by our customers as superior based on
their advanced technology, reliability, durability and quality.

Attractive Aftermarket/ Original Equipment
Balance.In 2002 approximately 46% of
our net sales were to OEM customers and 54% to aftermarket
customers. The aftermarket is generally a more stable source of
sales and generates higher margins than sales to our OEM
customers. See  Risk Factors  We
depend on original equipment manufacturers, whose businesses are
cyclical. We believe that our aftermarket and original
equipment businesses are complementary and provide us with a
competitive advantage in meeting customer needs and in
maintaining the high levels of expertise necessary to compete
successfully in both markets. The engineering and manufacturing
capabilities necessary to meet the requirements for original
equipment technology and quality are transferable to our
aftermarket operations. The use of our products as original
components in OEM products is a major factor in generating
aftermarket demand. Further, the understanding of replacement
activity gained through the aftermarket enhances our
understanding of the needs of OEMs. See  Market
Dynamics.

Applied Technological and Engineering
Capabilities.We have built an
engineering team with in-depth design and application
experience, which allows us to introduce innovative new products
and applications. Product design, development and application
are performed by dedicated engineering teams, which work closely
with customers to design products and systems that meet each
customers specifications.

International
Presence.We currently conduct
business in the United States, the United Kingdom, South Africa,
China and Argentina. Approximately 47% of our net sales in 2002
were to customers outside of North America. As our original
equipment customers expand their manufacturing operations in
foreign countries, we expect that these customers will
increasingly turn to suppliers who can support their
locally-manufactured OEM products and aftermarket requirements.
See  Risk Factors  We have risks
because of foreign operations.

Products

We manufacture and distribute alternators and
starter motors, primarily for use in heavy duty vehicles and
automobiles. Our products are also used in a broad range of
industrial applications.

Alternators.We
manufacture alternators and regulators primarily for heavy duty
applications, generally under the Leece-Neville or Prestolite
brand names, and for automotive applications. Alternators are
electric generators that produce rectified direct current.
Alternator output is directly related to frame size, or
diameter. We manufacture alternators in sizes ranging from
5 inches to 8 9/16 inches (127mm to 217mm) for
use in off-road vehicles, refrigerated trucks, trucks, generator
sets, military vehicles, buses and special purpose vehicles such
as ambulances. We produce smaller alternators for a wide variety
of cars, light to medium trucks and agricultural vehicles.

Starter Motors.We
manufacture a full line of starter motors which includes
products designed for the lower-end and mid-size segments of the
market. In the United Kingdom, we manufacture a range of heavy
duty starter motors which are sold primarily for trucks, buses
and generator sets.

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Other Products.Other products we manufacture include ignition distributors, the
TrekStar line of speedometers and odometers, in-line diesel
pumps, and Thermostart brand pre-heaters for diesel engines. We
also redistribute in Argentina and South Africa a range of
automotive products manufactured by third parties.

Markets

Market
Dynamics

Aftermarket.The
aftermarket consists of the production and sale of both new and
remanufactured parts used in the maintenance and repair of
vehicles. Our aftermarket distribution channels consist of:



| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| |  | the aftermarket arms of original equipment
    suppliers;                        
|
| |  | independent distributors, who supply repair
    shops, dealers and retailers; and
|
| |  | government agencies that directly purchase our
    aftermarket products.         

Our newly-manufactured aftermarket products
compete with remanufactured products, which consist of used
components that are reassembled into finished products.
Distribution through independent distributors is an additional
important element of the aftermarket. Although the
distributors share of the North American and European
aftermarket has declined in recent years, independent
distributors continue to be important.

Original Equipment.The original equipment market consists of the production and
sale of new component parts for use in the manufacture of new
vehicles or equipment. Original equipment sales are generally
made to the vehicle OEM, although some sales may be to another
component manufacturer, which in turn supplies the OEM.

Markets
Served

We sell our products to a variety of markets,
including:

Heavy Duty.The
heavy-duty market includes heavy-duty trucks, school and shuttle
buses, emergency vehicles, off-road and special purpose
vehicles, refrigerated trucks and generator sets. Our heavy-duty
products are designed primarily for use with diesel engines,
generally 2.5 liters or larger.

Automotive.Products
sold to automobile OEMs are primarily starter motors and
alternators in Argentina and South Africa.

Defense.Our
products sold to the defense market include alternators and
starter motors for use in military vehicles.

Industrial, Marine and Other
Applications.These sales include
starter motors and alternators for marine and other applications.

Independent
Distribution.A portion of sales to
each of our markets are through independent distributors.

Customers and Competition

Most of our products are component parts used on
diesel or gasoline engines. Vehicle components often do not last
for the entire life of the vehicle. As a result, sales are made
to both aftermarket and original equipment customers. Our sales
to OEM customers represented approximately 46% of our 2002 net
sales, with the remaining sales derived from aftermarket
customers.

No single customer individually accounts for more
than ten percent of our consolidated revenues.

We operate in highly competitive markets. While
no single competitor competes with us in all of our product
lines, we face significant competition in each of our product
lines. In addition, we are under constant pressure from our
major OEM customers to reduce product costs. We believe that our
experience in engineering and implementing cost reduction
programs and our ability to develop new and improved products
and to control manufacturing and development costs should allow
our products and prices to remain competitive. See
 Risk Factors  We face substantial
competition.

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Delco Remy International Inc. is our principal
competitor in the North American market for truck alternators
and starter motors in both the OEM and aftermarket segments.
Some national and many local remanufacturers also compete in the
aftermarket segment. Our principal competitor in the North
American transportation refrigeration and off-road portions of
the market for heavy duty alternators is Bosch. Bosch is also
our principal competitor in the European market for truck and
bus alternators and starters. Our principal competitors in the
South African and Argentine OEM market include Bosch and other
international corporations that import into those markets.
C.E. Niehoff is our major competitor in the North American
market for military alternators. Our principal competitors in
the market for high-amperage (165 to 320 ampere) commercial
alternators are Lestek and Powerline. At the lower end of the
heavy duty alternator market, automotive-based designs and
foreign competitors are a significant factor.

Discontinued Operations

In August of 2000 we sold our direct current
motor business, switch business and battery charger business. As
discussed in Note 3 of our audited financial statements,
these businesses generated approximately $44 million of
sales during the seven months of our ownership in 2000. We treat
these as discontinued operations in the financial
statements. Consequently, they are not included in the
discussion above and the sales of these businesses are not
included in the consolidated sales shown in our financial
statements.

We sold these businesses for a total contract
price of $62.0 million, less certain receivables and
subject to certain adjustments. The adjusted sale price was
approximately $57.4 million.

Seasonality, Raw Materials and
Backlog

Our sales to OEMs accounted for approximately 46%
of our net sales for the year ended December 31, 2002. As a
result, a significant portion of our sales are related to the
overall level of domestic and foreign vehicle production. New
vehicle sales and production are cyclical and can be affected by
the strength of the economy generally or in specific regions, by
prevailing interest rates and other factors which may have an
effect on our sales. In addition, strikes, lock-outs, work
stoppages or other production interruptions in the vehicle
industries may adversely affect the demand for our products. The
balance of our aftermarket and OEM sales, as well as the
diversity of our OEM markets served (both in terms of end-use
and geography), help stabilize our revenues. However, a decline
in the demand for or production of new vehicles could have a
materially adverse effect on our results of operations. See
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations.

Principal raw materials for our business include
copper, aluminum, steel and electronic components. All materials
are readily available from a number of suppliers, and we do not
foresee any difficulty in obtaining adequate inventory supplies.

The majority of our products are not on a backlog
status. They are produced from readily available materials and
have a relatively short manufacturing cycle.

Patents, Trademarks and Licenses

We hold various patents and trademarks related to
our products. No single patent or trademark is currently of
material importance to our operations. We have applied for U.S.
patents for our self-diagnostic alternator and for the use of a
conductive bearing to replace brushes in alternators and other
rotating machines.

We have the exclusive right to use the
Prestolite Electric trade name for use with
alternator and starter motors. Prestolite Wire,
Prestolite Batteries, Prestolite Motors,
and Prestolite Switches are sold by unrelated
companies. We formerly had the right to the Prestolite
Electric name under a perpetual, royalty-free license from
AlliedSignal Corporation (now Honeywell Incorporated). At the
end of 1999, we formed a limited liability company that acquired
the rights to the Prestolite name from AlliedSignal.

On April 8, 1998, we entered into an
agreement with Hitachi, Ltd., a Japanese corporation, for a
seven-year non-exclusive, non-transferable license to
manufacture and sell certain starter motors and alternators

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utilizing Hitachis proprietary technology
in exchange for a one-time fee of ¥30.0 million
(approximately $0.2 million as of that date) and royalty
payments based on the net sales of such products.


Employees

We had approximately 2,100 employees as of
December 31, 2002. There are no collective bargaining
agreements in effect with respect to any of our United States
employees. All of the hourly employees at our United Kingdom,
South African, Argentine, and Chinese facilities are members of
unions. We have not experienced a strike or work stoppage at any
of our facilities, except in South Africa. The actions in South
Africa were part of nationwide, industry-wide actions that
included our facility. We cannot assure you that a strike or
work stoppage will not occur in the future at any of our
facilities.

Risk Factors

In addition to other information in this
annual report on Form 10-K, readers evaluating us and our
business should carefully consider the following risk factors
for our company as a whole. These risks may impair our results
of operations and business prospects. The risks set forth below
and elsewhere in this annual report on Form 10-K could
cause actual results to differ materially from those that we
project.



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | We depend on original equipment manufacturers,
    whose businesses are cyclical.

Our sales to OEMs accounted for approximately 46%
of our net sales for the year ended December 31, 2002. As a
result, a significant portion of our sales are related to the
overall level of domestic and foreign vehicle production. New
vehicle sales and production are cyclical and can be affected by
the strength of the economy generally or in specific regions, by
prevailing interest rates and other factors. In addition,
strikes, lock-outs, work stoppages or other production
interruptions in the vehicle or material handling industries may
adversely affect the demand for our products. A decline in the
demand for or production of new vehicles could materially
adversely affect our results of operations. In addition, we are
under increasing pressure from our major OEM customers to reduce
product costs. See Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations.



| |                                                     
| | ----------------------------------------------------
| | We have risks because of our foreign
    operations.

We currently conduct business in the United
States, the United Kingdom, South Africa, China and Argentina.
Approximately 47% of our net sales in 2002 were to customers
outside of North America. Adverse results from our foreign
operations could hurt the results of our operations. The success
of our international operations will depend on numerous factors,
many of which are beyond our control, including economic and
political conditions in the countries in which we operate. In
particular, Argentina and South Africa have historically been
less economically and politically stable than the United States
and the United Kingdom. International operations may also
increase our exposure to certain risks inherent in doing
business outside the United States, including slower payment
cycles, unexpected changes in regulatory requirements,
potentially adverse tax consequences, restrictions on the
repatriation of profits and assets and compliance with foreign
laws and standards.

In addition, most of our employees outside of the
United States are represented by labor unions. We cannot assure
you that a strike or work stoppage will not occur or that
actions taken by us will not adversely affect our relations with
our unionized employees.



| |                                                    
| | ---------------------------------------------------
| | We have risks related to currency
    fluctuations.

Due to our operations outside of the United
States we experience foreign currency exchange gains and losses.
Fluctuations between the United States dollar and other
currencies may adversely affect our results of operations. While
we may engage in foreign currency hedging transactions that may
moderate the overall effect of such currency exchange rate
fluctuations, we expect that we will be affected by such
fluctuations, and we cannot assure you that we will be
successful in any hedging activities. We also cannot assure you
that such

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exchange rate fluctuations will not cause
significant fluctuations in quarterly results of operations. See
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations.




| |                                 
| | --------------------------------
| | We face substantial competition.

We operate in highly competitive markets. While
no single company competes with us in all of our product lines,
we face significant competition in each of our product lines.
Many of our competitors are significantly larger and have
substantially greater financial and other resources, and we
cannot assure you that our products will continue to compete
successfully.



| |                                               
| | ----------------------------------------------
| | We may have exposure under our
    warranties.

We warrant to our customers that our products are
defect-free and meet certain specifications. These customers in
turn often offer warranties to their customers on the products
they sell, including products of our OEM customers which include
our products as component parts. As a result, we receive claims
and requests for payment from our customers to remedy complaints
made by the ultimate consumers. We cannot assure you that
additional warranty claims or requests for payment would not
materially adversely affect our results of operations.



| |                                
| | -------------------------------
| | We depend on our key personnel.

Our performance depends in part upon the
continued service of our executive officers, including
P. Kim Packard, our chief executive officer. The loss of
the services of any of our key employees could materially
adversely affect our results of operations. We do not maintain a
key man life insurance policy on any of our
executives or employees. Our future success also depends on the
ability to identify, hire, train, and retain other highly
qualified technical and managerial personnel. Competition for
qualified personnel is intense, and we cannot assure you that we
will be able to attract or retain necessary personnel in the
future. Failure to attract and retain the necessary technical
and managerial personnel could materially adversely affect our
results of operations.



| |                             
| | ----------------------------
| | We face environmental risks.

Our operations and properties are subject to
various environmental laws. The nature of our operations exposes
us to the risk that we will be liable for environmental matters,
including off-site disposal matters. We cannot assure you that
we will not incur material costs in connection with
environmental liabilities or that the contractual indemnities
provided by the sellers of the acquired businesses will be
applicable or available.

We believe that we comply with all relevant
environmental laws and that we have properly recorded the costs
related to any known environmental claims related to our
properties. Based upon our experience to date, we believe that
the future cost of compliance with existing environmental laws
(or liability for known environmental claims) will not
materially adversely affect our results of operations. However,
future events may give rise to additional compliance costs or
liabilities that could have a materially adverse affect on our
results of operations. We may be required in the future to spend
material amounts to comply with more stringent laws, as well as
more vigorous enforcement policies of regulatory agencies or
stricter or different interpretations of existing laws.



| |                                                                                     
| | ------------------------------------------------------------------------------------
| | We are highly leveraged and have significant
    debts that we may be unable to pay.

We have a significant amount of debt. As a
result, we are highly leveraged and have significant interest
expense. In addition, subject to the restrictions contained in
the Indenture governing our senior notes and in our bank credit
facilities, we may incur additional debt from time to time to
pay for acquisitions or capital expenditures or for other
purposes. As of December 31, 2002, we had
$109.4 million of consolidated indebtedness outstanding and
our stockholders deficit was approximately
$35.9 million.

Our ability to make scheduled payments of
principal or interest on, or to refinance, our debt will depend
on future operating performance and cash flow. Our operating
performance and cash flow are subject to

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prevailing economic conditions, prevailing
interest rate levels and financial, competitive, business and
other factors which may be beyond our control. The degree to
which we are leveraged could have important consequences to
holders of our senior notes, including, but not limited to,
those discussed below under -Our debt agreements have
restrictive covenants and limitations and:




| |   |                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our ability to obtain additional financing may be
    impaired;                                                                                                        
|
| |  | a substantial portion of our cash flow from
    operations must be dedicated to paying interest on our debt
    which reduces funds available to us for other purposes;
|
| |  | we are substantially more leveraged than certain
    of our competitors which may place us at a competitive
    disadvantage;                                          
|
| |  | we may be hindered in our ability to adjust
    rapidly to changing market conditions;                                                                                 
|
| |  | our substantial degree of leverage may affect
    certain suppliers willingness to give us favorable payment
    terms; and                                           
|
| |  | our substantial leverage could make us more
    vulnerable in the event of an economic downturn.                                                                       

We cannot assure you that our future cash flow
will be sufficient to meet our obligations and commitments. If
we cannot generate sufficient cash flow from operations to
service our debt and to meet our other obligations and
commitments, we might be required to refinance our debt or to
sell assets to obtain the funds we need. We cannot assure you
that refinancing or asset sales could be completed on a timely
basis or on satisfactory terms, if at all, or would be permitted
by the terms of our credit facilities or the Indenture. In the
event that we are unable to refinance our credit facilities or
raise funds through asset sales, sales of equity securities or
otherwise, our ability to pay principal of, and interest on, our
senior notes would be adversely affected.



| |                                                                    
| | -------------------------------------------------------------------
| | Our debt agreements have restrictive covenants
    and limitations.

Our credit facilities in the United States and
United Kingdom include certain negative covenants and
restrictions on our actions including, without limitation,
restrictions on:



| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | making investments, loans and advances and paying
    of dividends and other restricted payments;            
|
| |  | incurring additional debt;                                                                                   
|
| |  | granting most liens;                                                                                         
|
| |  | entering into mergers, consolidations and sales
    of all or a substantial part of our business or property;
|
| |  | selling receivables or repaying other debt; and                                                              
|
| |  | guaranteeing certain obligations.                                                                            

Our credit facilities also require us to meet
certain financial covenants, including maintaining minimum fixed
charge coverage ratios and funded debt ratios. These restrictive
covenants may restrict our ability to expand or to pursue our
business strategies. A breach of any of these covenants could
result in a default under our credit facilities, in which case,
debt under our credit facilities could be declared due and
payable. If we were unable to repay borrowings, the lender could
proceed against the collateral granted to it to secure that debt.



| |                                                                                
| | -------------------------------------------------------------------------------
| | We may not be able to repurchase our senior
    notes upon a change of control.

Upon the occurrence of a change of control (as
defined in the Indenture), each holder of our senior notes may
require us to purchase its senior notes at 101% of their
principal amount, plus accrued and unpaid interest, if any, to
the date of repurchase. If we did not purchase our senior notes
we would default under the Indenture. This would permit the
trustee under the Indenture or the holders of at least 25% in
principal amount of the outstanding senior notes to declare the
principal and accrued but unpaid interest to be due and payable.

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| |                                                      
| | -----------------------------------------------------
| | We are controlled by Genstar Capital
    Corporation.

As of December 31, 2002, Genstar Capital
Corporation controlled 97.5% (87.6% on a fully-diluted basis) of
our common stock. Consequently, Genstar has the ability to
control our business and affairs by virtue of its ability to
elect a majority of our board of directors and its voting power
with respect to actions requiring stockholder approval. See
Item 12. Security Ownership of Certain Beneficial
Owners and Management.

Item 2. Properties

Our corporate headquarters are located at
2311 Green Road, Ann Arbor, Michigan 48105, which we lease.
The phone number at that location is (734) 913-6600. The
following table sets forth certain information regarding the
major facilities we operated as of December 31, 2002:

|                           |  |               |  |        |         |  |                         |                        
|-------------------------- |  | ------------- |  | ------ | ------- |  | ----------------------- | -----------------------
|                           |  |               |  | Square |         |  | Owned/Leased           
|Location                   |  | Use           |  | Feet   |         |  | (Lease expiration date)
|                           |  |               |  |        |         |  |                        
|Ann Arbor, MI              |  | Headquarters  |  |        | 8,000   |  |                         | Leased (Dec. 2003)     
|Arcade, NY                 |  | Manufacturing |  |        | 342,800 |  |                         | Owned                  
|Florence, KY               |  | Warehouse     |  |        | 90,365  |  |                         | Leased (June 2004)     
|Garfield, NJ               |  | Manufacturing |  |        | 42,000  |  |                         | Leased (month to month)
|Leyland, England (U.K.)    |  | Manufacturing |  |        | 250,000 |  |                         | Leased (April 2006)    
|Acton, England (U.K.)      |  | Manufacturing |  |        | 368,000 |  |                         | Owned                  
|Johannesburg, South Africa |  | Manufacturing |  |        | 118,400 |  |                         | Owned                  
|Buenos Aires, Argentina    |  | Manufacturing |  |        | 159,000 |  |                         | Owned                  
|San Lorenzo, Argentina     |  | Manufacturing |  |        | 76,676  |  |                         | Owned                  
|San Luis, Argentina        |  | Manufacturing |  |        | 30,800  |  |                         | Owned                  
|Beijing, China             |  | Manufacturing |  |        | 110,000 |  |                         | Leased                 

We believe that suitable additional space, if
needed, will be available on commercially reasonable terms. We
believe that we comply with all relevant environmental
regulations related to our properties.

Item 3. Legal Proceedings

From time to time we are involved in various
litigation matters arising in the ordinary course of our
business. Management believes that none of the matters in which
we are currently involved, either individually or in the
aggregate, is or will be material to our future financial
condition or results of operations.

Item 4. Submission of Matters to a
Vote of Security Holders

None.

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PART II


Item 5. Market for Registrants
Common Stock and Related Stockholder Matters

Market
Information

There is no established public trading market for
our common stock.

As of March 20, 2003, there were 1,969,000
shares of our common stock outstanding. Management shareholders
owned 49,000 shares. The other 1,920,000 shares were in a trust
controlled by Genstar Capital Corporation. As of March 20,
2003, there were employee-held options outstanding to purchase
up to an additional 222,514 shares of our common stock.

Dividends

From time to time we may pay dividends from funds
that are legally available to pay dividends. Our ability to
declare and pay dividends on our common stock is restricted by
certain covenants. We intend to retain all of our earnings to
finance the development and growth of our business. Accordingly,
we do not anticipate that any dividends will be declared on our
common stock for the foreseeable future. Future payments of cash
dividends, if any, will depend on the financial condition,
results of operations, business conditions, capital
requirements, restrictions contained in agreements, future
prospects and other factors deemed relevant by our board of
directors.

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Item 6. Selected Financial
Data

The following table sets forth our selected
consolidated historical financial data as of and for the periods
indicated. The statements of operations data for each of the
fiscal years in the three-year period ended December 31,
2002 and the balance sheet data as of December 31, 2001 and
2002 have been derived from our audited financial statements
included elsewhere in this annual report on Form 10-K, and
are restated to account for the discontinuance of businesses, as
discussed above and in Note 3 to our audited financial
statements. The statements of operations data for each of the
fiscal years in the two year period ended December 31, 1999
and the balance sheet data as of December 31, 1998, 1999
and 2000 have been derived from our audited financial statements
not included in this annual report on Form 10-K, restated
to account for the discontinuance of businesses, as discussed
above. The information in the table should be read in
conjunction with Item 7, Managements Discussion
and Analysis of Financial Condition and Results of
Operations and our Consolidated Financial Statements,
including the notes thereto, included elsewhere in this annual
report on Form 10-K.

Schedule of selected financial data:

|                                                                                                   |  |                          |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|-------------------------------------------------------------------------------------------------- |  | ------------------------ | --------- | - | ---- | - | --------- | ---- |  | - | --------- | - |  | ---- | --------- | - |  | - | --------- | -
|                                                                                                   |  |                         
|                                                                                                   |  | Years Ended December 31, |          
|                                                                                                   |  |                          |          
|                                                                                                   |  | 1998                     |           |   | 1999 |   |           | 2000 |  |   | 2001      |   |  | 2002 |          
|                                                                                                   |  |                          |           |   |      |   |           |      |  |   |           |   |  |      |          
|Statement of Operations Data:                                                                      |  |                          |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net sales                                                                                          |  | $                        | 208,999   |   |      | $ | 187,874   |      |  | $ | 171,890   |   |  | $    | 159,295   |   |  | $ | 167,261   |  
|Cost of goods sold                                                                                 |  |                          | 167,453   |   |      |   | 151,613   |      |  |   | 139,641   |   |  |      | 127,025   |   |  |   | 126,543   |  
|Selling, general and administrative expenses                                                       |  |                          | 29,444    |   |      |   | 28,462    |      |  |   | 24,713    |   |  |      | 22,253    |   |  |   | 22,171    |  
|Costs associated with option repurchase                                                            |  |                          | 2,101     |   |      |   | 2         |      |  |   | 173       |   |  |      | 647       |   |  |   | (313      | )
|Special charges(e)                                                                                 |  |                          |          |   |      |   |          |      |  |   | 3,450     |   |  |      | 1,500     |   |  |   |          |  
|Severance                                                                                          |  |                          | 711       |   |      |   | 450       |      |  |   | 2,226     |   |  |      | 4,599     |   |  |   | 2,853     |  
|Operating income                                                                                   |  |                          | 9,290     |   |      |   | 7,347     |      |  |   | 1,687     |   |  |      | 3,271     |   |  |   | 16,007    |  
|Other expense (income)(a)                                                                          |  |                          | (88       | ) |      |   | (1,024    | )    |  |   | (618      | ) |  |      | 78        |   |  |   | (62       | )
|Real estate provision                                                                              |  |                          |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   | 1,000     |  
|Loss on foreign exchange                                                                           |  |                          |          |   |      |   |          |      |  |   | 1,121     |   |  |      | 461       |   |  |   | 1,017     |  
|Interest expense                                                                                   |  |                          | 13,494    |   |      |   | 15,816    |      |  |   | 15,025    |   |  |      | 13,241    |   |  |   | 11,252    |  
|Minority interest                                                                                  |  |                          |          |   |      |   |          |      |  |   |          |   |  |      | 950       |   |  |   | 2,541     |  
|Income (loss) from continuing operations
    before income taxes and extraordinary items           |  | $                        | (4,116    | ) |      | $ | (7,445    | )    |  | $ | (13,841   | ) |  | $    | (11,459   | ) |  | $ | 259       |  
|Provision for (benefit of) income taxes                                                            |  |                          | (693      | ) |      |   | (715      | )    |  |   | (4,485    | ) |  |      | (1,647    | ) |  |   | (290      | )
|Income (loss) from continuing operations
    before extraordinary items                            |  | $                        | (3,423    | ) |      | $ | (6,730    | )    |  | $ | (9,356    | ) |  | $    | (9,812    | ) |  | $ | 549       |  
|Net earnings (loss) per common share from
    continuing operations before extraordinary items(b): |  |                          |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Basic                                                                                              |  | $                        | (1.62     | ) |      | $ | (3.38     | )    |  | $ | (4.71     | ) |  | $    | (4.94     | ) |  | $ | 0.28      |  
|Diluted                                                                                            |  | $                        | (1.62     | ) |      | $ | (3.38     | )    |  | $ | (4.71     | ) |  | $    | (4.94     | ) |  | $ | 0.27      |  
|Shares used in computing earnings per share(b):                                                    |  |                          |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Basic                                                                                              |  |                          | 2,111,812 |   |      |   | 1,993,000 |      |  |   | 1,985,000 |   |  |      | 1,985,000 |   |  |   | 1,969,000 |  
|Diluted                                                                                            |  |                          | 2,111,812 |   |      |   | 1,993,000 |      |  |   | 1,985,000 |   |  |      | 1,985,000 |   |  |   | 2,036,000 |  
|Balance Sheet Data(at end of period):                                                              |  |                          |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Working Capital (excluding debt)                                                                   |  | $                        | 37,060    |   |      | $ | 47,844    |      |  | $ | 52,931    |   |  | $    | 40,618    |   |  | $ | 42,900    |  
|Total assets                                                                                       |  |                          | 181,567   |   |      |   | 179,604   |      |  |   | 144,319   |   |  |      | 124,373   |   |  |   | 120,485   |  
|Total debt                                                                                         |  |                          | 140,752   |   |      |   | 151,126   |      |  |   | 113,035   |   |  |      | 112,244   |   |  |   | 109,440   |  
|Stockholders equity (deficit)                                                                     |  |                          | (8,918    | ) |      |   | (16,292   | )    |  |   | (7,083    | ) |  |      | (25,350   | ) |  |   | (35,942   | )
|Other Data:                                                                                        |  |                          |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Adjusted EBITDA(c):                                                                                |  | $                        | 21,342    |   |      | $ | 18,388    |      |  | $ | 16,878    |   |  | $    | 19,079    |   |  | $ | 25,398    |  
|Cash flow from operating activities:                                                               |  |                          | (4,021    | ) |      |   | (1,107    | )    |  |   | (7,745    | ) |  |      | (2,756    | ) |  |   | 11,251    |  
|Cash flow from investing activities:                                                               |  |                          | (53,262   | ) |      |   | (10,847   | )    |  |   | 47,791    |   |  |      | (4,473    | ) |  |   | (5,384    | )
|Cash flow from financing activities:                                                               |  |                          | 57,557    |   |      |   | 10,418    |      |  |   | (30,584   | ) |  |      | 268       |   |  |   | (4,226    | )
|Ratio of earnings to fixed charges(d):                                                             |  |                          |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   | 1.0       |  

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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) | Other expense (income) consists primarily of
    pension expense for inactive United States defined benefit
    pension plans, gains on the sale of fixed assets, interest
    income, royalty and trademark expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|b) | Earnings per common share and shares used in the
    computation reflect the 20-for-1 stock split effective
    March 25, 1998.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|c) | Adjusted EBITDA is defined as operating profit
    plus depreciation, amortization and other charges. Adjusted
    EBITDA-related information is presented in the manner as defined
    herein because we believe it is a widely accepted financial
    indicator of a companys ability to service and/or incur
    indebtedness. Adjusted EBITDA is the financial performance
    measure used by the Chief Executive Officer, Chief Financial
    Officer and management to evaluate the Companys operating
    performance. Operating profit is the most closely applicable
    financial measure calculated based on generally accepted
    accounting principles. However, Adjusted EBITDA-related
    information should not be considered as an alternative to net
    income as a measure of operating results or to cash flows as a
    measure of liquidity in accordance with generally accepted
    accounting principles. Because Adjusted EBITDA-related
    information is not calculated identically by all companies, the
    presentation in this report is not likely to be comparable to
    those disclosed by other companies.
|  
|d) | For purposes of computing the ratio of earnings
    to fixed charges, earnings include income before income taxes,
    discontinued operations and extraordinary items plus fixed
    charges. Fixed charges consist of interest expense and 33% of
    rental expense (deemed by management to be representative of the
    interest factor of rental payments). Earnings were insufficient
    to cover fixed charges in 2001 by $11.5 million, in 2000 by
    approximately $13.8 million, in 1999 by $7.4 million,
    and in 1998 by $4.0 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|e) | Special charges in 2001 are $1.5 million for
    Argentina bad debt expense and in 2000 are the costs associated
    with the write down of the investment in Ecoair Corp. and two
    specialty alternator projects.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of
    Financial Condition and Results of Operations

Overview

We manufacture alternators, starter motors and
other items for the heavy duty, automotive, defense and
industrial markets. These are supplied under the
Prestolite, Leece-Neville, and
Indiel brand names for original equipment and
aftermarket application on a variety of vehicles and industrial
equipment. We sell our products to a variety of markets, in
terms of both end-use and geography.

We operate in five principal geographic regions.
While each region primarily sells in its own area, no region
sells exclusively into its geographic region.

Our North American and European facilities
produce alternators, starter motors, inline pumps, and other
products, primarily for installation on diesel engines used in
the heavy duty, defense, marine and industrial markets. These
facilities are located in Arcade, NY; Florence, KY; Garfield,
NJ; Acton, England; and Leyland, England.

Our South African and South American facilities
manufacture lighter duty alternators and starter motors. These
facilities are located in Johannesburg, South Africa; and in
Buenos Aires and San Luis, Argentina. The Argentina operation
also manufactures distributors. In both South Africa and
Argentina a significant portion of our sales are to the
automotive aftermarket, and a portion of those aftermarket sales
consist of products purchased for resale.

Prestolite Electric Beijing, Ltd. manufactures
alternators in China, selling primarily into the heavy duty
(non-automotive) market.

Results of Operations

Year
Ended December 31, 2002 Compared to Year Ended
December 31, 2001

Net sales were $167.3 million in 2002, an
increase of $8.0 million, or 5.0%, from $159.3 million
in 2001. The increase in sales of our China and North American
activities offset the decrease in sales of our other locations.
China sales increased $8.7 million to more than double the
reported sales of 2001. North American sales increased
$20.9 million, or 27.2%. European sales decreased
$0.7 million, a 1.8% decline; South African sales decreased
$1.8 million, a 25.1% decline; and Argentina sales
decreased $19.2 million; a 62.4% decline. The decline in
the value of the Argentine peso was the major cause of the
Argentina sales decline. China, a relatively new market in an
economically controlled environment, experienced volume
increases. In addition, the China joint venture only began
operations in April of 2001.

Gross profit was $40.7 million in 2002, or
24.3% of sales. This compares to gross profit of
$32.3 million in 2001, or 20.3% of sales. The increase of
gross profit as a percent of sales is a result of cost savings,
an increase in higher-margin sales in China, and the benefit of
the devaluation of the Argentine peso, which reduced the cost of
product produced in Argentina.

Selling, general, and administrative expense was
$22.2 million, or 13.3% of sales in 2002, approximately the
same as the $22.3 million, or 14.0% of sales recorded in
2001. The slight reduction in selling, general, and
administrative expense is attributable to the reduction of
amortization on goodwill due to the implementation of Statement
of Financial Accounting Standard No. 142 for 2002 and to
cost savings recognized from continuing programs.

In 2001, we recorded a charge of
$1.5 million to cover anticipated bad debt charges in
Argentina related to the Argentine economic and monetary crisis,
as discussed in Note 2 of our financial statements.

During 2001 we extended the expiration date on
certain outstanding stock options and recorded a charge of
$0.6 million to recognize the difference between the fair
market value and the aggregate exercise price of the options
extended. During 2002 we reduced the number of options
outstanding as part of a reduction in the exercise price of all
options. This triggered variable accounting for our options. As
a result of the decline of the estimated fair market value of
our shares we recorded a benefit of $0.3 million related to
the option program.

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During 2002 we recorded severance and
restructuring expense of $2.9 million, primarily related to
personnel reductions in the United Kingdom and the closing of a
plant in Argentina. This compares to severance charges of
$4.6 million in 2001. The 2001 charges were also primarily
because of personnel reductions in the United Kingdom and
Argentina.

Operating income in 2002 was $16.0 million,
an increase of $12.7 million, or 389.4%, from the
$3.3 million in 2001. This was due to the factors discussed
above.

Other income was $62,000 in 2002 compared to
other expense of $78,000 million in 2001. This consists
primarily of export rebates offset by royalty and trademark
expenses.

In 2002 we recorded a $1.0 million loss on
foreign exchange, compared to a $0.5 million loss in 2001.
In each case more than half of the charge resulted from the
decline in the value of the Argentina peso. In 2002 we expensed
$1.0 million to write down the value of an idle facility
held for sale and to cover anticipated costs associated with a
lease guarantee issued as part of our sale of a business in 1997.

Interest expense was $11.3 million in 2002,
a decrease of $1.9 million, or 15.0%, compared to
$13.2 million in 2001. This decrease is a result of
decreases in debt and the elimination of high cost borrowings in
Argentina.

The benefit from income taxes was
$0.3 million on the $0.3 million income from
continuing operations before taxes and extraordinary items for
2002. Our operation in China enjoyed a tax holiday through 2002
and is scheduled to pay taxes at 12% for the next three years.
This compares to a benefit from income taxes of
$1.6 million for 2001 on an $11.5 million loss from
continuing operations before taxes and an extraordinary item.

Extraordinary income of $0.4 million, net of
taxes, was recorded in 2002 and 2001 related to a gain on the
repurchase of senior notes.

Effective August 4, 2000, we sold our
discontinued businesses, providing for expected costs related to
that transaction. In 2001, we recorded a $1.6 million loss
on disposal of discontinued operations, to cover costs related
to the closing of a facility used by the buyer of those
businesses for a period of time after the sale, but retained by
us and currently categorized as held for sale.

Year
Ended December 31, 2001 Compared to Year Ended
December 31, 2000

Sales from continuing operations were
$159.3 million in 2001, a decrease of $12.6 million,
or 7.3%, from $171.9 million in 2000. The increase in sales
attributable to the new China activity, $8.0 million, was
more than offset by the decreases in sales in our other
locations. North American sales decreased $2.9 million, or
3.7%. European sales decreased $7.3 million, a 16.5%
decline. South African sales decreased $3.5 million for a
33.6% decline, and Argentina sales decreased $6.8 million
for an 18.1% decline. Worldwide economic factors resulted in
lower volumes of sales in most locations. China, being a new
operation for us, had no 2000 comparison to determine an
increase or decrease.

Gross profit was $32.3 million in 2001, or
20.3% of sales. This compares to 2000 gross profit of
$32.2 million, or 18.8% of sales. The increase of gross
profit as a percent of sales was a result of cost savings, an
increase in higher-margin sales in China and a decrease in lower
margin sales in Argentina.

Selling, general, and administrative expense was
$22.3 million, or 14.0% of sales in 2001, a decrease of
$2.5 million, or 10%, from $24.7 million, or 14.4% of
sales in 2000. Reduction in selling, general, and administrative
expense was attributable to cost savings recognized from
continuing programs that offset the increases resulting from the
startup of the China operation.

In 2001, we recorded a charge of
$1.5 million to cover anticipated bad debt charges in
Argentina related to the Argentine economic and monetary crisis,
as discussed in Note 2 of our financial statements. We also
recorded a charge of $0.6 million resulting from the
extension of the expiration of options to purchase company stock
issued to specific employees. In 2000, we recorded a charges of
$3.5 million to write off the

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investment and costs of two specialty alternator
projects and $0.2 million associated with the repurchase of
options from departed employees.


Operating income in 2001 was $3.3 million,
or 2.1% of sales, an increase of $1.6 million, or 93.9%,
from the $1.7 million, or 1.0% of sales, in 2000. This was
due to the factors discussed above.

Other expense was $78,000 in 2001 compared to
other income of $0.6 million in 2000. This consists
primarily of export subsidies offset by royalty and trademark
expense.

Interest expense was $13.2 million in 2001,
a decrease of $1.8 million, or 11.9%, compared to
$15.0 million in 2000. This decrease was the result of a
decrease in debt because of the proceeds of the sale of three
businesses in August, 2000.

The benefit from income taxes was
$1.6 million on the $11.5 million loss from continuing
operations before taxes and extraordinary items for 2001. This
compares to a benefit from income taxes of $4.5 million for
2000 on a $13.8 million loss from continuing operations
before taxes and an extraordinary item.

Extraordinary income of $0.4 million, net of
taxes, was recorded in 2001 related to the gain on the
repurchase of senior notes. In 2000, we recorded extraordinary
income of $4.1 million, net of taxes, related to gains on
the repurchase of senior notes.

Effective August 4, 2000, we sold our
discontinued businesses, recording a gain of $14.5 million
after providing for expected costs related to that transaction.
In 2001, we recorded a $1.6 million loss on disposal of
discontinued operations, to cover costs related to the closing
of a facility used by the buyer of those businesses for a period
of time after the sale, but retained by us.

Liquidity and Capital Resources

Cash provided by continuing operating activities
in 2002 was $8.5 million compared to cash usage of
$1.3 million in 2001 and $4.9 million in 2000.
Discontinued operations provided $2.7 million of cash in
2002 as we received funds from escrow and continued to maintain
facilities previously used by those businesses. That compares to
cash usage related to the discontinued operations of
$1.4 million in 2001. Capital spending of continuing
activities was $5.1 million in 2002 compared to
$4.6 million in 2001 and $6.4 million in 2000. In 2002
capital spending was $2.0 million in the United States,
$1.3 million in the United Kingdom, $1.1 million in
Argentina, $0.1 million in South Africa, and
$0.1 million in China compared to $2.5, $1.0, $0.7, $0.2,
and $0.2 million respectively in 2001. Capital expenditures
for 2003 are expected to be approximately $6.0 million.
These expenditures are primarily for capacity increases, new
product designs, and cost reduction.

Debt, net of cash, $105.1 million at
December 31, 2002, decreased by $4.3 million in 2002.
We had revolving credit facilities in the United States and
United Kingdom under which additional borrowings of
$11.5 million and $2.3 million, respectively, were
available based on the December 31, 2002 levels of eligible
receivables (United States and United Kingdom) and inventory
(United States only) which are pledged to support that debt. At
the end of 2002, we had no bank debt or discounted checks
outstanding in Argentina. In South Africa we borrow from a bank
on an unsecured basis.

Beginning in 1991 the Argentine government
maintained the value of its currency such that one Argentine
peso equaled one U.S. dollar. During the second half of
2001, Argentina suffered a severe economic and monetary crisis.
During most of December 2001 and early January 2002 the banks in
Argentina were closed. On January 14, 2002, the banks
reopened and the Argentina peso traded at $0.606 per peso
(1.65 pesos per dollar). We used that $0.606 rate to
translate the December 31, 2001 balance sheet of our
Argentine subsidiary. We translated the accompanying income
statements for 2000, and 2001 at $1.00 per peso. The Argentine
peso ended 2002 with a value of $0.2972 and we used that rate to
translate the December 31, 2002 Argentina balance sheet. We
translated the income statement at various monthly peso values
ranging from a high of $0.597 (January) to a low of $0.274
(June). As the result of using the devalued rate, we recorded in
2002 and 2001 a foreign exchange loss of $0.9 million and
$0.3 million, respectively and a charge to other
comprehensive income of $5.1 million and $6.2 million,
respectively, representing the cumulative translation

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adjustment. Because of the impact of the
financial crisis on our customers, in 2001 we recorded a
$1.5 million charge to cover anticipated bad debts in
Argentina.


Pension
plans

In the United States, we offer our current
employees a defined contribution (401k) pension plan. In 2002 we
recorded $0.4 million of expense related to this plan. We
also cover certain previous employees under a defined benefit
plan. At December 31, 2002, that plan has estimated
obligations of $3.4 million and assets of $2.5. During 2002
we recorded no expense related to this plan. We recorded an
additional minimum liability of $0.9 million representing
the unfunded pension obligation as an element of comprehensive
income.

In England and South Africa our employees are
covered by defined benefit pension plans to which both
Prestolite and the employees contribute. At December 31,
2002, these plans have estimated obligations of
$37.7 million and assets of $30.0 million. During 2002
we recorded expense of $0.8 million related to these plans.
We recorded an additional minimum liability of $8.3 million
representing the unfunded pension obligation as an element of
comprehensive income.

In Argentina, we have unfunded pension
obligations to nine former employees. That obligation is
estimated at $0.6 million as of December 31, 2002,
which we have accrued as a liability. During 2002 we recorded
expense of $0.1 million related to this plan.

The table below summarizes the change in our
benefit obligation and in plan assets during 2002.

|           |                 |                                |                   |         |         |       |   |           |        |        |       |       |      |      |   |        |        |        |  
|---------- | --------------- | ------------------------------ | ----------------- | ------- | ------- | ----- | - | --------- | ------ | ------ | ----- | ----- | ---- | ---- | - | ------ | ------ | ------ | -
|           |                 |                                |                   | England |         |       |   |           |       
|           |                 | United                         |                   |         | & South |       |   |           |        |       
|           |                 | States                         |                   |         | Africa  |       |   | Argentina |        |        | Total |      
|           |                 |                                |                   |         |         |       |   |           |        |        |       |      
|           |                 |                               
|           |                 | $ Thousands                    |                  
|Assets     |                 |                                |                   |         |         |       |   |           |        |        |       |       |      |      |   |       
|           | January 1, 2002 |                                | $                 | 2,840   |         |       | $ | 31,064    |        |        | $     |      |      |      | $ | 33,904 |       
|           |                 | Return on Assets               |                   |         | (147    | )     |   |           | (5,454 | )      |       |       |     |      |   |        | (5,601 | )     
|           |                 | Contributions, net of Benefits |                   |         | (209    | )     |   |           | 944    |        |       |       |     |      |   |        | 735    |       
|           |                 | Currency Change                |                   |         |        |       |   |           | 3,490  |        |       |       |     |      |   |        | 3,490  |       
|           |                 | All Other                      |                   |         |        |       |   |           | (39    | )      |       |       |     |      |   |        | (39    | )     
|           |                 |                                |                   |         |         |       |   |           |        |        |       |      
|           |                 |                                | December 31, 2002 |         |         | 2,484 |   |           |        | 30,005 |       |       |      |     |   |        |        | 32,489 |  
|Obligation |                 |                                |                   |         |         |       |   |           |        |        |       |       |      |      |   |       
|           | January 1, 2002 |                                |                   | 3,108   |         |       |   | 30,384    |        |        |       | 1,189 |      |      |   | 34,681 |       
|           |                 | Costs*                         |                   |         | 478     |       |   |           | 3,500  |        |       |       | 213  |      |   |        | 4,191  |       
|           |                 | Benefits Paid                  |                   |         | (209    | )     |   |           | (779   | )      |       |       | (213 | )    |   |        | (1,201 | )     
|           |                 | Participants Contributions    |                   |         |         |       |   |           | 653    |        |       |       |     |      |   |        | 653    |       
|           |                 | Currency Change                |                   |         |        |       |   |           | 4,045  |        |       |       | (608 | )    |   |        | 3,437  |       
|           |                 | All Other                      |                   |         |        |       |   |           | (26    | )      |       |       |     |      |   |        | (26    | )     
|           |                 |                                |                   |         |         |       |   |           |        |        |       |      
|           |                 |                                | December 31, 2002 |         |         | 3,377 |   |           |        | 37,777 |       |       |      | 581  |   |        |        | 41,735 |  
|           |                 |                                |                   |         |         |       |   |           |        |        |       |      
|           |                 |                                | Net (Liability)   |         | $       | (893  | ) |           | $      | (7,772 | )     |       | $    | (581 | ) |        | $      | (9,246 | )
|           |                 |                                |                   |         |         |       |   |           |        |        |       |      




|  |                                                                
|- | ---------------------------------------------------------------
|* | Includes service cost, interest costs, and
    actuarial costs.

Additional information about our pension plans is
provided in Footnote 13 of our financial statements.

We expect our liquidity needs to consist
primarily of working capital needs and scheduled payments on
certain contractual obligations. We expect our short-term
liquidity needs to be provided by operating cash flows and
borrowings under our revolving credit facilities. We expect to
fund our long term liquidity needs from our operating cash
flows, the issuance of debt and/or equity securities, or from
bank borrowings.

14



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##### Table of Contents



Contractual
cash obligations

Under various agreements, we are obligated to
make future cash payments in fixed amounts. These include
payments under our long-term debt agreements and rent payments
required under lease agreements. The following table summarizes
our fixed cash obligations over various future periods as of
December 31, 2002:

|                               |                                    |                        |        |           |        |   |        |       |  |        |       |       |         |       |       |       |  |   |        |        | 
|------------------------------ | ---------------------------------- | ---------------------- | ------ | --------- | ------ | - | ------ | ----- |  | ------ | ----- | ----- | ------- | ----- | ----- | ----- |  | - | ------ | ------ | 
|                               |                                    |                       
|                               |                                    | Payments due by period |       
|                               |                                    |                        |       
|                               |                                    |                        |        | Less than |        |   | 1 to 3 |       |  | 4 to 5 |       |       | After 5 |      
|Contractual Obligations        |                                    | Total                  |        |           | 1 year |   |        | years |  |        | years |       |         | years |      
|                               |                                    |                        |        |           |        |   |        |       |  |        |       |       |         |       |      
|Debt(a)                        |                                    | $                      | 5,752  |           |        | $ | 1,191  |       |  | $      | 2,042 |       |         | $     | 2,416 |       |  | $ | 103    |       
|Lines of credit(a)             |                                    |                        | 2,545  |           |        |   | 2,545  |       |  |        |      |       |         |       |      |       |  |   |       |       
|9.625% Senior unsecured notes  |                                    |                        | 98,533 |           |        |   |       |       |  |        |      |       |         |       |      |       |  |   | 98,533 |       
|Capital lease obligations(b)   |                                    |                        | 1,822  |           |        |   | 457    |       |  |        | 765   |       |         |       | 487   |       |  |   | 113    |       
|Operating leases               |                                    |                        | 1,749  |           |        |   | 1,014  |       |  |        | 633   |       |         |       | 102   |       |  |   |       |       
|Other long term obligations(c) |                                    |                        | 1,154  |           |        |   | 488    |       |  |        | 642   |       |         |       | 10    |       |  |   | 14     |       
|                               |                                    |                        |        |           |        |   |        |       |  |        |       |       |         |       |      
|                               | Total contractual cash obligations |                        | $      | 111,555   |        |   | $      | 5,695 |  |        | $     | 4,082 |         |       | $     | 3,015 |  |   | $      | 98,763 | 
|                               |                                    |                        |        |           |        |   |        |       |  |        |       |       |         |       |      




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Certain conditions of default under the long-term
    debt agreements in the United Kingdom may allow our United
    Kingdom bank to cancel the debt commitments or to require
    repayment of drawn amounts. Lines of credit represent the
    amounts outstanding at December 31, 2002 on credit
    facilities in the United States, United Kingdom, South Africa
    and in Argentina. Although the revolving credit agreements may
    extend beyond one year, outstanding amounts have been reported
    as current liabilities on the balance sheet.
|   
|(b) | Lessors of capital leases have been granted a
    first priority security interest in all of the Companys
    right, title and interest in the equipment covered under the
    lease obligations.                                                                                                                                                                                                                                                                                                                                                          
|   
|(c) | Includes the debt incurred with the Mosal
    acquisition in Argentina and other miscellaneous commitments.                                                                                                                                                                                                                                                                                                                                                                                                                                                 

We have other commercial commitments that secure
foreign purchases, VAT obligations, custom bonds, and insurance
coverage. The table below summarizes these commitments as of
December 31, 2002:

|                                |  |                                            |       |           |        |   |        |       |        |       |         |       |  |   |   |  |  |   |   | 
|------------------------------- |  | ------------------------------------------ | ----- | --------- | ------ | - | ------ | ----- | ------ | ----- | ------- | ----- |  | - | - |  |  | - | - | 
|                                |  |                                           
|                                |  | Amount of commitment expiration per period
|                                |  |                                           
|                                |  |                                            |       | Less than |        |   | 1 to 3 |       | 4 to 5 |       | After 5
|                                |  | Total                                      |       |           | 1 year |   |        | years |        | years |         | years
|                                |  |                                            |       |           |        |   |        |       |        |       |         |      
|Letters of credit               |  | $                                          | 813   |           |        | $ | 813    |       |        | $     |        |       |  | $ |  |  |  | $ |  | 
|Other commercial commitments(a) |  |                                            | 2,304 |           |        |   | 2,304  |       |        |       |        |       |  |   |  |  |  |   |  | 
|Total commercial commitments    |  | $                                          | 3,117 |           |        | $ | 3,117  |       |        | $     |        |       |  | $ |  |  |  | $ |  | 




|    |                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------
|(a) | Other commercial commitments include a
    $1.9 million contribution to the joint venture, Prestolite
    Electric Beijing, Ltd.

We believe that cash flows from operations, our
existing cash balances and amounts available under the various
revolving credit facilities will provide adequate funds for on
going operations, planned capital expenditures, investments, and
debt service for at least the next twelve months. Estimates as
to working capital needs and other expenditures may be
materially affected if the foregoing sources are not available
or do not otherwise provide sufficient funds to meet our
obligations.

Inflation

We believe that the relatively moderate inflation
over the last few years has not had a significant impact on our
revenues or profitability and that we have been able to offset
the effects of inflation by increasing prices or by realizing
improvements in operating efficiency.

15



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##### Table of Contents



Significant Accounting Policies

The preparation of financial statements in
accordance with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amount of assets, liabilities, revenues and
expenses. The Company believes the following critical accounting
policies affect its more significant judgments and estimates
used in the preparation of the consolidated financial statements.

Estimating valuation allowances, including
customer items and inventory.On a
quarterly basis, the Company evaluates its significant reserves
and valuation allowances and makes revisions in estimates as
required. The ultimate cost or loss to the Company changes as
additional information regarding the uncertainty becomes
available. The Company considers the following in establishing
these reserves:



| |   |                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Management analyzes accounts receivable balances
    on an on-going basis, including historical bad debt information,
    customer credit-worthiness and current economic trends when
    evaluating the adequacy of the allowances for accounts
    receivable. An analysis of the current ageing of accounts
    receivable is reviewed on a by customer basis.
|
| |  | Management analyzes inventory on an on-going
    basis, including the adequacy of the reserve for excess and slow
    moving inventory. Management utilizes computer modeling
    techniques to analyze inventory movements but historical trends
    involve risk and uncertainties regarding the anticipated mix of
    products sold.                         

Estimating warranty reserves.The Company warrants to their
customers that products are defect-free and meet certain
specifications and these customers in turn often offer
warranties to their customers. As a result, the company receives
claims and requests for payments from their customers to remedy
complaints. On an on-going basis management reviews historical
trends of the warranty costs by product and customer and
estimates the anticipated liability. The adequacy of the
warranty reserve may be affected by an unanticipated product
failure and requests for payments from the customers, but this
would not materially adversely affect the results of operations.

Foreign currency transactions and
translations.The Company has
significant operations overseas, located in the United Kingdom,
South Africa, Argentina and China. Management evaluates the
appropriate functional currency based on the volume of
intercompany transactions and volume of exports. Each reporting
period the results of operations of the Companys foreign
subsidiaries are translated at the appropriate functional
currency (currently the local currency for each location).
Foreign currency translation gains or losses on intercompany
loans that are of a long-term investment nature that are not
included in net income for the period are reported separately as
a component of equity. Foreign currency gains and losses on
third party transactions and intercompany transactions that are
not of a long-term investment nature are reported in the
operating statement.

Pensions.Annual net
periodic expense and benefit liabilities under our defined plans
are determined on an actuarial basis. Assumptions used in the
actuarial calculations have a significant impact on plan
obligations and expense. Each December, we review the actual
experience compared to the more significant assumptions used and
make adjustments to the assumptions, if warranted. Discount
rates are based upon an expected benefit payments duration
analysis and the equivalent average yield rate for high-quality
fixed income investments. Pension benefits are funded through
deposits with trustees and the expected long-term rate of return
on fund assets is based upon actual historical returns modified
for known changes in the market and any expected change in
investment policy.

New accounting pronouncements

In 2001 the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standard (SFAS) No. 142, Goodwill and
Other Intangible Assets. SFAS 142 eliminated the
requirement to amortize goodwill and indefinite-lived intangible
assets, addressed the amortization of intangible assets with a
defined life and required impairment testing and recognition for
goodwill and intangible assets. SFAS No. 142 is effective
for 2002. Accordingly, we no longer amortize goodwill of
$3.7 million as of December 31, 2001. This goodwill
will instead be assessed for impairment at least annually.

16



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##### Table of Contents



The FASB also issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long Lived
Assets during 2001. This standard requires the Company to
recognize an impairment loss if the carrying value of a
long-lived asset is not recoverable from its undiscounted cash
flows. The loss is the difference between the carrying value and
the fair value. The adoption of this statement did not have any
impact on our financial position or results of operations.

In April 2002, the FASB issued SFAS
No. 145, Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. With the rescission of SFAS
No. 4 and 64, only gains and losses from extinguishments of
debt that meet the criteria of APB Opinion No. 30 would be
classified as extraordinary items. This statement also rescinds
SFAS No. 44, Accounting for Intangible Assets of
Motor Carriers. This statement amends SFAS No. 13,
Accounting for Leases, to eliminate the
inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease
modifications that have economic effects that are similar to
sale-leaseback transactions. SFAS No. 145 also amends other
existing authoritative pronouncements to make various technical
corrections, clarify meaning or describe their applicability
under changed conditions. SFAS No. 145 is effective for
fiscal years beginning after May 15, 2002. Upon adoption on
January 1, 2003, any gain or loss from extinguishments of
debt recorded in prior periods will be reclassified to income
from continuing operations. We are currently reviewing the other
provisions of this Statement and will adopt them effective in
2003.

In July 2002, the FASB issued SFAS
No. 146, Accounting for Costs Associated with Exit or
Disposal Activities. SFAS No. 146 requires companies
to recognize costs associated with exit or disposal activities
when they are incurred rather than at the date of the commitment
to an exit or disposal plan. SFAS No. 146 is effective for
all exit or disposal activities initiated after
December 29, 2002. We are currently reviewing the
provisions of this Statement and will adopt it effective with
our 2003 fiscal year.

In November 2002, the FASB issued FASB
Interpretation (FIN) No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN
No. 45 clarifies disclosures that are required to be made
for certain guarantees and establishes a requirement to record a
liability at fair value for certain guarantees at the time of
the guarantees issuance. The disclosure requirements of
FIN No. 45 are effective for our 2002 financial statements.
The requirement to record a liability applies to guarantees
issued or modified after December 31, 2002. We do not
believe the adoption of this portion of the Interpretation will
have a material effect on our financial condition or results of
operations.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure 
an amendment of FASB Statement No. 123. SFAS
No. 148 amends SFAS No. 123 to provide alternative
methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure
requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee
compensation and the effect of the method used on reported
results. The Company adopted SFAS No. 148 effective for the
fiscal year ended December 31, 2002.

In January 2003, the FASB issued FIN No. 46,
Consolidation of Variable Interest Entities, an
Interpretation of ARB 51. FIN No. 46 requires
that the primary beneficiary in a variable interest entity
consolidate the entity even if the primary beneficiary does not
have a majority voting interest. The consolidation requirements
of this Interpretation are required to be implemented for any
variable interest entity created on or after January 31,
2003. In addition, FIN No. 46 requires disclosure of
information regarding guarantees or exposures to loss relating
to any variable interest entity existing prior to
January 31, 2003 in financial statements issued after
January 31, 2003. We have not yet determined the impact
that this Interpretation will have on our financial position or
results of operations.

17



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##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES

CONTENTS

Item 8. Financial Statements and
Supplementary Data

|                                                                      |  |         |        | 
|--------------------------------------------------------------------- |  | ------- | ------ | 
|                                                                      |  | Page(s) |       
|                                                                      |  |         |       
|Report of Independent Accountants                                     |  |         | F1     | 
|Financial Statements                                                  |  |         |        | 
|Consolidated Balance Sheet                                            |  |         | F2     | 
|Consolidated Statement of Operations                                  |  |         | F3     | 
|Consolidated Statement of Stockholders
    Equity (Deficit)          |  |         | F4     | 
|Consolidated Statement of Cash Flows                                  |  |         | F5     | 
|Notes to Consolidated Financial Statements                            |  |         | F6-F26 | 
|Financial Statement Schedule 
    Valuations and Qualifying Accounts |  |         | F27    | 

18



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##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES






Report of Independent Accountants


To the Board of Directors of

Prestolite Electric Holding, Inc.


In our opinion, based on our audits and the
report of other auditors, the accompanying consolidated balance
sheets and the related consolidated statements of operations,
stockholders equity (deficit), and of cash flows present
fairly, in all material respects, the financial position of
Prestolite Electric Holding, Inc. and its subsidiaries at
December 31, 2002 and 2001, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended December 31, 2002, in conformity
with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial
statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial
statement schedule are the responsibility of the Companys
management; our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedule based on our audits. We did not audit the financial
statements of Prestolite Indiel Argentina S.A., a wholly owned
subsidiary, which statements reflect total assets of $14,642,000
and $20,497,000 and as of December 31, 2002 and 2001,
respectively, and total revenues of $15,831,000, $33,884,000,
and $40,785,000 for each of the three years in the period ended
December 31, 2002. Those statements were audited by other
auditors whose report thereon has been furnished to us, and in
our opinion expressed herein, insofar as it relates to the
amounts for Prestolite Indiel Argentina S.A., is based solely on
the report of the other auditors. We conducted our audits of
these statements in accordance with auditing standards generally
accepted in the United States of America, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable
basis for our opinion.

As discussed in Note 9 to the Consolidated
Financial Statements, the Company changed its method of
accounting for goodwill resulting from its adoption of Statement
of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets, effective January 1,
2002.

PRICEWATERHOUSECOOPERS LLP

February 28, 2003

Detroit, Michigan


F-1



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##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES






CONSOLIDATED BALANCE SHEETS


December 31, 2002 and 2001


(In thousands, except share amounts)


|                                                                                                                                                                     |                                 |                                                                                      |         |        |         |   |         |        |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------- | ------------------------------------------------------------------------------------ | ------- | ------ | ------- | - | ------- | ------ | ------- | -
|                                                                                                                                                                     |                                 | 2002                                                                                 |         |        | 2001    |  
|                                                                                                                                                                     |                                 |                                                                                      |         |        |         |  
|Assets                                                                                                                                                               |                                 |                                                                                      |         |        |         |   |         |       
|Current assets                                                                                                                                                       |                                 |                                                                                      |         |        |         |   |         |       
|Cash                                                                                                                                                                 |                                 | $                                                                                    | 4,386   |        |         | $ | 2,907   |       
|Accounts receivable, net of allowance for
    doubtful accounts of $1,801 and $2,138 at December 31, 2002
    and 2001, respectively                                 |                                 |                                                                                      | 28,264  |        |         |   | 24,900  |       
|Inventories, net                                                                                                                                                     |                                 |                                                                                      | 38,699  |        |         |   | 40,889  |       
|Prepaid and other current assets                                                                                                                                     |                                 |                                                                                      | 2,675   |        |         |   | 4,280   |       
|                                                                                                                                                                     |                                 |                                                                                      |         |        |         |  
|                                                                                                                                                                     |                                 | Total current assets                                                                 |         |        | 74,024  |   |         |        | 72,976  |  
|Property, plant and equipment                                                                                                                                        |                                 |                                                                                      |         |        |         |   |         |       
|                                                                                                                                                                     | Land, building and improvements |                                                                                      |         | 16,649 |         |   |         | 17,463 |        
|                                                                                                                                                                     | Machinery and equipment         |                                                                                      |         | 53,471 |         |   |         | 47,482 |        
|                                                                                                                                                                     | Construction in progress        |                                                                                      |         | 1,617  |         |   |         | 1,957  |        
|                                                                                                                                                                     |                                 |                                                                                      |         |        |         |  
|                                                                                                                                                                     |                                 |                                                                                      | 71,737  |        |         |   | 66,902  |       
|                                                                                                                                                                     |                                 | Less  accumulated depreciation                                                      |         |        | (38,705 | ) |         |        | (33,071 | )
|                                                                                                                                                                     |                                 |                                                                                      |         |        |         |  
|                                                                                                                                                                     |                                 |                                                                                      | 33,032  |        |         |   | 33,831  |       
|Investments                                                                                                                                                          |                                 |                                                                                      | 577     |        |         |   | 577     |       
|Goodwill                                                                                                                                                             |                                 |                                                                                      | 4,048   |        |         |   | 3,677   |       
|Other intangible assets, net                                                                                                                                         |                                 |                                                                                      | 3,393   |        |         |   | 3,414   |       
|Long-term receivables and pension assets                                                                                                                             |                                 |                                                                                      | 3,435   |        |         |   | 4,184   |       
|Net assets related to discontinued operations                                                                                                                        |                                 |                                                                                      | 1,976   |        |         |   | 5,714   |       
|                                                                                                                                                                     |                                 |                                                                                      |         |        |         |  
|                                                                                                                                                                     |                                 | Total assets                                                                         |         | $      | 120,485 |   |         | $      | 124,373 |  
|                                                                                                                                                                     |                                 |                                                                                      |         |        |         |  
|Liabilities                                                                                                                                                          |                                 |                                                                                      |         |        |         |   |         |       
|Current liabilities                                                                                                                                                  |                                 |                                                                                      |         |        |         |   |         |       
|Revolving credit                                                                                                                                                     |                                 | $                                                                                    | 3,575   |        |         | $ | 6,834   |       
|Current portion of long-term debt                                                                                                                                    |                                 |                                                                                      | 740     |        |         |   | 402     |       
|Accounts payable                                                                                                                                                     |                                 |                                                                                      | 16,118  |        |         |   | 18,351  |       
|Accrued liabilities                                                                                                                                                  |                                 |                                                                                      | 15,006  |        |         |   | 14,007  |       
|                                                                                                                                                                     |                                 |                                                                                      |         |        |         |  
|                                                                                                                                                                     |                                 | Total current liabilities                                                            |         |        | 35,439  |   |         |        | 39,594  |  
|Long-term debt                                                                                                                                                       |                                 |                                                                                      | 105,125 |        |         |   | 105,008 |       
|Other non-current liabilities                                                                                                                                        |                                 |                                                                                      | 9,955   |        |         |   | 1,754   |       
|                                                                                                                                                                     |                                 |                                                                                      |         |        |         |  
|                                                                                                                                                                     |                                 | Total liabilities                                                                    |         |        | 150,519 |   |         |        | 146,356 |  
|Minority interest                                                                                                                                                    |                                 |                                                                                      | 5,908   |        |         |   | 3,367   |       
|Stockholders Equity (Deficit)                                                                                                                                       |                                 |                                                                                      |         |        |         |   |         |       
|Common stock, par value $.01; 5,000,000 shares
    authorized; 1,969,000 and 1,985,000 shares issued and
    outstanding at December 31, 2002 and 2001, respectively |                                 |                                                                                      | 2       |        |         |   | 2       |       
|Paid-in capital                                                                                                                                                      |                                 |                                                                                      | 16,957  |        |         |   | 17,269  |       
|Retained earnings (accumulated deficit)                                                                                                                              |                                 |                                                                                      | (5,151  | )      |         |   | (6,131  | )     
|Notes receivable, employees stock purchase,
    7.74% due 2002                                                                                                      |                                 |                                                                                      | (105    | )      |         |   | (395    | )     
|Treasury stock, 1,334,000 and 1,318,000 shares at
    December 31, 2002 and 2001, respectively                                                                       |                                 |                                                                                      | (24,900 | )      |         |   | (24,625 | )     
|                                                                                                                                                                     |                                 |                                                                                      |         |        |         |  
|                                                                                                                                                                     |                                 | Total stockholders deficit before
    accumulated other comprehensive income (loss) |         |        | (13,197 | ) |         |        | (13,880 | )
|Minimum pension liability                                                                                                                                            |                                 |                                                                                      | (9,156  | )      |         |   |        |       
|Foreign currency translation adjustment                                                                                                                              |                                 |                                                                                      | (13,589 | )      |         |   | (11,470 | )     
|                                                                                                                                                                     |                                 |                                                                                      |         |        |         |  
|                                                                                                                                                                     |                                 | Accumulated other comprehensive income (loss)                                        |         |        | (22,745 | ) |         |        | (11,470 | )
|                                                                                                                                                                     |                                 | Total stockholders equity (deficit)                                                 |         |        | (35,942 | ) |         |        | (25,350 | )
|                                                                                                                                                                     |                                 |                                                                                      |         |        |         |  
|                                                                                                                                                                     |                                 | Total liabilities and stockholders
    equity (deficit)                             |         | $      | 120,485 |   |         | $      | 124,373 |  
|                                                                                                                                                                     |                                 |                                                                                      |         |        |         |  

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

F-2



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##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENT OF OPERATIONS


For the Years Ended December 31, 2002,
2001 and 2000


(In thousands, except per share
amounts)


|                                                                                                     |                                                                                                   |                  |         |      |        |   |         |         |        |   |         |         |        | 
|---------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------- | ---------------- | ------- | ---- | ------ | - | ------- | ------- | ------ | - | ------- | ------- | ------ | 
|                                                                                                     |                                                                                                   | 2002             |         |      | 2001   |   |         | 2000    |       
|                                                                                                     |                                                                                                   |                  |         |      |        |   |         |         |       
|Net sales                                                                                            |                                                                                                   | $                | 167,261 |      |        | $ | 159,295 |         |        | $ | 171,890 |        
|Cost of goods sold                                                                                   |                                                                                                   |                  | 126,543 |      |        |   | 127,025 |         |        |   | 139,641 |        
|                                                                                                     |                                                                                                   |                  |         |      |        |   |         |         |       
|                                                                                                     |                                                                                                   | Gross profit     |         |      | 40,718 |   |         |         | 32,270 |   |         |         | 32,249 | 
|Selling, general and administrative expenses                                                         |                                                                                                   |                  | 22,171  |      |        |   | 22,253  |         |        |   | 24,713  |        
|Costs associated with option repurchase and
    extension                                            |                                                                                                   |                  | (313    | )    |        |   | 647     |         |        |   | 173     |        
|Charge and write-down related to two specialty
    alternator projects                               |                                                                                                   |                  |        |      |        |   |         |         |        |   | 3,450   |        
|Additional Argentina bad debt provision                                                              |                                                                                                   |                  |        |      |        |   | 1,500   |         |        |   |         |        
|Severance and restructuring                                                                          |                                                                                                   |                  | 2,853   |      |        |   | 4,599   |         |        |   | 2,226   |        
|                                                                                                     |                                                                                                   |                  |         |      |        |   |         |         |       
|                                                                                                     |                                                                                                   | Operating income |         |      | 16,007 |   |         |         | 3,271  |   |         |         | 1,687  | 
|Other expense (income)                                                                               |                                                                                                   |                  | (62     | )    |        |   | 78      |         |        |   | (618    | )      
|Loss on foreign exchange                                                                             |                                                                                                   |                  | 1,017   |      |        |   | 461     |         |        |   | 1,121   |        
|Real estate provision                                                                                |                                                                                                   |                  | 1,000   |      |        |   |        |         |        |   |        |        
|Interest expense                                                                                     |                                                                                                   |                  | 11,252  |      |        |   | 13,241  |         |        |   | 15,025  |        
|Minority interest                                                                                    |                                                                                                   |                  | 2,541   |      |        |   | 950     |         |        |   |        |        
|                                                                                                     |                                                                                                   |                  |         |      |        |   |         |         |       
|                                                                                                     | Income (loss) from continuing operations, before
    income taxes and extraordinary item          |                  |         | 259  |        |   |         | (11,459 | )      |   |         | (13,841 | )     
|Income tax benefit                                                                                   |                                                                                                   |                  | (290    | )    |        |   | (1,647  | )       |        |   | (4,485  | )      
|                                                                                                     |                                                                                                   |                  |         |      |        |   |         |         |       
|                                                                                                     | Income (loss) from continuing operations before
    extraordinary item                            |                  |         | 549  |        |   |         | (9,812  | )      |   |         | (9,356  | )     
|Income from discontinued operations, net of taxes                                                    |                                                                                                   |                  |        |      |        |   |        |         |        |   | 2,290   |        
|Gain (loss) on sale of discontinued operations,
    net of taxes of $0, $0, and $8,860, respectively |                                                                                                   |                  |        |      |        |   | (1,600  | )       |        |   | 14,488  |        
|Extraordinary item  gain
    (loss) on senior note transactions, net of taxes                       |                                                                                                   |                  | 431     |      |        |   | 391     |         |        |   | 4,063   |        
|                                                                                                     |                                                                                                   |                  |         |      |        |   |         |         |       
|                                                                                                     | Net income (loss)                                                                                 |                  | $       | 980  |        |   | $       | (11,021 | )      |   | $       | 11,485  |       
|                                                                                                     |                                                                                                   |                  |         |      |        |   |         |         |       
|Basic earnings per common share                                                                      |                                                                                                   |                  |         |      |        |   |         |         |        |   |         |        
|                                                                                                     | Income (loss) from continuing operations                                                          |                  | $       | 0.28 |        |   | $       | (4.94   | )      |   | $       | (4.71   | )     
|                                                                                                     | Income from discontinued operations, including
    gain (loss) on sale of discontinued operations |                  |         |     |        |   |         | (0.81   | )      |   |         | 8.45    |       
|                                                                                                     | Extraordinary item                                                                                |                  |         | 0.22 |        |   |         | 0.20    |        |   |         | 2.05    |       
|                                                                                                     |                                                                                                   |                  |         |      |        |   |         |         |       
|                                                                                                     | Net income (loss)                                                                                 |                  | $       | 0.50 |        |   | $       | (5.55   | )      |   | $       | 5.79    |       
|                                                                                                     |                                                                                                   |                  |         |      |        |   |         |         |       
|Diluted earnings per common share                                                                    |                                                                                                   |                  |         |      |        |   |         |         |        |   |         |        
|                                                                                                     | Income (loss) from continuing operations                                                          |                  | $       | 0.27 |        |   | $       | (4.94   | )      |   | $       | (4.71   | )     
|                                                                                                     | Income from discontinued operations, including
    gain (loss) on sale of discontinued operations |                  |         |     |        |   |         | (0.81   | )      |   |         | 8.45    |       
|                                                                                                     | Extraordinary item                                                                                |                  |         | 0.21 |        |   |         | 0.20    |        |   |         | 2.05    |       
|                                                                                                     |                                                                                                   |                  |         |      |        |   |         |         |       
|                                                                                                     | Net income (loss)                                                                                 |                  | $       | 0.48 |        |   | $       | (5.55   | )      |   | $       | 5.79    |       
|                                                                                                     |                                                                                                   |                  |         |      |        |   |         |         |       

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

F-3



---



##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENT OF STOCKHOLDERS
EQUITY (DEFICIT)


For the Years Ended December 31, 2002,
2001, and 2000


(In thousands)


|                                                           |                             |        |       |  |          |  |       |        |          |   |         |            |  |              |        |   |          |   |         |          |  |   |           |   |  |             |         |   |       |   |               |        |  |   |         |   |  |   |         |   |  |   |         |         |  
|---------------------------------------------------------- | --------------------------- | ------ | ----- |  | -------- |  | ----- | ------ | -------- | - | ------- | ---------- |  | ------------ | ------ | - | -------- | - | ------- | -------- |  | - | --------- | - |  | ----------- | ------- | - | ----- | - | ------------- | ------ |  | - | ------- | - |  | - | ------- | - |  | - | ------- | ------- | -
|                                                           |                             |        |       |  |          |  |       |        |          |   |         |            |  |              |        |   |          |   |         |         
|                                                           |                             | Shares |       |  |          |  |       |        | Retained |   |         | Notes      |  |              |        |   |          |   | Foreign |          |  |   |           |  
|                                                           |                             |        |       |  |          |  |       |        | Earnings |   |         | Receivable |  |              |        |   | Minimum  |   |         | Currency |  |   |           |   | 
|                                                           |                             | Common |       |  | Treasury |  |       | Common |          |   | Paid-in |            |  | (Accumulated |        |   | Employee |   |         | Treasury |  |   | Pension   |   |  | Translation |         |   |       |   | Comprehensive |       
|                                                           |                             | Stock  |       |  | Stock    |  |       | Stock  |          |   | Capital |            |  | Deficit)     |        |   | Stock    |   |         | Stock    |  |   | Liability |   |  | Adjustment  |         |   | Total |   |               | Income | 
|                                                           |                             |        |       |  |          |  |       |        |          |   |         |            |  |              |        |   |          |   |         |          |  |   |           |   |  |             |         |   |       |   |               |        | 
|Balance, January 1, 2000                                   |                             |        | 3,303 |  |          |  | 1,310 |        |          | $ | 2       |            |  | $            | 16,623 |   |          | $ | (6,595  | )        |  | $ | (513      | ) |  | $           | (24,449 | ) |       | $ |              |        |  | $ | (1,360  | ) |  |   | (16,292 | ) |  |   |         |        
|Net income                                                 |                             |        |       |  |          |  |       |        |          |   |         |            |  |              |        |   |          |   | 11,485  |          |  |   |           |   |  |             |         |   |       |   |               |        |  |   |         |   |  |   | 11,485  |   |  | $ | 11,485  |        
|Translation adjustment                                     |                             |        |       |  |          |  |       |        |          |   |         |            |  |              |        |   |          |   |         |          |  |   |           |   |  |             |         |   |       |   |               |        |  |   | (2,167  | ) |  |   | (2,167  | ) |  |   | (2,167  | )      
|                                                           |                             |        |       |  |          |  |       |        |          |   |         |            |  |              |        |   |          |   |         |          |  |   |           |   |  |             |         |   |       |   |               |        | 
|                                                           | Comprehensive income        |        |       |  |          |  |       |        |          |   |         |            |  |              |        |   |          |   |         |          |  |   |           |   |  |             |         |   |       |   |               |        |  |   |         |   |  |   |         |  |  |   |         | 9,318   |  
|                                                           |                             |        |       |  |          |  |       |        |          |   |         |            |  |              |        |   |          |   |         |          |  |   |           |   |  |             |         |   |       |   |               |        | 
|Common stock repurchased and employee notes repaid         |                             |        |       |  |          |  | 8     |        |          |   |         |            |  |              |        |   |          |   |         |          |  |   | 67        |   |  |             | (176    | ) |       |   |               |        |  |   |         |   |  |   | (109    | ) |  |   |         |        
|                                                           |                             |        |       |  |          |  |       |        |          |   |         |            |  |              |        |   |          |   |         |          |  |   |           |   |  |             |         |   |       |   |               |        | 
|Balance, December 31, 2000                                 |                             |        | 3,303 |  |          |  | 1,318 |        |          |   | 2       |            |  |              | 16,623 |   |          |   | 4,890   |          |  |   | (446      | ) |  |             | (24,625 | ) |       |   |              |        |  |   | (3,527  | ) |  |   | (7,083  | ) |  |   |         |        
|Net income                                                 |                             |        |       |  |          |  |       |        |          |   |         |            |  |              |        |   |          |   | (11,021 | )        |  |   |           |   |  |             |         |   |       |   |               |        |  |   |         |   |  |   | (11,021 | ) |  |   | (11,021 | )      
|Translation adjustment                                     |                             |        |       |  |          |  |       |        |          |   |         |            |  |              |        |   |          |   |         |          |  |   |           |   |  |             |         |   |       |   |               |        |  |   | (7,943  | ) |  |   | (7,943  | ) |  |   | (7,943  | )      
|                                                           |                             |        |       |  |          |  |       |        |          |   |         |            |  |              |        |   |          |   |         |          |  |   |           |   |  |             |         |   |       |   |               |        | 
|                                                           | Comprehensive income (loss) |        |       |  |          |  |       |        |          |   |         |            |  |              |        |   |          |   |         |          |  |   |           |   |  |             |         |   |       |   |               |        |  |   |         |   |  |   |         |  |  |   |         | (18,964 | )
|                                                           |                             |        |       |  |          |  |       |        |          |   |         |            |  |              |        |   |          |   |         |          |  |   |           |   |  |             |         |   |       |   |               |        | 
|Repayment on employee notes and stock options
    extended |                             |        |       |  |          |  |       |        |          |   |         |            |  |              | 646    |   |          |   |         |          |  |   | 51        |   |  |             |         |   |       |   |               |        |  |   |         |   |  |   | 697     |   |  |   |         |        
|                                                           |                             |        |       |  |          |  |       |        |          |   |         |            |  |              |        |   |          |   |         |          |  |   |           |   |  |             |         |   |       |   |               |        | 
|Balance, December 31, 2001                                 |                             |        | 3,303 |  |          |  | 1,318 |        |          |   | 2       |            |  |              | 17,269 |   |          |   | (6,131  | )        |  |   | (395      | ) |  |             | (24,625 | ) |       |   |              |        |  |   | (11,470 | ) |  |   | (25,350 | ) |  |   |         |        
|Net income                                                 |                             |        |       |  |          |  |       |        |          |   |         |            |  |              |        |   |          |   | 980     |          |  |   |           |   |  |             |         |   |       |   |               |        |  |   |         |   |  |   | 980     |   |  |   | 980     |        
|Translation adjustment                                     |                             |        |       |  |          |  |       |        |          |   |         |            |  |              |        |   |          |   |         |          |  |   |           |   |  |             |         |   |       |   |               |        |  |   | (2,119  | ) |  |   | (2,119  | ) |  |   | (2,119  | )      
|Minimum pension liability                                  |                             |        |       |  |          |  |       |        |          |   |         |            |  |              |        |   |          |   |         |          |  |   |           |   |  |             |         |   |       |   | (9,156        | )      |  |   |         |   |  |   | (9,156  | ) |  |   | (9,156  | )      
|                                                           |                             |        |       |  |          |  |       |        |          |   |         |            |  |              |        |   |          |   |         |          |  |   |           |   |  |             |         |   |       |   |               |        | 
|                                                           | Comprehensive income (loss) |        |       |  |          |  |       |        |          |   |         |            |  |              |        |   |          |   |         |          |  |   |           |   |  |             |         |   |       |   |               |        |  |   |         |   |  |   |         |  |  |   | $       | (10,295 | )
|                                                           |                             |        |       |  |          |  |       |        |          |   |         |            |  |              |        |   |          |   |         |          |  |   |           |   |  |             |         |   |       |   |               |        | 
|Repayment on employee notes and stock options
    extended |                             |        |       |  |          |  | 16    |        |          |   |         |            |  |              | (312   | ) |          |   |         |          |  |   | 290       |   |  |             | (275    | ) |       |   |               |        |  |   |         |   |  |   | (297    | ) |  |   |         |        
|                                                           |                             |        |       |  |          |  |       |        |          |   |         |            |  |              |        |   |          |   |         |          |  |   |           |   |  |             |         |   |       |   |               |        | 
|Balance, December 31, 2002                                 |                             |        | 3,303 |  |          |  | 1,334 |        |          | $ | 2       |            |  | $            | 16,957 |   |          | $ | (5,151  | )        |  | $ | (105      | ) |  | $           | (24,900 | ) |       |   | (9,156        | )      |  | $ | (13,589 | ) |  | $ | (35,942 | ) |  |   |         |        
|                                                           |                             |        |       |  |          |  |       |        |          |   |         |            |  |              |        |   |          |   |         |          |  |   |           |   |  |             |         |   |       |   |               |        | 

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

F-4



---



##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENT OF CASH FLOWS


For the Years Ended December 31, 2002,
2001, and 2000


(In thousands)


|                                                                                                                 |                                                                    |                                                         |                                                         |        |        |        |        |        |        |     |         |        |        |         |  
|---------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ------------------------------------------------------- | ------------------------------------------------------- | ------ | ------ | ------ | ------ | ------ | ------ | --- | ------- | ------ | ------ | ------- | -
|                                                                                                                 |                                                                    |                                                        
|                                                                                                                 |                                                                    | For the years ended December 31,                        |                                                        
|                                                                                                                 |                                                                    |                                                         |                                                        
|                                                                                                                 |                                                                    | 2002                                                    |                                                         |        | 2001   |        |        | 2000   |       
|                                                                                                                 |                                                                    |                                                         |                                                         |        |        |        |        |        |       
|Cash flows from operating activities                                                                             |                                                                    |                                                         |                                                         |        |        |        |        |        |        |     |         |       
|Net income (loss) from continuing operations,
    including extraordinary gain                                   |                                                                    | $                                                       | 980                                                     |        |        | $      | (9,421 | )      |        | $   | (5,293  | )     
|Adjustments to reconcile net income (loss) to net
    cash (used in) provided by continuing operating activities |                                                                    |                                                         |                                                         |        |        |        |        |        |        |     |         |       
|                                                                                                                 | Gain on senior note purchase                                       |                                                         |                                                         | (431   | )      |        |        | (391   | )      |     |         | (4,063 | )     
|                                                                                                                 | Minority interest                                                  |                                                         |                                                         | 2,541  |        |        |        | 950    |        |     |         |       |       
|                                                                                                                 | Option repurchase/ extensions                                      |                                                         |                                                         | (313   | )      |        |        | 647    |        |     |         | 173    |       
|                                                                                                                 | Real estate provision                                              |                                                         |                                                         | 1,000  |        |        |        |        |        |     |         |        |       
|                                                                                                                 | Argentina bad debt write-off                                       |                                                         |                                                         |       |        |        |        | 1,500  |        |     |         |       |       
|                                                                                                                 | Write-off of specialty alternators                                 |                                                         |                                                         |       |        |        |        |       |        |     |         | 3,450  |       
|                                                                                                                 | Deferred gain on sale and leaseback                                |                                                         |                                                         | (192   | )      |        |        | (306   | )      |     |         | (389   | )     
|                                                                                                                 | Depreciation                                                       |                                                         |                                                         | 6,044  |        |        |        | 7,385  |        |     |         | 7,329  |       
|                                                                                                                 | Amortization                                                       |                                                         |                                                         | 745    |        |        |        | 1,235  |        |     |         | 1,395  |       
|                                                                                                                 | Loss on sale of property, plant and equipment                      |                                                         |                                                         | 7      |        |        |        | 33     |        |     |         | 125    |       
|                                                                                                                 | Deferred taxes                                                     |                                                         |                                                         |       |        |        |        | (2,830 | )      |     |         | (3,696 | )     
|                                                                                                                 | Changes in operating assets and liabilities                        |                                                         |                                                         |        |        |        |        |        |        |     |         |        |       
|                                                                                                                 |                                                                    | Accounts receivable                                     |                                                         |        | (4,277 | )      |        |        | 2,614  |     |         |        | 2,136  |        
|                                                                                                                 |                                                                    | Inventories                                             |                                                         |        | 224    |        |        |        | (2,550 | )   |         |        | 1,430  |        
|                                                                                                                 |                                                                    | Prepaid and other current assets                        |                                                         |        | (253   | )      |        |        | (3,154 | )   |         |        | (80    | )      
|                                                                                                                 |                                                                    | Accounts payable                                        |                                                         |        | (795   | )      |        |        | 1,085  |     |         |        | (3,348 | )      
|                                                                                                                 |                                                                    | Accrued liabilities                                     |                                                         |        | 3,229  |        |        |        | 1,887  |     |         |        | (4,024 | )      
|                                                                                                                 |                                                                    |                                                         |                                                         |        |        |        |        |        |       
|                                                                                                                 | Net cash provided by (used in) continuing
    operating activities |                                                         |                                                         | 8,509  |        |        |        | (1,316 | )      |     |         | (4,855 | )     
|                                                                                                                 | Net cash provided by (used in) discontinued
    operations         |                                                         |                                                         | 2,742  |        |        |        | (1,440 | )      |     |         | (2,890 | )     
|                                                                                                                 |                                                                    |                                                         |                                                         |        |        |        |        |        |       
|                                                                                                                 | Net cash provided by (used in) operating
    activities            |                                                         |                                                         | 11,251 |        |        |        | (2,756 | )      |     |         | (7,745 | )     
|                                                                                                                 |                                                                    |                                                         |                                                         |        |        |        |        |        |       
|Cash flows from investing activities                                                                             |                                                                    |                                                         |                                                         |        |        |        |        |        |        |     |         |       
|Capital expenditures                                                                                             |                                                                    |                                                         | (5,068                                                  | )      |        |        | (4,573 | )      |        |     | (6,385  | )     
|Proceeds from disposal of property, plant and
    equipment                                                      |                                                                    |                                                         | 6                                                       |        |        |        | 225    |        |        |     | 2,558   |       
|Proceeds from sale of discontinued operations/
    assets held for disposal                                      |                                                                    |                                                         |                                                        |        |        |        |       |        |        |     | 51,613  |       
|Acquisition of Mosal                                                                                             |                                                                    |                                                         | (179                                                    | )      |        |        |       |        |        |     |        |       
|Investment in affiliates                                                                                         |                                                                    |                                                         | (143                                                    | )      |        |        | (125   | )      |        |     | 5       |       
|                                                                                                                 |                                                                    |                                                         |                                                         |        |        |        |        |        |       
|                                                                                                                 |                                                                    | Net cash (used in) provided by investing
    activities |                                                         |        | (5,384 | )      |        |        | (4,473 | )   |         |        | 47,791 |        
|                                                                                                                 |                                                                    |                                                         |                                                         |        |        |        |        |        |       
|Cash flows from financing activities                                                                             |                                                                    |                                                         |                                                         |        |        |        |        |        |        |     |         |       
|Net increase (decrease) in revolving line of
    credit                                                          |                                                                    |                                                         | (3,071                                                  | )      |        |        | 1,040  |        |        |     | (13,848 | )     
|Payments on long-term debt                                                                                       |                                                                    |                                                         | (6,051                                                  | )      |        |        | (1,465 | )      |        |     | (1,020  | )     
|Proceeds from borrowings                                                                                         |                                                                    |                                                         | 5,752                                                   |        |        |        | 2,016  |        |        |     |        |       
|Purchase of treasury stock, options and warrants,
    employee stock receivable                                  |                                                                    |                                                         | 15                                                      |        |        |        | 51     |        |        |     | (282    | )     
|Borrowings (payments) on capital leases                                                                          |                                                                    |                                                         | 248                                                     |        |        |        | (202   | )      |        |     | 457     |       
|Senior note purchase, net                                                                                        |                                                                    |                                                         | (1,110                                                  | )      |        |        | (1,065 | )      |        |     | (15,865 | )     
|Other financing costs, net                                                                                       |                                                                    |                                                         | (9                                                      | )      |        |        | (107   | )      |        |     | (26     | )     
|                                                                                                                 |                                                                    |                                                         |                                                         |        |        |        |        |        |       
|                                                                                                                 |                                                                    |                                                         | Net cash provided by (used in) financing
    activities |        |        | (4,226 | )      |        |        | 268 |         |        |        | (30,584 | )
|                                                                                                                 |                                                                    |                                                         |                                                         |        |        |        |        |        |       
|Effect of exchange rate changes on cash                                                                          |                                                                    |                                                         | (162                                                    | )      |        |        | (313   | )      |        |     | 287     |       
|                                                                                                                 |                                                                    |                                                         |                                                         |        |        |        |        |        |       
|Net increase (decrease) in cash                                                                                  |                                                                    |                                                         | 1,479                                                   |        |        |        | (7,274 | )      |        |     | 9,749   |       
|Cash beginning of year                                                                                           |                                                                    |                                                         | 2,907                                                   |        |        |        | 10,181 |        |        |     | 432     |       
|                                                                                                                 |                                                                    |                                                         |                                                         |        |        |        |        |        |       
|Cash, end of year                                                                                                |                                                                    | $                                                       | 4,386                                                   |        |        | $      | 2,907  |        |        | $   | 10,181  |       
|                                                                                                                 |                                                                    |                                                         |                                                         |        |        |        |        |        |       
|Supplemental cash flow information                                                                               |                                                                    |                                                         |                                                         |        |        |        |        |        |        |     |         |       
|Interest paid                                                                                                    |                                                                    | $                                                       | 11,292                                                  |        |        | $      | 13,485 |        |        | $   | 15,803  |       
|                                                                                                                 |                                                                    |                                                         |                                                         |        |        |        |        |        |       
|Taxes paid                                                                                                       |                                                                    | $                                                       | 601                                                     |        |        | $      | 862    |        |        | $   | 1,725   |       
|                                                                                                                 |                                                                    |                                                         |                                                         |        |        |        |        |        |       

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

F-5



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##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES






NOTES TO FINANCIAL STATEMENTS


1. General Information

Prestolite Electric Holding, Inc.
(PEI We, Us or the
Company), was formed in 1991 to acquire
substantially all of the assets and assume certain liabilities
of Prestolite Electric Incorporated and its subsidiaries
(Prestolite). The wholly-owned subsidiaries of
Prestolite Electric Incorporated now include Prestolite Electric
Limited, a U.K. corporation; Prestolite Electric (Pty)
Ltd., a South Africa corporation; Prestolite Indiel Argentina
S.A., an Argentina corporation; and Prestolite Electric Holding
(China) LLC, a U.S. limited liability company. Prestolite
Electric Holding (China) LLC in turn owns 52% of Prestolite
Electric Beijing Ltd., a Chinese corporation. Operations are
generally conducted as Prestolite Electric Incorporated. There
are no material differences between the financial statements of
PEI and Prestolite.

We manufacture and distribute alternators,
starter motors, and other electrical components for aftermarket
and original equipment applications in the heavy duty vehicle,
automotive, defense, material handling, marine, and other
industries. Two manufacturing facilities and one distribution
warehouse are located in the United States; two manufacturing
facilities are located in the United Kingdom; one manufacturing
facility is located in South Africa; three manufacturing
facilities are located in Argentina; and one manufacturing
facility is located in China.

2. Argentina

Beginning in 1991 the Argentine government
maintained the value of its currency such that one Argentine
peso equaled one U.S. dollar. During the second half of
2001, Argentina suffered a severe economic and monetary crisis.
During most of December 2001 and early January 2002 the banks in
Argentina were closed. On January 14, 2002, the banks
reopened and the Argentina peso traded at $0.606 per peso
(1.65 pesos per dollar). We used that $0.606 rate to
translate the December 31, 2001 balance sheet of our
Argentine subsidiary. We translated the Argentine income
statements for 2000 and 2001 at $1.00 per peso. The Argentine
peso ended 2002 with a value of $0.2972 and we used that rate to
translate the December 31, 2002 Argentina balance sheet. We
translated the income statement at various monthly peso values
ranging from a high of $0.597 (January) to a low of $0.274
(June). As the result of the devalued rate, we recorded a
foreign exchange loss of $0.3 million and $0.9 million
and a charge to other comprehensive income of $6.2 million
and $5.1 million representing the cumulative translation
adjustments in 2001 and 2002, respectively. Because of the
impact of the financial crisis on our customers, in 2001 we
recorded a $1.5 million charge to cover anticipated bad
debts in Argentina.

Our practice in Argentina had been to borrow
funds by discounting post-dated checks received from our
customers. Because Argentine banks stopped lending during the
second half of 2001, we provided financial support to our
Argentine subsidiary from North America, increasing the amount
lent to that subsidiary by $5.3 million during 2001. Also
during 2001 our Argentine subsidiary reduced its non-debt
discounted checks outstanding by $3.7 million and bank debt
outstanding by $1.2 million. During 2002 we lent an
additional $2.1 million to our Argentine subsidiary and the
subsidiary reduced its bank debt and discounted checks to zero.

3. Discontinued Operations

On August 4, 2000, we sold our direct
current electric motor business, battery charger business and
switch business to Ametek, Inc. The $62.0 million
contractual price of this asset sale was adjusted for changes in
net operating assets from a target and for the sales to a key
customer during the second quarter of 2001. The adjusted sale
price was approximately $57.4 million, including
$0.5 million in escrow at December 31, 2002.

We also committed to provide Ametek with certain
services at no charge for periods of six to twelve months
following closing. After providing for the no-charge services
and for other costs related to the transaction, we recorded a
gain on disposition of $23.3 million before tax and
$14.5 million after tax in 2000.

F-6



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##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES


NOTES TO FINANCIAL STATEMENTS 
(Continued)



3. Discontinued Operations 
(continued)


During 2001 we reduced the gain-on-sale by
recording a charge of $1.6 million before tax. No tax
benefit associated with this charge was recorded. A portion of
this charge adjusted the carrying value of a manufacturing
facility previously used by some of the operations sold. The
charge also included $0.4 million to write-off receivables
and to provide for certain benefits that may not be delivered to
Ametek because of the October 2001 Chapter 11 filing of
Thermadyne Holdings Corporation. Thermadyne, which purchased our
welding equipment business in 1997, shares a facility with the
battery charger business sold to Ametek in 2000.

We guaranteed the lease on the Thermadyne portion
of that facility through October 31, 2006. Annual lease
payments are $447,000. During 2002 Thermadyne advised us that
they intend to vacate the facility at the end of 2003. We
recorded a $1.0 million charge in 2002 to further reduce
the value of the idle manufacturing facility we own and to
provide for an anticipated loss on the guaranteed lease.

Net assets related to discontinued operations at
December 31 are summarized below (in thousands):

|                                                                                                  |  |      |        |   |      |   |        |  
|------------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                                                                                  |  | 2002 |        |   | 2001 |  
|                                                                                                  |  |      |        |   |      |  
|In escrow                                                                                         |  | $    | 536    |   |      | $ | 3,802  |  
|Facility held for sale                                                                            |  |      | 3,246  |   |      |   | 3,254  |  
|Accrued transaction costs, estimated sale price
    reductions, and provision for lease guarantee |  |      | (1,806 | ) |      |   | (1,342 | )
|                                                                                                  |  |      |        |   |      |  
|                                                                                                  |  | $    | 1,976  |   |      | $ | 5,714  |  
|                                                                                                  |  |      |        |   |      |  

Summary financial information related to the
discontinued operations is presented below through
August 4, 2000, the date of sale (in thousands).

|                                    |  |   |        | 
|----------------------------------- |  | - | ------ | 
|Net sales                           |  | $ | 43,951 | 
|Operating and other income (loss)   |  | $ | 3,627  | 
|Provision for income taxes          |  |   | 1,337  | 
|                                    |  |   |       
|Income from discontinued operations |  | $ | 2,290  | 
|                                    |  |   |       

4. Summary of Significant Accounting
Policies

Principles of consolidation

The consolidated financial statements include the
accounts of PEI and all subsidiaries in which we have financial
and operating control. All inter-company accounts and
transactions are eliminated in consolidation.

Foreign currency translation

The assets and liabilities of foreign
subsidiaries have been translated from their functional
currencies into U.S. dollars at the rates of exchange
existing as of the balance sheet date. Revenues and expenses
have been translated at the average monthly exchange rates.
Translation adjustments are recorded as a separate component of
stockholders equity. Transactions in foreign currencies
not settled at the balance sheet date are translated at the
exchange rates prevailing at that date with a resulting charge
or credit to income. Foreign exchange gains and losses related
to inter-company obligations are recorded to the extent they are
not considered long term in nature. See also Note 2.

F-7



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##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES


NOTES TO FINANCIAL STATEMENTS 
(Continued)



4. Summary of Significant Accounting
Policies  (continued)


Inventories

Inventories are stated at the lower of cost or
market with cost being established by the last-in, first-out
(LIFO) method for substantially all inventory
manufactured in the United States and by the first-in, first-out
(FIFO) method for all inventory located or
manufactured outside the United States. Approximately
$28,948,000 and $28,639,000 of net inventories at
December 31, 2002 and 2001, respectively, have been valued
based on FIFO cost.

Property, plant and equipment

Property, plant and equipment are stated at cost.
Costs of maintenance and repairs are charged to operations when
incurred; costs of renewals, betterment, and additions are
capitalized. The cost and accumulated depreciation applicable to
assets retired or sold are removed from the accounts, and the
gain or loss on disposition is recognized as income.

Depreciation is computed on a straight-line basis
over the estimated useful lives of the buildings and
improvements (11 to 31) years and the machinery and equipment (3
to 10 years).

Intangible assets

Intangible assets are primarily deferred
financing fees associated with the issuance of the senior notes
and are being amortized over the terms of the related notes.
Accumulated amortization is $2,533,228 and $2,076,912 at
December 31, 2002 and 2001, respectively. Amortization
expense for the years ended December 31, 2002, 2001 and
2000 is $456,316, $468,570, and $545,999 respectively, and is
included in selling, general and administrative expense in the
Statement of Operations.

Product warranty costs and service
returns

Anticipated costs related to product warranty and
service returns are provided for based upon managements
estimate of such costs, after consideration of historical trends
and sales of products to which such costs relate.

Engineering expenses

Engineering costs are expensed as incurred and
are included in selling, general, and administrative expenses.
Total engineering expenses for the years ended December 31,
2002 and 2001 and including expenses of the discontinued
businesses for the year ended December 31, 2000 were
$3,175,000, $3,475,000, and $5,630,000, respectively. Included
in these engineering expenses were research and development
costs (as defined by Statement of Financial Accounting Standards
No. 2) for the years ended December 31, 2002, 2001,
and 2000 of $1,958,000, $2,251,000, and $3,677,000.

Earnings per share

Basic earnings per share is calculated by
dividing net income by the weighted average number of common
shares outstanding. Diluted earnings per share is calculated by
dividing net income by the weighted average number of common
shares outstanding and potentially issuable common shares.
Common stock equivalents are excluded from the diluted earnings
per share calculation if a net loss from continuing operations
is incurred for the period, as they would be anti-dilutive.

F-8



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##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES


NOTES TO FINANCIAL STATEMENTS 
(Continued)



4. Summary of Significant Accounting
Policies  (continued)


Financial instruments

The carrying amount of our financial instruments,
which includes cash, accounts receivable, accounts payable, and
debt other than senior unsecured notes approximates their fair
value at December 31, 2002 and 2001. The fair value of the
senior unsecured notes was approximately $70 million at
December 31, 2002. Fair values have been determined based
on management estimates and information from market sources.

Revenue recognition

We recognize revenues on the sale of our
products, net of estimated costs of returns, allowances and
sales incentives, when product title transfers to the customer,
primarily upon shipment. We generally sell our products on open
account under credit terms customary to the region of
distribution. We perform ongoing credit evaluation of our
customers and generally do not require collateral to secure our
customers receivables.

Comprehensive income

Comprehensive income, a measure that reflects all
non-owner changes in equity in addition to net income, consists
of net income, foreign currency translation adjustments and
minimum pension liability and is presented in the statement of
stockholders equity.

Minority interest

Minority interest included in the consolidated
results of operations represents the minority shareholders
share of the income of Prestolite Electric Beijing, Ltd. (PEBL).
The minority interest included in the consolidated balance sheet
reflects the original investment by the minority shareholders of
PEBL along with their proportional share of the earnings of PEBL.

Estimates

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

New Accounting Pronouncements

The Financial Accounting Standard Board also
issued Statement of Accounting Standard 144,
Accounting for the Impairment or Disposal of Long Lived
Assets during 2001. This standard requires the Company to
recognize an impairment loss if the carrying value of a
long-lived asset is not recoverable from its undiscounted cash
flows. The loss is the difference between the carrying value and
the fair value. The adoption of this statement did not have any
impact on our financial position or results of operations.

In April 2002, the FASB issued SFAS
No. 145, Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. With the rescission of SFAS
No. 4 and 64, only gains and losses from extinguishments of
debt that meet the criteria of APB Opinion No. 30 would be
classified as extraordinary items. This statement also rescinds
SFAS No. 44, Accounting for Intangible Assets of
Motor Carriers. This statements amends SFAS No. 13,
Accounting for Leases, to eliminate the
inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease
modifications that have economic effects that are similar to
sale-leaseback transactions. SFAS No. 145 also amends other
existing authoritative pronouncements to make various technical
corrections,

F-9



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##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES


NOTES TO FINANCIAL STATEMENTS 
(Continued)



4. Summary of Significant Accounting
Policies  (continued)


clarify meaning or describe their applicability
under changed conditions. SFAS No. 145 is effective for
fiscal years beginning after May 15, 2002. Upon adoption on
January 1, 2003, any gain or loss from extinguishments of
debt recorded in prior periods will be reclassified to income
from continuing operations. We are currently reviewing the other
provisions of this Statement and will adopt them effective
in 2003.

In July 2002, the FASB issued SFAS
No. 146, Accounting for Costs Associated with Exit or
Disposal Activities. SFAS No. 146 requires companies
to recognize costs associated with exit or disposal activities
when they are incurred rather than at the date of the commitment
to an exit or disposal plan. SFAS No. 146 is effective for
all exit or disposal activities initiated after
December 29, 2002. We are currently reviewing the
provisions of this Statement and will adopt it effective with
our 2003 fiscal year.

In November 2002, the FASB issued FASB
Interpretation (FIN) No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN
No. 45 clarifies disclosures that are required to be made
for certain guarantees and establishes a requirement to record a
liability at fair value for certain guarantees at the time of
the guarantees issuance. The disclosure requirements of
FIN No. 45 are effective for our 2002 financial statements.
The requirement to record a liability applies to guarantees
issued or modified after December 31, 2002. We do not
believe the adoption of this portion of the Interpretation will
have a material effect on our financial condition or results of
operations.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure 
an amendment of FASB Statement No. 123. SFAS
No. 148 amends SFAS No. 123 to provide alternative
methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure
requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee
compensation and the effect of the method used on reported
results. The Company adopted SFAS No. 148 effective for the
fiscal year ended December 31, 2002.

The following disclosure for the financial
statements for the year ended December 31, 2002 assumes
that the Company continues to account for stock-based employee
compensation using the intrinsic value method under Accounting
Principles Board (APB) No. 25.

At December 31, 2002, the Company has one
stock-based employee compensation plan, which is described more
fully in Note 15. The Company accounts for this plan under
the recognition and measurement principles of APB No. 25,
Accounting for Stock Issued to Employees, and
related Interpretations. No stock-based employee compensation
cost is reflected in net income, as all options granted under
this plan had an exercise price equal to the market value of the
underlying common stock on the date of the grant.

F-10



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##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES


NOTES TO FINANCIAL STATEMENTS 
(Continued)



4. Summary of Significant Accounting
Policies  (continued)


The following table illustrated the effect on net
income and earnings per share if the Company had applied the
fair value recognition provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, to
stock-based employee compensation.

|                                                                                                                                                    |                                                 |              |         |       |              |   |        |      | 
|--------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | ------------ | ------- | ----- | ------------ | - | ------ | ---- | 
|                                                                                                                                                    |                                                 | December 31, |         |       | December 31, |  
|                                                                                                                                                    |                                                 | 2001         |         |       | 2000         |  
|                                                                                                                                                    |                                                 |              |         |       |              |  
|Net income (loss), as reported                                                                                                                      |                                                 | $            | (11,021 | )     |              | $ | 11,485 |     
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of related tax effects |                                                 |              | (120    | )     |              |   | (154   | )   
|                                                                                                                                                    |                                                 |              |         |       |              |  
|Pro forma net income (loss)                                                                                                                         |                                                 | $            | (11,141 | )     |              | $ | 11,331 |     
|                                                                                                                                                    |                                                 |              |         |       |              |  
|Earnings (loss) per share:                                                                                                                          |                                                 |              |         |       |              |   |        |     
|                                                                                                                                                    | Basic: as reported                              |              | $       | (5.55 | )            |   | $      | 5.79 | 
|                                                                                                                                                    |                                                 |              |         |       |              |  
|                                                                                                                                                    | Basic: pro forma for stock-based compensation   |              | $       | (5.61 | )            |   | $      | 5.71 | 
|                                                                                                                                                    |                                                 |              |         |       |              |  
|                                                                                                                                                    | Diluted: as reported                            |              | $       | (5.55 | )            |   | $      | 5.79 | 
|                                                                                                                                                    |                                                 |              |         |       |              |  
|                                                                                                                                                    | Diluted: pro forma for stock-based compensation |              | $       | (5.61 | )            |   | $      | 5.71 | 
|                                                                                                                                                    |                                                 |              |         |       |              |  

In January 2003, the FASB issued FIN
No. 46, Consolidation of Variable Interest Entities,
an Interpretation of ARB 51. FIN No. 46 requires
that the primary beneficiary in a variable interest entity
consolidate the entity even if the primary beneficiary does not
have a majority voting interest. The consolidation requirements
of this Interpretation are required to be implemented for any
variable interest entity created on or after January 31,
2003. In addition, FIN No. 46 requires disclosure of
information regarding guarantees or exposures to loss relating
to any variable interest entity existing prior to
January 31, 2003 in financial statements issued after
January 31, 2003. We have not yet determined the impact
that this Interpretation will have on our financial position or
results of operations.

5. Joint Venture

Prestolite Electric Beijing, Ltd. (PEBL) began
operations in The Peoples Republic of China on
April 1, 2002. Prestolite owns 52% of PEBL, and we have
included the results of PEBL in our consolidated financial
statements after eliminating intercompany activity. Beijing
JinHu Auto-Electric Company Limited (JinHu) owns the other 48%
of PEBL. The managers of PEBL own JinHu. Prestolite contributed
certain technology to PEBL and agreed to contribute an
additional $1.9 million in cash to PEBL by the first
quarter of 2004. JinHu contributed certain technology and agreed
to contribute certain fixed assets to PEBL; the timing of the
JinHu contributions occur as Prestolite makes its contributions
in order to maintain the 52/48 ownership share. Until
Prestolite and JinHu make these contributions, JinHu is leasing
the fixed assets to PEBL. The fixed assets to be contributed by
JinHu are included in our consolidated balance sheet at
December 31, 2002 and 2001 as additional machinery and
equipment and as minority interest. The company eliminated the
one month lag previously employed in reporting the results of
its operations in China, adding $0.9 million to reported
sales and $0.2 million to operating income and EBITDA.



|   |                                                     
|-- | ----------------------------------------------------
|6. | Charges Related to Certain Specialty
    Alternators

We charged $3,450,000 to income in 2000 to write
off all our assets related to Ecoair Corp. ($3.2 million)
and to record the settlement of a lawsuit related to the
development and manufacture of a special regulator used in
certain alternators ($250,000).

F-11



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##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES


NOTES TO FINANCIAL STATEMENTS 
(Continued)

7. Earnings per Share
(EPS)

In computing income available to common
stockholders, no adjustments were required to the amounts
reported in the statement of income. Shares of common stock
(available and potentially issuable) used in the computation are
comprised of the following (in thousands):

|                                                                                     |  |      |       |  |      |  |       |      |  |  |       | 
|------------------------------------------------------------------------------------ |  | ---- | ----- |  | ---- |  | ----- | ---- |  |  | ----- | 
|                                                                                     |  | 2002 |       |  | 2001 |  |       | 2000 | 
|                                                                                     |  |      |       |  |      |  |       |      | 
|Weighted average number of shares of common stock
    used in computing basic EPS    |  |      | 1,969 |  |      |  | 1,985 |      |  |  | 1,985 | 
|Weighted average number of shares of common stock
    used in computing dilutive EPS |  |      | 2,036 |  |      |  | 1,985 |      |  |  | 1,985 | 

For 2002, 66,754 stock options were included in
calculating diluted earnings per share amounts. For 2001 and
2000, stock options were not considered in calculating diluted
earnings per share since the effect of inclusion would be
anti-dilutive to earnings per common share from continuing
operations.

8. Inventories

Inventories consist of the following at
December 31 (in thousands):

|                                     |                 |                 |        |        |        |   |        |        |        | 
|------------------------------------ | --------------- | --------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                     |                 | 2002            |        |        | 2001   |  
|                                     |                 |                 |        |        |        |  
|FIFO cost                            |                 |                 |        |        |        |   |        |       
|                                     | Raw materials   |                 | $      | 19,519 |        |   | $      | 17,509 |       
|                                     | Work in process |                 |        | 3,919  |        |   |        | 3,695  |       
|                                     | Finished goods  |                 |        | 18,315 |        |   |        | 22,372 |       
|                                     |                 |                 |        |        |        |  
|                                     |                 | Total FIFO cost |        |        | 41,753 |   |        |        | 43,576 | 
|Adjustment to LIFO cost              |                 |                 | 778    |        |        |   | 801    |       
|Reserves for excess and obsolescence |                 |                 | (3,832 | )      |        |   | (3,488 | )     
|                                     |                 |                 |        |        |        |  
|                                     |                 | $               | 38,699 |        |        | $ | 40,889 |       
|                                     |                 |                 |        |        |        |  

During 2001 we adjusted our procedure to
determine inventory reserves in the United Kingdom. As the
result of that change we charged $522,000 to cost of sales in
2001.

9. Goodwill and Intangible
Assets

In 2001 the Financial Accounting Standards Board
issued Statement of Accounting Standard No. 142,
Goodwill and Other Intangible Assets. SFAS 142
eliminated the requirement to amortize goodwill and
indefinite-lived intangible assets, addressed the amortization
of intangible assets with a defined life and required impairment
testing and recognition for goodwill and intangible assets. SFAS
No. 142 is effective for 2002. Effective January 1,
2002, we adopted SFAS 142 and accordingly, we no longer
amortize goodwill. This goodwill will instead be assessed for
impairment at least annually. At December 31, 2002, the
goodwill balance was approximately $4.0 million. For
purposes of testing this goodwill for potential impairment, fair
values were determined based upon the anticipated earnings
multiples of the operating units. The initial assessment
indicated that the fair value exceeded the corresponding
carrying value. This analysis was

F-12



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##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES


NOTES TO FINANCIAL STATEMENTS 
(Continued)



9. Goodwill and
Intangible Assets  (continued)


completed again for the year ended
December 31, 2002, which indicated that the fair value
continued to exceed the carrying values.

|                           |  |   |       | 
|-------------------------- |  | - | ----- | 
|Goodwill changes in 2002   |  |   |       | 
|Balance December 31, 2001  |  | $ | 3,677 | 
|Impact of foreign currency |  |   | 371   | 
|                           |  |   |      
|Balance December 31, 2002  |  | $ | 4,048 | 
|                           |  |   |      

SFAS 142 does not provide for restatement of
our results of operations for periods ending prior to January
2002. Our results of operations for the year ended
December 31, 2001 included goodwill amortization expense,
net of taxes, of $699,000. Excluding the effect of goodwill
amortization, our reported net loss for the year 2001 would have
been reduced from $11.0 million to $10.3 million. Our
net loss per common share would have been reduced from $5.55 to
$5.20 per common share.

Intangible assets consist of the following:

|                |       |                                              |       |       |                   |   |          |              |   |       |          |  |  |       |          |       |              |   |        |        |   |  |    |  | 
|--------------- | ----- | -------------------------------------------- | ----- | ----- | ----------------- | - | -------- | ------------ | - | ----- | -------- |  |  | ----- | -------- | ----- | ------------ | - | ------ | ------ | - |  | -- |  | 
|                |       |                                              |       |      
|                |       | December 31, 2002                            |       |       | December 31, 2001 |  
|                |       |                                              |       |       |                   |  
|                |       | Gross                                        |       |       |                   |   | Weighted |              |   | Gross |          |  |  |       | Weighted |      
|                |       | Carrying                                     |       |       | Accum             |   |          | Average      |   |       | Carrying |  |  | Accum |          |       | Average      |  
|                |       | Amounts                                      |       |       | Amort             |   |          | Life (years) |   |       | Amounts  |  |  | Amort |          |       | Life (years) |  
|                |       |                                              |       |       |                   |   |          |              |   |       |          |  |  |       |          |       |              |  
|                |       |                                             
|                |       | (in thousands, except weighted average life) |      
|Licenses        |       | $                                            | 226   |       |                   | $ | (151     | )            |   |       | 7        |  |  | $     | 226      |       |              | $ | (119   | )      |   |  | 7  | 
|MOSAL           |       |                                              | 699   |       |                   |   | (135     | )            |   |       | 10       |  |  |       | 84       |       |              |   |       |        |   |  | 10 | 
|Financing costs |       |                                              | 4,613 |       |                   |   | (2,533   | )            |   |       | 10       |  |  |       | 4,647    |       |              |   | (2,076 | )      |   |  | 10 | 
|Technology      |       |                                              | 801   |       |                   |   | (127     | )            |   |       | 10       |  |  |       | 658      |       |              |   | (6     | )      |   |  | 10 | 
|                |       |                                              |       |       |                   |   |          |              |   |       |          |  |  |       |          |       |              |  
|                | Total |                                              | $     | 6,339 |                   |   | $        | (2,946       | ) |       |          |  |  |       | $        | 5,615 |              |   | $      | (2,201 | ) |  |    |  | 
|                |       |                                              |       |       |                   |   |          |              |   |       |          |  |  |       |          |       |              |  

|                                                      |                                      |  |   |     | 
|----------------------------------------------------- | ------------------------------------ |  | - | --- | 
|Aggregate amortization expense (included in
    SG&A) |                                      |  |   |    
|                                                      | For the year ended December 31, 2002 |  | $ | 745 | 
|Estimated amortization expense                        |                                      |  |   |    
|                                                      | For the year ended December 31, 2003 |  | $ | 696 | 
|                                                      | For the year ended December 31, 2004 |  | $ | 696 | 
|                                                      | For the year ended December 31, 2005 |  | $ | 675 | 
|                                                      | For the year ended December 31, 2006 |  | $ | 664 | 

10. Accrued Liabilities

Accrued liabilities consist of the following at
December 31 (in thousands):

|                          |  |      |        |  |      |   |        | 
|------------------------- |  | ---- | ------ |  | ---- | - | ------ | 
|                          |  | 2002 |        |  | 2001 |  
|                          |  |      |        |  |      |  
|Accrued compensation      |  | $    | 2,177  |  |      | $ | 1,344  | 
|Accrued warranty          |  |      | 2,131  |  |      |   | 1,666  | 
|Accrued severance         |  |      | 1,915  |  |      |   | 1,617  | 
|Accrued interest          |  |      | 3,969  |  |      |   | 4,023  | 
|Other accrued liabilities |  |      | 4,814  |  |      |   | 5,357  | 
|                          |  |      |        |  |      |  
|                          |  | $    | 15,006 |  |      | $ | 14,007 | 
|                          |  |      |        |  |      |  

F-13



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##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES


NOTES TO FINANCIAL STATEMENTS 
(Continued)

11. Debt

Debt consists of the following at
December 31 (in thousands):

|                          |                                |                           |                                               |        |       |         |       |         |       |         | 
|------------------------- | ------------------------------ | ------------------------- | --------------------------------------------- | ------ | ----- | ------- | ----- | ------- | ----- | ------- | 
|                          |                                | 2002                      |                                               |        | 2001  |        
|                          |                                |                           |                                               |        |       |        
|North America             |                                |                           |                                               |        |       |         |       |        
|                          | Float                          |                           | $                                             | 130    |       |         | $     | 319     |      
|                          | Revolving credit               |                           |                                               |       |       |         |       | 470     |      
|                          | Senior unsecured notes, 9.625% |                           |                                               | 98,533 |       |         |       | 100,108 |      
|                          |                                |                           |                                               |        |       |        
|                          |                                |                           | Subtotal North America                        |        |       | 98,663  |       |         |       | 100,897 | 
|                          |                                |                           |                                               |        |       |        
|United Kingdom            |                                |                           |                                               |        |       |         |       |        
|                          | Overdraft facility             |                           |                                               | 1,425  |       |         |       | 3,739   |      
|                          | Term loan                      |                           |                                               | 5,752  |       |         |       | 5,401   |      
|South Africa Bank Debt    |                                |                           | 990                                           |        |       |         | 747   |        
|Argentina Bank Debt       |                                |                           |                                              |        |       |         | 125   |        
|MOSAL Obligation          |                                |                           | 1,040                                         |        |       |         |      |        
|China                     |                                |                           |                                              |        |       |         |      |        
|                          |                                |                           |                                               |        |       |        
|                          |                                |                           | Subtotal International                        |        |       | 9,207   |       |         |       | 10,012  | 
|                          |                                |                           |                                               |        |       |        
|                          |                                |                           | Total term, revolving credit and senior notes |        |       | 107,870 |       |         |       | 110,909 | 
|Capital lease obligations |                                |                           | 1,456                                         |        |       |         | 1,212 |        
|Other                     |                                |                           | 114                                           |        |       |         | 123   |        
|                          |                                |                           |                                               |        |       |        
|                          |                                |                           | Consolidated total                            |        |       | 109,440 |       |         |       | 112,244 | 
|                          |                                | Less  current maturities |                                               |        | 4,315 |         |       |         | 7,236 |        
|                          |                                |                           |                                               |        |       |        
|                          |                                |                           | Consolidated long-term debt                   |        | $     | 105,125 |       |         | $     | 105,008 | 
|                          |                                |                           |                                               |        |       |        

Our U.S. bank borrowing arrangements consist
of a $10 million revolving credit facility and a
$3.5 million revolving credit and letter of credit
facility. Interest is payable on amounts borrowed under the
revolving credit facility at the banks prime rate plus up
to another 0.75% depending upon amounts borrowed and upon our
Funded Debt Ratio. We are currently paying interest at prime,
4.25% at December 31, 2002. The letter of credit fee is 2%
of amounts drawn. Both U.S. facilities are collateralized
by eligible accounts receivable and inventory. On
December 31, 2001 letters of credit totaling
$0.7 million were outstanding.

Our U.K. agreement consists of a
£3.6 million variable rate term loan and a
£2.3 million overdraft facility. Interest on the
variable rate term loan is 1.375% above the banks base
rate (4.0% at December 31, 2002) and interest in the
overdraft is at 1.25% above the base rate. The term loan is
repayable in sixty monthly payments through December 2007.
The U.K. loans are collateralized by eligible receivables
and fixed assets in the United Kingdom. The Company was in
violation of a certain U.K. debt covenant at
December 31, 2002, which was waived by the U.K. bank.

In Argentina we have had arrangements with
several banks that allow us to borrow by discounting post-dated
checks given to us by our customers. Depending on the details of
the arrangement with each bank, the resulting borrowing may have
been recorded as debt or as the sale of the underlying
receivable. At December 31, 2001 we had, in addition to the
debt shown in the table above, $263,000 of discounted checks
which we recorded as the sale of a receivable. We had no bank
debt or discounted checks outstanding in Argentina at
December 31, 2002. In March 2002 our Argentine subsidiary
acquired an Argentine corporation (MOSAL) with
certain tax benefits for 4.0 million Argentine pesos,
500,000 pesos in cash and 3.5 million pesos due over the
next three years. The 3.5 million pesos are shown as
$1.0 million of MOSAL obligation.

In South Africa we borrow from a bank at the
banks prime lending rate. This loan is supported by a
pledge of South African receivables.

F-14



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##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES


NOTES TO FINANCIAL STATEMENTS 
(Continued)



11. Debt 
(continued)


In China, the joint venture obtained a bank line
of credit in October for Rmb 10.0 million
($1.2 million translated at 8.28 Rmb to one
U.S. dollar on December 31, 2002). The term of this
agreement is one year. No amounts were outstanding at
December 31, 2002 and 2001.

At December 31, 2002 we could have borrowed
an additional $11.5 million in the U.S. and
$2.3 million (£1.4 million, translated at $1.61
per pound sterling) in the U.K.

The 9.625% senior unsecured notes mature on
February 1, 2008. We have the option to redeem them
beginning February 1, 2003 with the net proceeds of a
public equity offering at our option, in whole or in part, at
amounts from 104.8125% to 100% of the principle plus accrued
interest. We purchased and retired senior notes with a face
value of $23.1 million, $1.8 million and
$1.6 million in 2000, 2001, and 2002, recording
extraordinary after-tax gains of $4.1 million,
$0.4 million, and $0.4 million. The 2000 and 2001
gains were net of a tax provision; no tax provision was recorded
in conjunction with the 2002 purchases.

The senior notes and bank arrangements mentioned
above contain various covenants including the maintenance of
certain financial ratios and limits on (a) issuance of
additional debt or preferred stock; (b) the payment of
dividends and purchases, redemptions or retirements of common
stock; (c) investments; (d) sale of assets and capital
stock of subsidiaries; and (e) certain consolidations,
mergers, transfers of assets and certain other transactions with
affiliates. Our U.S. bank covenants at December 31
require us to maintain a Funded Debt Ratio of not more than
6.5:1 and a Fixed Charge Coverage Ratio of not less
than 1:1, as those terms are defined in our bank credit
agreement. The foreign facilities contain covenants that pertain
to the foreign operations.

Maturities of debt obligations at
December 31 are as follows (in thousands):

|           |  |   |         | 
|---------- |  | - | ------- | 
|Year       |  |  
|           |  |  
|2003       |  |   | 4,315   | 
|2004       |  |   | 1,933   | 
|2005       |  |   | 1,516   | 
|2006       |  |   | 1,422   | 
|2007       |  |   | 1,491   | 
|Thereafter |  |   | 98,763  | 
|           |  |   |        
|           |  | $ | 109,440 | 
|           |  |   |        

12. Income Taxes

Income (loss) from continuing operations,
before minority interest and income taxes, consists of the
following (in thousands):

|              |  |      |        |   |      |   |         |      |  |   |         |  
|------------- |  | ---- | ------ | - | ---- | - | ------- | ---- |  | - | ------- | -
|              |  | 2002 |        |   | 2001 |   |         | 2000 | 
|              |  |      |        |   |      |   |         |      | 
|United States |  | $    | (2,728 | ) |      | $ | (5,115  | )    |  | $ | (11,391 | )
|Foreign       |  |      | 5,528  |   |      |   | (5,394  | )    |  |   | (2,450  | )
|              |  |      |        |   |      |   |         |      | 
|              |  | $    | 2,800  |   |      | $ | (10,509 | )    |  | $ | (13,841 | )
|              |  |      |        |   |      |   |         |      | 

F-15



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##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES


NOTES TO FINANCIAL STATEMENTS 
(Continued)



12. Income
Taxes  (continued)


The components of income tax related to
continuing operations are as follows (in thousands):

|              |                               |      |   |      |      |  |   |        |   |  |   |        |  
|------------- | ----------------------------- | ---- | - | ---- | ---- |  | - | ------ | - |  | - | ------ | -
|              |                               | 2002 |   |      | 2001 |  |   | 2000   |  
|              |                               |      |   |      |      |  |   |        |  
|United States |                               |      |   |      |      |  |   |        |   |  |   |       
|              | Current                       |      | $ |     |      |  | $ | (690   | ) |  | $ | (4,348 | )
|              | Deferred                      |      |   |     |      |  |   | (1,049 | ) |  |   | (1,205 | )
|              | Increase in valuation reserve |      |   |     |      |  |   |       |   |  |   | 154    |  
|              | State and local               |      |   | (142 | )    |  |   | (181   | ) |  |   | 315    |  
|Foreign       |                               |      |   |      |      |  |   |        |   |  |   |       
|              | Current                       |      |   | (148 | )    |  |   | 273    |   |  |   | 599    |  
|              | Deferred                      |      |   |     |      |  |   |       |   |  |   |       |  
|              |                               |      |   |      |      |  |   |        |  
|              |                               |      | $ | (290 | )    |  | $ | (1,647 | ) |  | $ | (4,485 | )
|              |                               |      |   |      |      |  |   |        |  

A reconciliation of the U.S. statutory tax rate
to the effective tax rate is as follows:

|                                        |  |      |       |    |      |  |       |      |  |  |      |  
|--------------------------------------- |  | ---- | ----- | -- | ---- |  | ----- | ---- |  |  | ---- | -
|                                        |  | 2002 |       |    | 2001 |  |       | 2000 | 
|                                        |  |      |       |    |      |  |       |      | 
|Statutory rate                          |  |      | 34.0  | %  |      |  | 34.0  | %    |  |  | 34.0 | %
|Change in valuation reserve             |  |      |      |    |      |  |      |      |  |  | (1.1 | )
|State and local, net of federal benefit |  |      | (5.9  | )  |      |  | 1.7   |      |  |  | (2.3 | )
|Difference in foreign tax rates         |  |      | (57.4 | )  |      |  | 5.3   |      |  |  | 4.0  |  
|Permanent difference                    |  |      | 2.5   |    |      |  | (0.4  | )    |  |  | (0.7 | )
|NOLs                                    |  |      | 16.4  |    |      |  | (24.9 | )    |  |  | (8.1 | )
|Other                                   |  |      |      |    |      |  |      |      |  |  | 6.6  |  
|                                        |  |      |       |    |      |  |       |      | 
|                                        |  |      | (10.4 | )% |      |  | 15.7  | %    |  |  | 32.4 | %
|                                        |  |      |       |    |      |  |       |      | 

Our operation in China enjoyed a tax holiday
through 2002 and is scheduled to pay taxes at 12% for the next
three years.

The major components of deferred taxes (stated on
an after tax basis) on the balance sheet are as follows (in
thousands):

|                          |                                   |                                         |        |        |       |  |        |        |       | 
|------------------------- | --------------------------------- | --------------------------------------- | ------ | ------ | ----- |  | ------ | ------ | ----- | 
|                          |                                   | 2002                                    |        |        | 2001  | 
|                          |                                   |                                         |        |        |       | 
|Deferred tax assets       |                                   |                                         |        |        |       |  |        |       
|                          | Accrued tax benefit carryforwards |                                         | $      | 9,441  |       |  | $      | 9,959  |      
|                          | Accounts receivable               |                                         |        | 246    |       |  |        | 246    |      
|                          | Current liabilities               |                                         |        | 869    |       |  |        | 522    |      
|                          | Assets of discontinued operations |                                         |        | 437    |       |  |        | 576    |      
|                          | Other                             |                                         |        | 1,110  |       |  |        | 90     |      
|                          |                                   |                                         |        |        |       | 
|Gross deferred tax assets |                                   |                                         | 12,103 |        |       |  | 11,393 |       
|Valuation reserve         |                                   |                                         | (9,083 | )      |       |  | (8,836 | )     
|                          |                                   |                                         |        |        |       | 
|                          |                                   | Net deferred tax assets                 |        | $      | 3,020 |  |        | $      | 2,557 | 
|Deferred tax liabilities  |                                   |                                         |        |        |       |  |        |       
|                          | Inventory                         |                                         |        | (1,826 | )     |  |        | (1,437 | )    
|                          | Property, plant and equipment     |                                         |        | (960   | )     |  |        | (1,120 | )    
|                          | Other                             |                                         |        | (234   | )     |  |        |       |      
|                          |                                   |                                         |        |        |       | 
|                          | Gross deferred tax liabilities    |                                         |        | (3,020 | )     |  |        | (2,557 | )    
|                          |                                   | Net deferred tax assets and liabilities |        |        |      |  |        |        |      | 
|                          |                                   |                                         |        |        |       | 

F-16



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##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES


NOTES TO FINANCIAL STATEMENTS 
(Continued)



12. Income
Taxes  (continued)


Our Argentina subsidiary has NOL carry-forwards
at December 31, 2002 of approximately $17.2 million,
which expire in 2003 through 2007. The valuation reserve
represents a full reserve against the net deferred tax asset
position of the Argentina operation and a reserve against the
U.S. foreign tax credit, as management believes that realization
of these benefits is not probable.

13. Employee Benefit Plans

We have a retirement savings plan for
substantially all of our United States employees. This plan has
a deferred salary arrangement and matching contributions by the
Company. Our matching contributions to this plan were $422,000,
$421,000, and $475,000, for 2002, 2001, and 2000, respectively,
including contributions for employees associated with the
operations sold in 2000.

We also have defined benefit plans that cover
certain former United States employees. Benefits under these
defined plans are based on years of service. Our funding policy
is to meet the minimum funding requirements of the Employee
Retirement Income Security Act of 1974, as amended. Our
subsidiaries in the United Kingdom and South Africa provide
retirement benefits based on the employees earnings. Our
funding policy is to meet the minimum funding requirements
imposed by current statutes or tax regulations.

The following table provides a reconciliation of
benefit obligations, plan assets and funded status of the United
States defined benefit plans at December 31, 2002 and 2001,
based upon most recent actuarial valuations (December 31,
2001 and 2000), (in thousands):

|                                                   |                                                |                                          |      |       |       |   |      |       |       |  
|-------------------------------------------------- | ---------------------------------------------- | ---------------------------------------- | ---- | ----- | ----- | - | ---- | ----- | ----- | -
|                                                   |                                                | 2002                                     |      |       | 2001  |  
|                                                   |                                                |                                          |      |       |       |  
|Change in benefit obligation                       |                                                |                                          |      |       |       |   |      |      
|                                                   | Benefit obligation at beginning of year        |                                          | $    | 3,108 |       |   | $    | 2,826 |      
|                                                   | Service cost                                   |                                          |      | 12    |       |   |      | 12    |      
|                                                   | Interest cost                                  |                                          |      | 224   |       |   |      | 227   |      
|                                                   | Actuarial (gain) loss                          |                                          |      | 242   |       |   |      | 248   |      
|                                                   | Benefits paid                                  |                                          |      | (209  | )     |   |      | (205  | )    
|                                                   |                                                |                                          |      |       |       |  
|                                                   |                                                | Benefit obligation at end of year        |      |       | 3,377 |   |      |       | 3,108 |  
|                                                   |                                                |                                          |      |       |       |  
|Change in plan assets                              |                                                |                                          |      |       |       |   |      |      
|                                                   | Fair value of plan assets at beginning of year |                                          |      | 2,840 |       |   |      | 3,020 |      
|                                                   | Actual return on plan assets                   |                                          |      | (147  | )     |   |      | (144  | )    
|                                                   | Employer contribution                          |                                          |      |      |       |   |      | 169   |      
|                                                   | Benefits paid                                  |                                          |      | (209  | )     |   |      | (205  | )    
|                                                   |                                                |                                          |      |       |       |  
|                                                   |                                                | Fair value of Plan assets at end of year |      |       | 2,484 |   |      |       | 2,840 |  
|                                                   |                                                |                                          |      |       |       |  
|Funded status                                      |                                                |                                          | (893 | )     |       |   | (268 | )    
|Unrecognized net actuarial (gain) loss             |                                                |                                          | 849  |       |       |   | 232  |      
|                                                   |                                                |                                          |      |       |       |  
|                                                   |                                                | Accrued benefit cost                     |      | $     | (44   | ) |      | $     | (36   | )
|                                                   |                                                |                                          |      |       |       |  
|Weighted-average assumptions as of
    December 31 |                                                |                                          |      |       |       |   |      |      
|                                                   | Discount rate                                  |                                          |      | 6.75  | %     |   |      | 7.50  | %    
|                                                   | Expected return on plan assets                 |                                          |      | 8.00  | %     |   |      | 8.00  | %    
|                                                   | Rate of compensation increase                  |                                          |      |      |       |   |      |      |      

F-17



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##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES


NOTES TO FINANCIAL STATEMENTS 
(Continued)



13. Employee Benefit Plans 
(continued)


The following table provides the amounts
recognized in the statement of financial position as of
December 31, 2002 and 2001 (in thousands):

|             |                                        |                  |   |      |              |  |   |     |  
|------------ | -------------------------------------- | ---------------- | - | ---- | ------------ |  | - | --- | -
|             |                                        |                 
|             |                                        | Pension benefits |  
|             |                                        |                  |  
|             |                                        | December 31,     |   |      | December 31, | 
|             |                                        | 2002             |   |      | 2001         | 
|             |                                        |                  |   |      |              | 
|Amounts in $ |                                        |                  |   |      |              |  |   |    
|             | Prepaid benefit cost                   |                  | $ |     |              |  | $ |    |  
|             | Accrued benefit liability              |                  |   | (894 | )            |  |   | (36 | )
|             | Intangible asset                       |                  |   |     |              |  |   |    |  
|             | Accumulated other comprehensive income |                  |   | 850  |              |  |   |     |  
|             |                                        |                  |   |      |              | 
|             | Net amount recognized                  |                  | $ | (44  | )            |  | $ | (36 | )
|             |                                        |                  |   |      |              | 

The increase in accumulated other comprehensive
income to $0.8 million at December 31, 2002 primarily
reflects the excess of the accumulated benefit obligation over
the fair value of the plan assets.

Net periodic pension cost for the United States
defined benefit plans includes the following components for the
years ended December 31, 2002, 2001, and 2000:

|                                        |                                 |                  |   |      |      |   |    |      |   |   |    |      |  
|--------------------------------------- | ------------------------------- | ---------------- | - | ---- | ---- | - | -- | ---- | - | - | -- | ---- | -
|                                        |                                 |                 
|                                        |                                 | Pension benefits |  
|                                        |                                 |                  |  
|                                        |                                 | 2002             |   |      | 2001 |   |    | 2000 |  
|                                        |                                 |                  |   |      |      |   |    |      |  
|Components of net periodic benefit cost |                                 |                  |   |      |      |   |    |      |   |   |    |     
|                                        | Service cost                    |                  | $ | 12   |      |   | $  | 12   |   |   | $  | 12   |  
|                                        | Interest cost                   |                  |   | 224  |      |   |    | 227  |   |   |    | 226  |  
|                                        | Expected return on plan assets  |                  |   | (228 | )    |   |    | (237 | ) |   |    | (236 | )
|                                        | Amortization of net (gain) loss |                  |   |     |      |   |    | (4   | ) |   |    | (6   | )
|                                        |                                 |                  |   |      |      |   |    |      |  
|Net periodic benefit cost               |                                 | $                | 8 |      |      | $ | (2 | )    |   | $ | (4 | )   
|                                        |                                 |                  |   |      |      |   |    |      |  

F-18



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##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES


NOTES TO FINANCIAL STATEMENTS 
(Continued)



13. Employee Benefit Plans 
(continued)


The following provides a reconciliation of
benefit obligations, plan assets and funded status of the U.K.
and South Africa defined benefit plans at December 31, 2002
and 2001, based upon the most recent actuarial valuations
(December 31, 2002 and 2001), (in thousands):

|                                               |                                                |                                          |        |        |        |  |       |        |        | 
|---------------------------------------------- | ---------------------------------------------- | ---------------------------------------- | ------ | ------ | ------ |  | ----- | ------ | ------ | 
|                                               |                                                | 2002                                     |        |        | 2001   | 
|                                               |                                                |                                          |        |        |        | 
|Change in benefit obligation                   |                                                |                                          |        |        |        |  |       |       
|                                               | Benefit obligation at beginning of year        |                                          | $      | 30,384 |        |  | $     | 33,686 |       
|                                               | Service cost                                   |                                          |        | 1,171  |        |  |       | 1,801  |       
|                                               | Interest cost                                  |                                          |        | 1,924  |        |  |       | 2,087  |       
|                                               | Plan participants contributions               |                                          |        | 653    |        |  |       | 742    |       
|                                               | Actuarial (gain) loss                          |                                          |        | 405    |        |  |       | (3,747 | )     
|                                               | Benefits paid                                  |                                          |        | (779   | )      |  |       | (1,376 | )     
|                                               | Cost of insurance                              |                                          |        | (26    | )      |  |       | (38    | )     
|                                               | Settlements                                    |                                          |        |       |        |  |       | (1,124 | )     
|                                               | Change in currency                             |                                          |        | 4,045  |        |  |       | (1,647 | )     
|                                               |                                                |                                          |        |        |        | 
|                                               |                                                | Benefit obligation at end of year        |        |        | 37,777 |  |       |        | 30,384 | 
|                                               |                                                |                                          |        |        |        | 
|Change in plan assets                          |                                                |                                          |        |        |        |  |       |       
|                                               | Fair value of plan assets at beginning of year |                                          |        | 31,064 |        |  |       | 37,546 |       
|                                               | Actual return on plan assets                   |                                          |        | (5,454 | )      |  |       | (3,845 | )     
|                                               | Employer contribution                          |                                          |        | 1,070  |        |  |       | 1,396  |       
|                                               | Plan participants contributions               |                                          |        | 653    |        |  |       | 742    |       
|                                               | Benefits paid                                  |                                          |        | (779   | )      |  |       | (1,376 | )     
|                                               | Cost of insurance                              |                                          |        | (26    | )      |  |       | (38    | )     
|                                               | Administration expenses                        |                                          |        | (13    | )      |  |       | (174   | )     
|                                               | Settlements                                    |                                          |        |       |        |  |       | (1,124 | )     
|                                               | Change in currency                             |                                          |        | 3,490  |        |  |       | (2,063 | )     
|                                               |                                                |                                          |        |        |        | 
|                                               |                                                | Fair value of Plan assets at end of year |        |        | 30,005 |  |       |        | 31,064 | 
|                                               |                                                |                                          |        |        |        | 
|Funded status                                  |                                                |                                          | (7,772 | )      |        |  | 680   |       
|Unrecognized transition asset                  |                                                |                                          | (431   | )      |        |  | (571  | )     
|Unrecognized prior-service cost                |                                                |                                          | 169    |        |        |  | 213   |       
|Unrecognized actuarial (gain)/loss             |                                                |                                          | 10,159 |        |        |  | 1,841 |       
|                                               |                                                |                                          |        |        |        | 
|                                               |                                                | Prepaid benefit cost                     |        | $      | 2,125  |  |       | $      | 2,163  | 
|                                               |                                                |                                          |        |        |        | 
|Weighted-average assumptions as of December 31 |                                                |                                          |        |        |        |  |       |       
|                                               | United Kingdom:                                |                                          |        |        |        |  |       |        |       
|                                               | Discount rate                                  |                                          |        | 6.0    | %      |  |       | 6.0    | %     
|                                               | Expected return on plan assets                 |                                          |        | 7.0    | %      |  |       | 7.0    | %     
|                                               | Rate of compensation increase                  |                                          |        | 3.5    | %      |  |       | 3.5    | %     
|                                               | South Africa:                                  |                                          |        |        |        |  |       |        |       
|                                               | Discount rate                                  |                                          |        | 12.0   | %      |  |       | 12.0   | %     
|                                               | Expected return on plan assets                 |                                          |        | 12.0   | %      |  |       | 12.0   | %     
|                                               | Rate of compensation increase                  |                                          |        | 10.5   | %      |  |       | 10.5   | %     

F-19



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##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES


NOTES TO FINANCIAL STATEMENTS 
(Continued)



13. Employee Benefit Plans 
(continued)


The following table provides the amounts
recognized in the statement of financial position as of
December 31, 2002 and 2001 (in thousands):

|             |                                        |                  |   |        |              |  |   |       | 
|------------ | -------------------------------------- | ---------------- | - | ------ | ------------ |  | - | ----- | 
|             |                                        |                 
|             |                                        | Pension benefits |  
|             |                                        |                  |  
|             |                                        | December 31,     |   |        | December 31, | 
|             |                                        | 2002             |   |        | 2001         | 
|             |                                        |                  |   |        |              | 
|Amounts in $ |                                        |                  |   |        |              |  |   |      
|             | Prepaid benefit cost                   |                  | $ | 1,300  |              |  | $ | 2,163 | 
|             | Accrued benefit liability              |                  |   | (7,529 | )            |  |   |      | 
|             | Intangible asset                       |                  |   | 169    |              |  |   |      | 
|             | Accumulated other comprehensive income |                  |   | 8,185  |              |  |   |      | 
|             |                                        |                  |   |        |              | 
|             | Net amount recognized                  |                  | $ | 2,125  |              |  | $ | 2,163 | 
|             |                                        |                  |   |        |              | 

The increase in accumulated other comprehensive
income to $8.2 million at December 31, 2002 primarily
reflects the excess of the accumulated benefit obligation over
the fair value of the plan assets.

Net periodic pension cost for the United Kingdom
and South Africa defined benefit plans includes the following
components for the years ended December 31, 2002, 2001, and
2000:

|                                                         |                                               |                  |       |        |      |   |       |        |   |   |       |        |  
|-------------------------------------------------------- | --------------------------------------------- | ---------------- | ----- | ------ | ---- | - | ----- | ------ | - | - | ----- | ------ | -
|                                                         |                                               |                 
|                                                         |                                               | Pension benefits |      
|                                                         |                                               |                  |      
|                                                         |                                               | 2002             |       |        | 2001 |   |       | 2000   |  
|                                                         |                                               |                  |       |        |      |   |       |        |  
|Components of net periodic benefit cost
    Service cost |                                               | $                | 1,171 |        |      | $ | 1,801 |        |   | $ | 2,159 |       
|                                                         | Interest cost                                 |                  |       | 1,924  |      |   |       | 2,087  |   |   |       | 2,071  |  
|                                                         | Expected return on plan assets                |                  |       | (2,304 | )    |   |       | (2,741 | ) |   |       | (2,821 | )
|                                                         | Amortization of transition (asset) obligation |                  |       | (116   | )    |   |       | (129   | ) |   |       | (129   | )
|                                                         | Amortization of prior-service cost            |                  |       | 35     |      |   |       | 40     |   |   |       | 53     |  
|                                                         | Recognized net actuarial loss                 |                  |       | 4      |      |   |       | (37    | ) |   |       | (65    | )
|                                                         |                                               |                  |       |        |      |   |       |        |  
|Net periodic benefit cost                                |                                               | $                | 714   |        |      | $ | 1,021 |        |   | $ | 1,268 |       
|                                                         | Settlement (gain) loss                        |                  |       |       |      |   |       | (150   | ) |   |       |       |  
|                                                         |                                               |                  |       |        |      |   |       |        |  
|Net periodic benefit cost after settlements              |                                               | $                | 714   |        |      | $ | 871   |        |   | $ | 1,268 |       
|                                                         |                                               |                  |       |        |      |   |       |        |  

In 2001, a portion of the plan assets were
transferred to an insurance company to purchase annuities and
related pension obligations were reduced. This resulted in a
pension settlement gain.

F-20



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##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES


NOTES TO FINANCIAL STATEMENTS 
(Continued)



13. Employee Benefit Plans 
(continued)


Our subsidiary, Prestolite Indiel (Argentina),
has a noncontributory unfunded pension plan which provides
retirement benefits for nine former employees. The plan was
established in June, 1987 and terminated in June 1995. The
following provides a reconciliation of benefit obligations and
funded status, based upon the most recent actuarial valuations:

|                                        |  |      |       |   |      |   |        |  
|--------------------------------------- |  | ---- | ----- | - | ---- | - | ------ | -
|                                        |  | 2002 |       |   | 2001 |  
|                                        |  |      |       |   |      |  
|Change in benefit obligation:           |  |      |       |   |      |   |        |  
|Benefit obligation at beginning of year |  | $    | 1,189 |   |      | $ | 1,944  |  
|Interest cost                           |  |      | 97    |   |      |   | 151    |  
|Actuarial loss                          |  |      | 116   |   |      |   | 167    |  
|Benefits paid                           |  |      | (213  | ) |      |   | (299   | )
|Effect of exchange rate changes         |  |      | (608  | ) |      |   | (774   | )
|                                        |  |      |       |   |      |  
|Benefit obligation at end of year       |  | $    | 581   |   |      | $ | 1,189  |  
|                                        |  |      |       |   |      |  
|Funded status                           |  | $    | (581  | ) |      | $ | (1,189 | )
|Unrecognized transition obligation      |  |      | 78    |   |      |   | 182    |  
|Unrecognized actuarial loss             |  |      | 122   |   |      |   | 147    |  
|                                        |  |      |       |   |      |  
|Net amount recognized                   |  | $    | (381  | ) |      | $ | (860   | )
|                                        |  |      |       |   |      |  

|                                         |  |      |      |   |      |   |      |  
|---------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | -
|                                         |  | 2002 |      |   | 2001 |  
|                                         |  |      |      |   |      |  
|Amounts recognized in the balance sheet: |  |      |      |   |      |   |      |  
|Accrued benefit liability                |  | $    | (581 | ) |      | $ | (860 | )
|Intangible asset                         |  |      | 78   |   |      |   |     |  
|Accumulated other comprehensive loss     |  |      | 122  |   |      |   |     |  
|                                         |  |      |      |   |      |  
|                                         |  | $    | (381 | ) |      | $ | (860 | )
|                                         |  |      |      |   |      |  
|Weighted average assumptions:            |  |      |      |   |      |   |      |  
|Discount rate                            |  |      | 6.75 | % |      |   | 8.40 | %
|                                         |  |      |      |   |      |  

|                                         |  |             |     |            |             |   |     |             |  |   |     | 
|---------------------------------------- |  | ----------- | --- | ---------- | ----------- | - | --- | ----------- |  | - | --- | 
|                                         |  |             |     | Year ended |             |   |    
|                                         |  | December 31 |     |            | December 31 |   |     | December 31 | 
|                                         |  | 2002        |     |            | 2001        |   |     | 2000        | 
|                                         |  |             |     |            |             |   |     |             | 
|Components of net periodic pension cost: |  |             |     |            |             |   |     |             |  |   |     | 
|Interest cost                            |  | $           | 97  |            |             | $ | 151 |             |  | $ | 156 | 
|Amortization of transition obligation    |  |             | 20  |            |             |   | 28  |             |  |   | 28  | 
|                                         |  |             |     |            |             |   |     |             | 
|                                         |  | $           | 117 |            |             | $ | 179 |             |  | $ | 184 | 
|                                         |  |             |     |            |             |   |     |             | 

F-21



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##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES


NOTES TO FINANCIAL STATEMENTS 
(Continued)

14. Leases

We lease certain office and manufacturing
facilities, data processing equipment and automobiles under
long-term operating lease agreements. In the current year, we
entered into capital leases for certain manufacturing and
engineering equipment and improvements related to real property.
The leases expire on various dates through 2007. Future minimum
lease payments for operating leases (with terms in excess of one
year) at December 31, 2002 were (in thousands):

|                 |       |   |       |       | 
|---------------- | ----- | - | ----- | ----- | 
|Operating leases |       |  
|                 |       |  
|2003             |       | $ | 1,014 |      
|2004             |       |   | 532   |      
|2005             |       |   | 101   |      
|2006             |       |   | 52    |      
|2007             |       |   | 50    |      
|                 |       |   |      
|                 | Total |   | $     | 1,749 | 
|                 |       |   |      

Rent expense for the operating leases of
continuing operations was $1,470,000, $1,177,000 and $1,169,000
for the years ended December 31, 2002, 2001 and 2000.

Scheduled payments on capital leases as of
December 31, 2002 were (in thousands):

|                                        |                         |                                             |     |     |       | 
|--------------------------------------- | ----------------------- | ------------------------------------------- | --- | --- | ----- | 
|Capital leases (year ended December 31) |                         |                                            
|                                        |                         |                                            
|2003                                    |                         | $                                           | 457 |    
|2004                                    |                         |                                             | 423 |    
|2005                                    |                         |                                             | 342 |    
|2006                                    |                         |                                             | 251 |    
|2007                                    |                         |                                             | 236 |    
|2008                                    |                         |                                             | 113 |    
|                                        |                         |                                             |    
|                                        |                         | Total minimum lease payments                |     |     | 1,822 | 
|                                        | Less  imputed interest |                                             |     | 366 |      
|                                        |                         |                                             |    
|                                        |                         | Present value of net minimum lease payments |     | $   | 1,456 | 
|                                        |                         |                                             |    

The book value, as of December 31, 2002 and
2001, of equipment under capital leases was $1,455,748 and
$1,372,995, which is net of amortization of $500,370 and
$640,852, respectively.

15. Stock Options and Warrants

We have reserved 350,280 shares for issuance
under the Prestolite stock option plan. Exercise prices were
adjusted to $3.50 per share in 2002; all 222,514 options
outstanding at December 31, 2002 have a $3.50 exercise
price. No options have been exercised. Options vest
20 percent per year over five years but may not be
exercised until 90 days following the effective date of a
registration statement under the Securities Act of 1933 or upon
receipt by PEI of a legal opinion that registration is not
required. The exercise date may be accelerated upon a change of
control. Options expire ten years from the date of grant.

F-22



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##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES


NOTES TO FINANCIAL STATEMENTS 
(Continued)



15. Stock Options and
Warrants  (continued)


The changes in stock options outstanding for the
years ended December 31, 2002, 2001, and 2000 are as
follows:

|                                                              |  |         |          |          |       |   |       | 
|------------------------------------------------------------- |  | ------- | -------- | -------- | ----- | - | ----- | 
|                                                              |  |         |          | Average  |      
|                                                              |  |         |          | Exercise |      
|                                                              |  | Options |          |          | Price |  
|                                                              |  |         |          |          |       |  
|Outstanding at January 1, 2000                                |  |         | 314,840  |          |       | $ | 12.71 | 
|Granted                                                       |  |         | 53,000   |          |       | $ | 22.00 | 
|Forfeited                                                     |  |         | (15,120  | )        |       | $ | 20.71 | 
|Repurchased                                                   |  |         | (17,060  | )        |       | $ | 10.82 | 
|                                                              |  |         |          |          |       |  
|Outstanding at December 31, 2000                              |  |         | 335,660  |          |       | $ | 13.92 | 
|Granted                                                       |  |         | 6,000    |          |       | $ | 16.00 | 
|Forfeited                                                     |  |         | (15,000  | )        |       | $ | 21.48 | 
|                                                              |  |         |          |          |       |  
|Outstanding at December 31, 2001                              |  |         | 326,660  |          |       | $ | 13.61 | 
|Granted                                                       |  |         | 31,288   |          |       | $ | 3.50  | 
|Forfeited upon employment termination                         |  |         | (24,200  | )        |       | $ | 18.12 | 
|Forfeited in conjunction with reduction in
    exercise price |  |         | (111,234 | )        |       | $ |      | 
|                                                              |  |         |          |          |       |  
|Outstanding at December 31, 2002                              |  |         | 222,514  |          |       | $ | 3.50  | 
|                                                              |  |         |          |          |       |  
|Exercisable at December 31, 2002                              |  |         |         |          |       | $ |      | 
|                                                              |  |         |          |          |       |  
|Vested at December 31, 2002                                   |  |         | 172,054  |          |       | $ | 3.50  | 
|                                                              |  |         |          |          |       |  

During 2001 we extended to January 30, 2004
the expiration date on options to purchase 58,760 shares at
$5.00 per share. Those options would have expired in 2001, 2002
and 2003 had we not extended them. We recorded a charge of
$646,000 to recognize the difference between the fair market
value and the aggregate exercise price of the options extended.

During 2002 we reduced the number of options
outstanding as part of a reduction in the exercise price of all
options. This triggered variable accounting for
these options and for the options issued during 2002. Under
variable accounting, the increase or decrease in option value is
recorded as expense or income in the current period. As a result
of the decline of the estimated fair market value per share in
2002 we recorded a benefit of $313,000.

Information with respect to stock options
outstanding at December 31, 2002 follows:

|         |       |                   |        |         |              |  |      |  | 
|-------- | ----- | ----------------- | ------ | ------- | ------------ |  | ---- |  | 
|         |       |                   |        | Average |             
|         |       | Options           |        |         | remaining    | 
|Exercise |       | Outstanding at    |        |         | contractual  | 
|price    |       | December 31, 2002 |        |         | life (years) | 
|         |       |                   |        |         |              | 
|$3.50    |       |                   | 73,716 |         |              |  | 1.00 | 
|$3.50    |       |                   | 25,445 |         |              |  | 2.00 | 
|$3.50    |       |                   | 39,399 |         |              |  | 3.00 | 
|$3.50    |       |                   | 27,452 |         |              |  | 5.25 | 
|$3.50    |       |                   | 10,418 |         |              |  | 6.50 | 
|$3.50    |       |                   | 11,626 |         |              |  | 5.83 | 
|$3.50    |       |                   | 3,170  |         |              |  | 8.75 | 
|$3.50    |       |                   | 31,288 |         |              |  | 9.75 | 
|         |       |                   |        |         |              | 
|         | Total |                   |        | 222,514 |              |  |      |  | 
|         |       |                   |        |         |              | 

F-23



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##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES


NOTES TO FINANCIAL STATEMENTS 
(Continued)



15. Stock Options and
Warrants  (continued)


During 2001 and 2000, we did not recognize
compensation expense on the issuance of our stock options
because the option terms were fixed and the exercise price
equaled the fair value of the underlying stock on the grant date.

We have determined the pro-forma information as
if the Company had accounted for stock options granted since
January 1, 1995, under the fair value method of
SFAS 123. Principal assumptions used in calculating the pro
forma information were a 6% risk-free interest rate, a seven
year expected life, zero percent volatility, zero percent yield
and fair values of options granted of $16.00 in 2001 and $22.00
in 2000.

For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over
the options vesting period. Pro forma information follows
(in thousands except for earnings per share information):

|                                              |                   |      |         |       |      |   |        |      | 
|--------------------------------------------- | ----------------- | ---- | ------- | ----- | ---- | - | ------ | ---- | 
|                                              |                   | 2001 |         |       | 2000 |  
|                                              |                   |      |         |       |      |  
|Net income (loss), as reported                |                   | $    | (11,021 | )     |      | $ | 11,485 |     
|Net income (loss), pro forma                  |                   | $    | (11,141 | )     |      | $ | 11,331 |     
|Earnings (loss) per common share, as reported |                   |      |         |       |      |   |        |     
|                                              | Basic and diluted |      | $       | (5.55 | )    |   | $      | 5.79 | 
|Earnings (loss) per common share, pro forma   |                   |      |         |       |      |   |        |     
|                                              | Basic and diluted |      | $       | (5.61 | )    |   | $      | 5.71 | 

Proforma information is not shown for 2002
because we are accounting for the options issued in 2002 on a
variable accounting basis.

16. Related Party Transactions

We have a management consulting agreement with
Genstar Investment Corporation (GIC); an affiliate
of GIC controls 97.5% of our outstanding stock. Under the
agreement, we pay GIC a management consulting fee. For the years
ended December 31, 2002, 2001, and 2000, we charged
$600,000, $600,000, and $825,000, respectively, to operations
under this agreement. At both December 31, 2002 and 2001,
$150,000 of these fees were accrued and unpaid.

17. Litigation and Claims

Various legal actions and claims are pending or
may be instituted or asserted in the future against us. The
outcome of individual matters is not predictable at this time.
The potential aggregate amount of liability at December 31,
2002 and 2001 with respect to these matters cannot be
ascertained; however, we believe that any resulting unrecorded
liability would not materially affect our future consolidated
financial statements.

18. Guarantees and Warranties

As discussed in footnote 3, Prestolite guaranteed
certain third-party lease obligations in conjunction with the
sale of a business in 1997. We have guaranteed no other
third-party obligations.

F-24



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##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES


NOTES TO FINANCIAL STATEMENTS 
(Continued)



18. Guarantees and Warranties 
(continued)


Prestolite provides warranties to its customers.
We accrue the estimated future costs of those warranties at the
time the sale occurs. Warranty reserve activity is summarized
below (in thousands):

|                     |                |      |        |       |      |   |        |       | 
|-------------------- | -------------- | ---- | ------ | ----- | ---- | - | ------ | ----- | 
|                     |                | 2002 |        |       | 2001 |  
|                     |                |      |        |       |      |  
|Beginning balance    |                | $    | 1,666  |       |      | $ | 1,860  |      
|Expense              |                |      | 4,913  |       |      |   | 4,905  |      
|Credits to customers |                |      | (4,448 | )     |      |   | (5,099 | )    
|                     |                |      |        |       |      |  
|                     | Ending balance |      | $      | 2,131 |      |   | $      | 1,666 | 
|                     |                |      |        |       |      |  

19. Severance

We record severance expenses when plans are
announced and employees notified. The severance charged to
operations in the table below is related to personnel reductions
in the United Kingdom and in Argentina for both 2002 and 2001.
The following is a summary of the severance charges and outlays
(in thousands):

|                                |                |      |        |       |      |   |        |       | 
|------------------------------- | -------------- | ---- | ------ | ----- | ---- | - | ------ | ----- | 
|                                |                | 2002 |        |       | 2001 |  
|                                |                |      |        |       |      |  
|Beginning balance               |                | $    | 1,617  |       |      | $ | 856    |      
|Severance charged to operations |                |      | 2,853  |       |      |   | 4,599  |      
|Payments                        |                |      | (1,990 | )     |      |   | (3,063 | )    
|Currency change                 |                |      | (565   | )     |      |   | (775   | )    
|                                |                |      |        |       |      |  
|                                | Ending balance |      | $      | 1,915 |      |   | $      | 1,617 | 
|                                |                |      |        |       |      |  

F-25



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##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES


NOTES TO FINANCIAL STATEMENTS 
(Continued)

20. Segment and Geographic
Reporting

We operate in five geographic locations; each
locations revenue and operating performance is managed and
reported separately. We evaluate operating performance based on
adjusted earnings before interest expense, taxes, depreciation,
and amortization (Adjusted EBITDA). The Company defines Adjusted
EBITDA as operating income plus depreciation, amortization, and
other special charges. Corporate overhead and certain other
charges are not allocated to the business/geographic units.
Sales, assets and Adjusted EBITDA for those units are summarized
below.

Sales are as follows (in thousands):

|                                                                |      |         |   |        |        |  |       |         |  |  |        |        |  |      |   |        |       |  |   |        |  |  |   |        |  |  |   |         | 
|--------------------------------------------------------------- | ---- | ------- | - | ------ | ------ |  | ----- | ------- |  |  | ------ | ------ |  | ---- | - | ------ | ----- |  | - | ------ |  |  | - | ------ |  |  | - | ------- | 
|                                                                |      | North   |   |        |        |  | South |         |  |  |        |        |  |      |   |       
|                                                                |      | America |   |        | Europe |  |       | America |  |  | Africa |        |  | Asia |   |        | Other |  |   | Total  | 
|                                                                |      |         |   |        |        |  |       |         |  |  |        |        |  |      |   |        |       |  |   |        | 
|Sales to external customers, based on country of
    domicile   |      |         |   |        |        |  |       |         |  |  |        |        |  |      |   |        |       |  |   |        |  |  |   |        |  |  |   |        
|                                                                | 2002 |         | $ | 97,582 |        |  | $     | 36,254  |  |  | $      | 11,568 |  |      | $ | 5,233  |       |  | $ | 16,624 |  |  | $ |       |  |  | $ | 167,261 | 
|                                                                | 2001 |         | $ | 76,248 |        |  | $     | 36,454  |  |  | $      | 30,740 |  |      | $ | 6,985  |       |  | $ | 8,868  |  |  | $ |       |  |  | $ | 159,295 | 
|                                                                | 2000 |         | $ | 79,648 |        |  | $     | 44,205  |  |  | $      | 37,519 |  |      | $ | 10,518 |       |  | $ |       |  |  | $ |       |  |  | $ | 171,890 | 
|Long-lived assets                                               |      |         |   |        |        |  |       |         |  |  |        |        |  |      |   |        |       |  |   |        |  |  |   |        |  |  |   |        
|                                                                | 2002 |         | $ | 11,726 |        |  | $     | 15,094  |  |  | $      | 2,301  |  |      | $ | 1,233  |       |  | $ | 2,678  |  |  | $ |       |  |  | $ | 33,032  | 
|                                                                | 2001 |         | $ | 12,413 |        |  | $     | 14,673  |  |  | $      | 3,354  |  |      | $ | 1,084  |       |  | $ | 2,307  |  |  | $ |       |  |  | $ | 33,831  | 
|                                                                | 2000 |         | $ | 12,648 |        |  | $     | 16,312  |  |  | $      | 6,741  |  |      | $ | 1,816  |       |  | $ |       |  |  | $ |       |  |  | $ | 37,517  | 
|Sales to external customers, based on location of
    customers |      |         |   |        |        |  |       |         |  |  |        |        |  |      |   |        |       |  |   |        |  |  |   |        |  |  |   |        
|                                                                | 2002 |         | $ | 89,091 |        |  | $     | 32,294  |  |  | $      | 11,123 |  |      | $ | 4,258  |       |  | $ | 27,649 |  |  | $ | 2,846  |  |  | $ | 167,261 | 
|                                                                | 2001 |         | $ | 71,761 |        |  | $     | 32,911  |  |  | $      | 30,456 |  |      | $ | 7,175  |       |  | $ | 5,532  |  |  | $ | 11,460 |  |  | $ | 159,295 | 
|                                                                | 2000 |         | $ | 73,889 |        |  | $     | 39,199  |  |  | $      | 37,366 |  |      | $ | 10,771 |       |  | $ | 3,836  |  |  | $ | 6,829  |  |  | $ | 171,890 | 

|                |      |  |   |        |  |  |   |       |  |  |   |             |  |  |   |     |  |  |   |       |  |  |   |        |   |  |   |        | 
|--------------- | ---- |  | - | ------ |  |  | - | ----- |  |  | - | ----------- |  |  | - | --- |  |  | - | ----- |  |  | - | ------ | - |  | - | ------ | 
|                |      |  |   |        |  |  |   |       |  |  |   | Unallocated |  |  |  
|                |      |  |   |        |  |  |   |       |  |  |   | Costs       |  |  |  
|Adjusted EBITDA |      |  |   |        |  |  |   |       |  |  |   |             |  |  |   |     |  |  |   |       |  |  |   |        |   |  |   |       
|                | 2002 |  | $ | 16,812 |  |  | $ | 4,516 |  |  | $ | 3,608       |  |  | $ | 116 |  |  | $ | 5,772 |  |  | $ | (5,426 | ) |  | $ | 25,398 | 
|                | 2001 |  | $ | 13,292 |  |  | $ | 5,792 |  |  | $ | 1,012       |  |  | $ | 523 |  |  | $ | 1,999 |  |  | $ | (3,539 | ) |  | $ | 19,079 | 
|                | 2000 |  | $ | 12,154 |  |  | $ | 5,628 |  |  | $ | 2,385       |  |  | $ | 638 |  |  | $ |      |  |  | $ | (3,927 | ) |  | $ | 16,878 | 

A reconciliation of Adjusted EBITDA to operating
income follows (in thousands of U.S. dollars):

|                                             |                                       |      |        |       |      |   |        |       |   |   |        |       | 
|-------------------------------------------- | ------------------------------------- | ---- | ------ | ----- | ---- | - | ------ | ----- | - | - | ------ | ----- | 
|                                             |                                       | 2002 |        |       | 2001 |   |        | 2000  |  
|                                             |                                       |      |        |       |      |   |        |       |  
|Total Adjusted EBITDA for reporting segments |                                       | $    | 25,398 |       |      | $ | 19,079 |       |   | $ | 16,878 |      
|Less:                                        |                                       |      |        |       |      |   |        |       |   |   |        |      
|                                             | Depreciation and amortization         |      |        | 6,789 |      |   |        | 8,620 |   |   |        | 8,724 | 
|                                             | Severance                             |      |        | 2,853 |      |   |        | 4,599 |   |   |        | 2,226 | 
|                                             | Option repurchase and extension costs |      |        | (313  | )    |   |        | 647   |   |   |        | 173   | 
|                                             | Other expense (income)                |      |        | 62    |      |   |        | (78   | ) |   |        | 618   | 
|                                             | Special alternator charge             |      |        |      |      |   |        |      |   |   |        | 3,450 | 
|                                             | Argentina bad debt                    |      |        |      |      |   |        | 1,500 |   |   |        |      | 
|                                             | UK inventory reserve charge           |      |        |      |      |   |        | 520   |   |   |        |      | 
|                                             |                                       |      |        |       |      |   |        |       |  
|Operating income                             |                                       | $    | 16,007 |       |      | $ | 3,271  |       |   | $ | 1,687  |      
|                                             |                                       |      |        |       |      |   |        |       |  

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##### Table of Contents



PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES






SCHEDULE II


PRESTOLITE ELECTRIC HOLDING, INC. AND
SUBSIDIARIES

VALUATIONS AND QUALIFYING ACCOUNTS

(in thousands)


|                                    |  |            |       |           |              |   |      |           |  |   |          |  |  |               |  |            |           |   |       |  |  |   |       | 
|----------------------------------- |  | ---------- | ----- | --------- | ------------ | - | ---- | --------- |  | - | -------- |  |  | ------------- |  | ---------- | --------- | - | ----- |  |  | - | ----- | 
|                                    |  |            |       |           |              |   |      |          
|                                    |  |            |       | Additions |              |   |      |           | 
|                                    |  |            |       |           |              |   |      |           | 
|                                    |  | Balance at |       |           | Reserves     |   |      | Charge to |  |   | Charged  |  |  |               |  | Balance at |          
|                                    |  | Beginning  |       |           | Added w/     |   |      | Costs and |  |   | to Other |  |  |               |  | End        |          
|                                    |  | of Period  |       |           | Acquisitions |   |      | Expenses  |  |   | Accounts |  |  | Deductions(1) |  |            | of Period |  
|                                    |  |            |       |           |              |   |      |           |  |   |          |  |  |               |  |            |           |  
|Allowance for Doubtful Accounts:    |  |            |       |           |              |   |      |           |  |   |          |  |  |               |  |            |           |   |       |  |  |   |       | 
|Year ended December 31, 2002        |  | $          | 2,138 |           |              |   |      |           |  | $ | 1,095    |  |  |               |  |            |           | $ | 1,432 |  |  | $ | 1,801 | 
|Year ended December 31, 2001        |  | $          | 2,447 |           |              |   |      |           |  | $ | 970      |  |  |               |  |            |           | $ | 1,279 |  |  | $ | 2,138 | 
|Year ended December 31, 2000        |  | $          | 2,369 |           |              |   |      |           |  | $ | 1,550    |  |  |               |  |            |           | $ | 1,472 |  |  | $ | 2,447 | 
|Reserve for Inventory Obsolescence: |  |            |       |           |              |   |      |           |  |   |          |  |  |               |  |            |           |   |       |  |  |   |       | 
|Year ended December 31, 2002        |  | $          | 3,488 |           |              |   |      |           |  | $ | 1,630    |  |  |               |  |            |           | $ | 1,286 |  |  | $ | 3,832 | 
|Year ended December 31, 2001        |  | $          | 4,229 |           |              |   |      |           |  | $ | 1,221    |  |  |               |  |            |           | $ | 1,962 |  |  | $ | 3,488 | 
|Year ended December 31, 2000        |  | $          | 4,463 |           |              | $ | (276 | )         |  | $ | 1,456    |  |  |               |  |            |           | $ | 1,414 |  |  | $ | 4,229 | 




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Deductions related to the allowance for doubtful
    accounts relate to the write-off of uncollectable accounts and
    to changes to the reserves for the return of used parts.
    Deductions related to inventory obsolescence relate primarily to
    the disposal of obsolete inventory. Included in the inventory
    deductions in 2001 is $375,000 that relates to the Argentina
    devaluations and other exchange rate changes at the balance
    sheet dates of December 31, 2000 to December 31, 2001.

F-27



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##### Table of Contents



Item 9. Changes in and Disagreements
with Accountants

None.

52



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##### Table of Contents








PART III


Item 10. Directors and Executive
Officers

The following table sets forth certain
information as of December 31, 2002 with respect to our
executive officers and directors:

|                          |  |     |    |  |          |                                                                        
|------------------------- |  | --- | -- |  | -------- | -----------------------------------------------------------------------
|Name                      |  | Age |    |  | Position
|                          |  |     |    |  |         
|P. Kim Packard            |  |     | 64 |  |          | President, Chief Executive Officer and Director                        
|Kenneth C. Cornelius      |  |     | 58 |  |          | Senior Vice President, Chief Financial Officer
    and Secretary       
|Dennis P. Chelminski      |  |     | 50 |  |          | Vice President, Controller, Treasurer and
    Assistant Secretary      
|Michael Lea               |  |     | 59 |  |          | Vice President and Division President, Heavy Duty
    Products Division
|John Jenkins              |  |     | 44 |  |          | Corporate Vice President and Managing Director,
    Heavy Duty Europe  
|Peter J. Corrigan         |  |     | 44 |  |          | Corporate Vice President and President Prestolite
    Electric Indiel  
|Kenneth C. Wilson         |  |     | 55 |  |          | Vice President Manufacturing Services                                  
|Richard D. Paterson(a)(b) |  |     | 60 |  |          | Chairman of the Board and Director                                     
|Ross J. Turner(b)         |  |     | 72 |  |          | Director                                                               
|John A. West(a)(b)        |  |     | 75 |  |          | Director                                                               




|    |                                 
|--- | --------------------------------
|(a) | Member of audit committee       
|   
|(b) | Member of compensation committee

Kim Packard began service as our President, Chief
Executive Officer and a director in December 1991.
Previously, Mr. Packard was President and Chief Operating
Officer of Hobart Brothers Company of Troy, Ohio for six years
and prior to that President of Warner & Swasey and an
officer or executive of various divisions of Allied/ Bendix. He
also served in various marketing, sales and executive capacities
with GTE Sylvania. Mr. Packard holds a B.S. in electrical
engineering from Pennsylvania State University and an M.S. from
the Massachusetts Institute of Technology, where he was a Sloan
Fellow.

Kenneth C. Cornelius began service as our
Vice President and Chief Financial Officer in August 1992 and
has been our Secretary since 1993. Previously, he was Chief
Financial Officer with M-C Industries for three years after
spending 17 years with Maremont Corporation in various
financial positions, including eight years as Vice President and
Chief Financial Officer. Mr. Cornelius holds a B.A. from
Carleton College and an M.B.A. from the University of Michigan.

Dennis P. Chelminski began service as our
Controller, Treasurer and Assistant Secretary in February 1992.
He was named Corporate Vice President in 2001. He held the
position of our Chief Accounting Officer from October 1991 to
February 1992 and was our Manager of Financial Analysis under
our prior ownership. Prior to 1986, he held various financial
positions with Eltra Corporation and AlliedSignal Corporation.
Mr. Chelminski holds a B.S. in accounting from the
University of Toledo and is a C.P.A.

Michael Lea began service as our Vice President
and Managing Director of our United Kingdom subsidiary in
December 1993. He had previously been Sales and Marketing
Director of Polypenco Ltd. From 1977 to 1990 he served in
various positions with GKN, leading to Managing Director of GKN
Composites Ltd. Mr. Lea is a Chartered Engineer holding
Bachelor of Technology in Metallurgy and Doctor of Philosophy in
Engineering degrees from Brunel University in West London,
England.

Peter J. Corrigan joined Prestolite in 1992
as Director of Quality Assurance in the Corporate Office.
Subsequently he was promoted to Vice President of Engineering,
Vice President of Operations and Corporate Vice President of
Sales and Marketing. Mr. Corrigan was named President of
our subsidiary in Argentina, Prestolite Electric Indiel, in
2001. Mr. Corrigan holds a BA in Physics from Wake Forest
University and an MBA from Case Western Reserve University.

53



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John Jenkins came to Prestolite as Finance
Manager in South Africa, as a result of the Lucas acquisition in
January of 1998. At that time, he was promoted to Managing
Director of the South African operation. He was subsequently
promoted to Managing Director of Heavy Duty Systems, Europe, and
is located in Acton, England.

Kenneth C. Wilson, Vice President
Manufacturing Services, joined Prestolite in April 2001.
Mr. Wilson was most recently employed by Manufacturing
Consultants in Port Elizabeth, South Africa and Sarasota,
Florida. Prior to consulting, Mr. Wilson spent ten years in
various executive positions with TRW in Australia and Japan.
Before joining TRW, Mr. Wilson worked for 19 years at
General Motors Corporation, most recently as a Vice President.
Mr. Wilson received his BSME from Michigan State University
and did MBA work at Wayne State University and Harvard.

Richard D. Paterson has been a director and
Chairman of the board of directors since 1991. Mr. Paterson
has been Executive Vice President and a director of Genstar
Investment Corporation, an affiliate of Genstar Capital
Corporation, since 1987 and was a director of Genstar Capital
Corporation from 1988 through August 1995. In addition, he is
currently a director of a number of privately held corporations.

Ross J. Turner has been a director since
1991. Mr. Turner has been Chairman of the board of
directors of Genstar Investment Corporation since 1987 and was a
director of Genstar Capital Corporation from 1988 through August
1995. He is currently a director of a number of privately held
corporations.

John A. West has been a director since 1991.
Mr. West has been Executive Vice President and a director
of Genstar Investment Corporation, an affiliate of Genstar
Capital Corporation, since 1987 and was a director of Genstar
Capital Corporation from 1988 through August 1995. In addition,
he is currently a director of a number of privately held
corporations.

Board of Directors

Directors are elected annually to serve until the
next annual meeting of shareholders or until their successors
have been elected and qualified. Executive officers are
appointed by, and serve at the discretion of, our board of
directors. None of the executive officers or directors is
related by blood, marriage or adoption to any other executive
officer or director.

Board
Committees

Our Board of Directors currently has an audit
committee and a compensation committee. The audit committee
consists of Richard D. Paterson and John A. West. The
Board of Directors has determined that Mr. Paterson is
considered a financial expert. Both Mr. Paterson and
Mr. West are affiliated with Genstar Investment Corporation
as described in Item 13 and therefore are not considered
independent.

Our compensation committee consists of
Richard D. Paterson, Ross J. Turner and John A.
West. The compensation committee makes recommendations to the
Board of Directors regarding our stock plans and compensation of
officers. The compensation committee uses outside consultants to
help determine salary ranges for the senior officers of the
company. Compensation for our Chief Executive Officer is based
on those salary ranges, the performance of the Company against
its business plans and when compared to its competitors, and
judgmental factors.

Board
Compensation

Our directors do not receive any compensation for
their services as directors.

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Item 11. Executive
Compensation

The following table summarizes all compensation
paid for the years ended December 31, 2002, 2001, and 2000
to the Chief Executive Officer and the four other highest
compensated employees who were serving as executive officers at
December 31, 2002:

|                        |  |      |      |  |           |  |         |              |  |  |              |  |  |              |   |  |        |  |   |  |  |  |        | 
|----------------------- |  | ---- | ---- |  | --------- |  | ------- | ------------ |  |  | ------------ |  |  | ------------ | - |  | ------ |  | - |  |  |  | ------ | 
|                        |  |      |      |  |           |  |         | Other Annual |  |  | Long-Term    |  |  | All Other    |  
|Name and                |  |      |      |  |           |  |         | Compensation |  |  | Compensation |  |  | Compensation |  
|Principal Position      |  | Year |      |  | Salary($) |  |         | Bonus($)(a)  |  |  | ($)(b)       |  |  | Awards(c)    |   |  | ($)(d) | 
|                        |  |      |      |  |           |  |         |              |  |  |              |  |  |              |   |  |        | 
|P. Kim Packard          |  |      | 2002 |  |           |  | 405,000 |              |  |  | 120,000      |  |  |              |  |  |        |  |  |  |  |  | 14,500 | 
|President and           |  |      | 2001 |  |           |  | 404,642 |              |  |  | 70,000       |  |  |              |  |  |        |  |  |  |  |  | 13,450 | 
|Chief Executive Officer |  |      | 2000 |  |           |  | 405,002 |              |  |  |             |  |  |              |  |  |        |  |  |  |  |  | 13,450 | 
|                       
|Kenneth C. Cornelius    |  |      | 2002 |  |           |  | 200,567 |              |  |  | 46,500       |  |  |              |  |  |        |  |  |  |  |  | 8,267  | 
|Senior Vice President   |  |      | 2001 |  |           |  | 192,000 |              |  |  | 38,000       |  |  |              |  |  |        |  |  |  |  |  | 34,678 | 
|Chief Financial Officer |  |      | 2000 |  |           |  | 192,000 |              |  |  |             |  |  |              |  |  |        |  |  |  |  |  | 9,678  | 
|                       
|Michael Lea             |  |      | 2002 |  |           |  | 156,744 |              |  |  | 25,000       |  |  |              |  |  |        |  |  |  |  |  | 27,020 | 
|Vice President and      |  |      | 2001 |  |           |  | 150,000 |              |  |  |             |  |  |              |  |  |        |  |  |  |  |  | 39,764 | 
|Division President      |  |      | 2000 |  |           |  | 150,000 |              |  |  |             |  |  |              |  |  |        |  |  |  |  |  | 52,111 | 
|                       
|Peter J. Corrigan       |  |      | 2002 |  |           |  | 153,400 |              |  |  | 27,000       |  |  |              |  |  |        |  |  |  |  |  | 5,369  | 
|President Prestolite    |  |      | 2001 |  |           |  | 133,154 |              |  |  | 8,000        |  |  |              |  |  |        |  |  |  |  |  | 4,660  | 
|Indiel                  |  |      | 2000 |  |           |  | 107,808 |              |  |  |             |  |  |              |  |  |        |  |  |  |  |  | 3,518  | 
|                       
|Kenneth C. Wilson       |  |      | 2002 |  |           |  | 153,400 |              |  |  | 14,000       |  |  |              |  |  |        |  |  |  |  |  | 4,187  | 
|Vice President          |  |      | 2001 |  |           |  | 106,761 |              |  |  |             |  |  |              |  |  |        |  |  |  |  |  |       | 
|Manufacturing Services  |  |      |      |  |           |  |         |              |  |  |              |  |  |              |   |  |        |  |   |  |  |  |        | 




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Amounts in 2002 and 2001 reflect bonuses earned
    during 2001 and 2000 but paid during 2002 and 2001 respectively.
    No payments were made during 2000 for amounts earned in 1999.
    Amounts earned in 2002 have not yet been determined.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(b) | Other annual compensation in the form of
    perquisites and other personal benefits has been omitted where
    aggregate amount of such perquisites and other personal benefits
    constituted the lesser of $50,000 or 10% of the total annual
    salary and bonus for the officer for the year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(c) | The company did not make any long-term incentive
    awards in 2002, 2001, or 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(d) | Amounts in 2002, 2001, and 2000 reflect
    (i) premiums paid for life insurance coverage in excess of
    $50,000, (ii) contribution to our United Kingdom pension
    plan for Mr. Lea and pursuant to our 401(k) plan for the
    other four individuals, (iii) for Messrs. Packard
    (2002, 2001 and 2000) and Cornelius (2001 and 2000), interest on
    deferred compensation (Mr. Packard  $7,500;
    Mr. Cornelius  $2,500) payable pursuant to a
    Deferred Compensation Agreement between us and each of
    Messrs. Packard and Cornelius, (iv) payment of
    deferred compensation for Mr. Cornelius (2001) of
    $25,000 and (v) tax equalization payments in 2002, 2001 and
    2000 to Mr. Lea of $8,896, $20,522, and $29,967
    respectively.

Option Changes in Last Fiscal Year

During the third quarter of 2002, the Company
reduced the exercise price of the stock options then outstanding
in return for the forfeiture by the option holders of certain of
their options. The Board of Directors took this action because
share values were so far below the exercise price of the
outstanding options that the outstanding options failed to
provide significant incentive to the holders of those options.
The options retained were repriced at an exercise price of $3.50
per share, representing the fair market value of the
Companys

55



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##### Table of Contents



stock as estimated by the board of directors. The
Companys common stock is not traded and consequently there
is no market price for the stock. The table below shows the
resulting change for each executive officer.


|                     |                        |           |           |                   |           |           |             |           |         |          |              |  |     |            |             |           |          |   |       |           |  |   |      |  |  |  |     |  | 
|-------------------- | ---------------------- | --------- | --------- | ----------------- | --------- | --------- | ----------- | --------- | ------- | -------- | ------------ |  | --- | ---------- | ----------- | --------- | -------- | - | ----- | --------- |  | - | ---- |  |  |  | --- |  | 
|                     |                        |           |           |                   |           |           |             |           |         |          |              |  |     | Average    |            
|                     |                        |           |           |                   |           | Estimated |             |           | Average |          |              |  |     | Months of  |            
|                     |                        |           |           | Number of Options |           |           | Fair Market |           |         | Exercise |              |  |     |            | Option Term |          
|                     |                        |           |           |                   |           |           | Value       |           |         | Price    |              |  | New |            |             | Remaining |         
|                     |                        | Date      |           |                   | Before    |           |             | After     |         |          | of Stock     |  |     | at Time of |             |           | Exercise |   |       | After     | 
|                     |                        | of        |           |                   | Repricing |           |             | Repricing |         |          | at Repricing |  |     | Repricing  |             |           | Price    |   |       | Repricing | 
|Name/Position        |                        | Repricing |           |                   | (#)       |           |             | (#)       |         |          | ($)          |  |     | ($)        |             |           | ($)      |   |       | (months)  | 
|                     |                        |           |           |                   |           |           |             |           |         |          |              |  |     |            |             |           |          |   |       |           | 
|P. Kim Packard       |                        |           | 9/19/2002 |                   |           |           | 167,900     |           |         |          | 118,001      |  |     | $          | 3.50        |           |          | $ | 11.38 |           |  | $ | 3.50 |  |  |  | 32  | 
|                     | President/ CEO         |           |           |                   |           |           |             |           |         |          |              |  |     |            |             |           |          |   |       |           |  |   |      |  |  |  |     |  | 
|Kenneth C. Cornelius |                        |           | 9/19/2002 |                   |           |           | 38,100      |           |         |          | 22,161       |  |     | $          | 3.50        |           |          | $ | 14.59 |           |  | $ | 3.50 |  |  |  | 46  | 
|                     | Sr. VP, CFO, Secretary |           |           |                   |           |           |             |           |         |          |              |  |     |            |             |           |          |   |       |           |  |   |      |  |  |  |     |  | 
|Michael Lea          |                        |           | 9/19/2002 |                   |           |           | 30,300      |           |         |          | 17,078       |  |     | $          | 3.50        |           |          | $ | 15.07 |           |  | $ | 3.50 |  |  |  | 40  | 
|                     | Vice President         |           |           |                   |           |           |             |           |         |          |              |  |     |            |             |           |          |   |       |           |  |   |      |  |  |  |     |  | 
|Peter J. Corrigan    |                        |           | 9/19/2002 |                   |           |           | 17,300      |           |         |          | 10,254       |  |     | $          | 3.50        |           |          | $ | 14.29 |           |  | $ | 3.50 |  |  |  | 46  | 
|                     | Vice President         |           |           |                   |           |           |             |           |         |          |              |  |     |            |             |           |          |   |       |           |  |   |      |  |  |  |     |  | 
|Kenneth C. Wilson    |                        |           | 9/19/2002 |                   |           |           | 4,000       |           |         |          | 2,113        |  |     | $          | 3.50        |           |          | $ | 16.00 |           |  | $ | 3.50 |  |  |  | 108 | 
|                     | Vice President         |           |           |                   |           |           |             |           |         |          |              |  |     |            |             |           |          |   |       |           |  |   |      |  |  |  |     |  | 
|Dennis P. Chelminski |                        |           | 9/19/2002 |                   |           |           | 18,000      |           |         |          | 11,443       |  |     | $          | 3.50        |           |          | $ | 13.15 |           |  | $ | 3.50 |  |  |  | 39  | 
|                     | VP, Controller         |           |           |                   |           |           |             |           |         |          |              |  |     |            |             |           |          |   |       |           |  |   |      |  |  |  |     |  | 
|John D. Jenkins      |                        |           | 9/19/2002 |                   |           |           | 7,500       |           |         |          | 2,443        |  |     | $          | 3.50        |           |          | $ | 21.37 |           |  | $ | 3.50 |  |  |  | 83  | 
|                     | Vice President         |           |           |                   |           |           |             |           |         |          |              |  |     |            |             |           |          |   |       |           |  |   |      |  |  |  |     |  | 

Option Grants in Last Fiscal Year

The table below summarizes the options granted in
2002. All grants occurred after the repricing discussed above.

|                     |  |            |        |      |            |  |       |           |  |                      |             |                  |                |    |           |  |     |   |        |  |  |   |        | 
|-------------------- |  | ---------- | ------ | ---- | ---------- |  | ----- | --------- |  | -------------------- | ----------- | ---------------- | -------------- | -- | --------- |  | --- | - | ------ |  |  | - | ------ | 
|                     |  |            |        |      |            |  |       |           |  |                     
|                     |  |            |        |      |            |  |       |           |  | Potential            |            
|                     |  |            |        |      |            |  |       |           |  | Realization Value at |            
|                     |  |            |        |      |            |  |       |           |  | Assumed Rates of     |            
|                     |  |            |        | % of |            |  |       |           |  |                      | Stock Price |                 
|                     |  | Number of  |        |      | Options    |  |       |           |  |                      |             | Appreciation for |               
|                     |  | Securities |        |      | Granted to |  |       | Exercise  |  |                      |             |                  | Option Term(b) |   
|                     |  | Underlying |        |      | Employees  |  |       | Price per |  |                      | Expiration  |                  |                |    |          
|Name                 |  | Options    |        |      | in 2002    |  |       | Share(a)  |  |                      | Date        |                  |                | 5% |           |  | 10% |  
|                     |  |            |        |      |            |  |       |           |  |                      |             |                  |                |    |           |  |     |  
|P. Kim Packard       |  |            | 4,499  |      |            |  | 14.4% |           |  | $                    | 3.50        |                  |                |    | 9/20/2012 |  |     | $ | 9,903  |  |  | $ | 25,096 | 
|Kenneth C. Cornelius |  |            | 10,339 |      |            |  | 33.0% |           |  | $                    | 3.50        |                  |                |    | 9/20/2012 |  |     | $ | 22,757 |  |  | $ | 57,672 | 
|Michael Lea          |  |            | 522    |      |            |  | 1.7%  |           |  | $                    | 3.50        |                  |                |    | 9/20/2012 |  |     | $ | 1,149  |  |  | $ | 2,912  | 
|Peter J. Corrigan    |  |            | 1,046  |      |            |  | 3.3%  |           |  | $                    | 3.50        |                  |                |    | 9/20/2012 |  |     | $ | 2,302  |  |  | $ | 5,835  | 
|Kenneth C. Wilson    |  |            | 787    |      |            |  | 2.5%  |           |  | $                    | 3.50        |                  |                |    | 9/20/2012 |  |     | $ | 1,732  |  |  | $ | 4,390  | 




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The exercise price was equal to the fair market
    value of the common stock on the date of the grant, as
    determined by our board of directors based upon our historical
    and projected financial performance.                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(b) | The 5% and 10% assumed rates are prescribed by
    the rules and regulations of the Securities and Exchange
    Commission and do not represent our estimate or projection of
    the future trading price of our common stock. We cannot assure
    that any of the values reflected in this table will be achieved.
    Actual gains, if any, on stock option exercises are dependent on
    numerous factors, including our future performance, overall
    conditions and the option holders continued employment
    throughout the entire vesting period and option term, which
    factors are not reflected in this table.

56



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Aggregated Option Exercises in Last Fiscal
Year and Fiscal Year-End Option Values

The following table summarizes the exercise of
options during the year ended December 31, 2002 and number
and value of all unexercised options held by certain executive
officers as of December 31, 2002.

|                     |  |             |   |  |          |                        |   |                      |                      |  |                 |  |  |             |        |  |               |  |         |  |  |  |        | 
|-------------------- |  | ----------- | - |  | -------- | ---------------------- | - | -------------------- | -------------------- |  | --------------- |  |  | ----------- | ------ |  | ------------- |  | ------- |  |  |  | ------ | 
|                     |  |             |   |  |          |                        |   |                     
|                     |  |             |   |  |          | Number of Securities   |   |                      | Value of Unexercised | 
|                     |  |             |   |  |          | Underlying Unexercised |   |                      | In-The-Money Options | 
|                     |  | Shares      |   |  | Value    |                        |   | Options at FY-End(#) |                      |  | at FY-End($)(a) | 
|                     |  | Acquired on |   |  | Realized |                        |   |                      |                      |  |                 | 
|Name                 |  | Exercise(#) |   |  | ($)      |                        |   | Exercisable          |                      |  | Unexercisable   |  |  | Exercisable |        |  | Unexercisable | 
|                     |  |             |   |  |          |                        |   |                      |                      |  |                 |  |  |             |        |  |               | 
|P. Kim Packard       |  |             |  |  |          |                        |  |                      |                      |  | 111,004         |  |  |             | 11,496 |  |               |  | 166,506 |  |  |  | 17,244 | 
|Kenneth C. Cornelius |  |             |  |  |          |                        |  |                      |                      |  | 19,777          |  |  |             | 12,723 |  |               |  | 29,666  |  |  |  | 19,085 | 
|Michael Lea          |  |             |  |  |          |                        |  |                      |                      |  | 15,093          |  |  |             | 2,507  |  |               |  | 22,640  |  |  |  | 3,761  | 
|Peter J. Corrigan    |  |             |  |  |          |                        |  |                      |                      |  | 9,136           |  |  |             | 2,164  |  |               |  | 13,704  |  |  |  | 3,246  | 
|Kenneth C. Wilson    |  |             |  |  |          |                        |  |                      |                      |  | 423             |  |  |             | 2,477  |  |               |  | 635     |  |  |  | 3,716  | 




|    |                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Value is based upon the fair market value of our
    common stock as of December 31, 2002 determined by our
    board of directors, minus the exercise price. Fair market value
    was determined by our board of directors based upon our
    historical and projected financial performance.

Management Stock Option Plan

In 1998, the PEI Holding, Inc. Management Stock
Option Plan was amended and restated. The Management Stock
Option Plan is designed to provide an incentive to those
designated employees to continue in their employment and to
increase their efforts for our success. The designated employees
are selected in the sole discretion of the compensation
committee of our board of directors. As of December 31,
2002, an aggregate of 350,280 shares of our common stock were
reserved for issuance under the Management Stock Option Plan.

The purchase price of each share of common stock
subject to the options is the fair market price of our common
stock on the date of the grant as determined by our board of
directors. All options granted are subject to the terms of an
agreement entered into by the recipient of the options.

Each agreement entered into requires the
recipient of the options to be bound by the terms of any
stockholders agreement entered into between us and certain
of our stockholders. Options vest 20% on January 1 of the
first calendar year following granting of the option and 20%
each subsequent January 1. Options are not transferable by
the recipient other than by will or by the laws of descent and
distribution and are exercisable during the recipients
lifetime only by the recipient. All options terminate on the
tenth anniversary of the date of grant. Options are exercisable
90 days after a registration statement pertaining to our
common stock has been filed with (and declared effective by) the
Securities and Exchange Commission under the Securities Act of
1933, as amended, or when we otherwise determine in our sole
discretion.

If the recipient is terminated without cause (as
defined in the agreement) or for permanent disability or death
then all unvested options are terminated and canceled on the
date of termination. Within 30 days of termination we may
make a cash payment to the recipient in the amount of the excess
of the fair market value of the common stock subject to such
options over the exercise price for such shares, or make other
decisions with respect to such options. If the recipient is
terminated for cause then all options, both vested and unvested,
are canceled.

In the event of a merger or consolidation
(subsequent to which our present stockholders own less than 50%
of the voting stock of the surviving entity), a sale of all or
substantially all of our assets to an entity not affiliated with
Genstar Capital Corporation, or our dissolution or liquidation,
then the compensation committee may provide for the vesting of
up to all options outstanding within 30 days of such event
or authorize a cash payment to each option holder equal to the
excess of the fair market value of the shares of common stock
subject to such holders option over the applicable
exercise price. The options are subject to anti-dilution
provisions in the event of a change in our capital structure.

57



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##### Table of Contents



Options outstanding and remaining available for
future issuance under all equity compensation plans of the
Company are summarized below.

|                                                               |       |                     |         |         |                     |                         |                       |                           |  |  |         |         | 
|-------------------------------------------------------------- | ----- | ------------------- | ------- | ------- | ------------------- | ----------------------- | --------------------- | ------------------------- |  |  | ------- | ------- | 
|                                                               |       |                     |         |         |                     | Number of Common Shares |                      
|                                                               |       |                     |         |         |                     | Remaining Available for |                      
|                                                               |       | Number of Common    |         |         |                     |                         | Future Issuance Under |                          
|                                                               |       | Shares to be Issued |         |         | Weighted Average    |                         |                       | Equity Compensation Plans | 
|                                                               |       | Upon Exercise of    |         |         | Exercise Price of   |                         |                       | Excluding Securities      | 
|                                                               |       | Outstanding Options |         |         | Outstanding Options |                         |                       | Reflected in Column(a)    | 
|Plan Category                                                  |       | (a)                 |         |         | (b)                 |                         |                       | (c)                       | 
|                                                               |       |                     |         |         |                     |                         |                       |                           | 
|Equity compensation plans approved by security
    holders     |       |                     | 222,514 |         |                     | $                       | 3.50                  |                           |  |  | 127,766 |        
|Equity compensation plans not approved by
    security holders |       |                     | none    |         |                     |                         | n/a                   |                           |  |  | none    |        
|                                                               | Total |                     |         | 222,514 |                     |                         | $                     | 3.50                      |  |  |         | 127,766 | 

Employment Agreements

We have entered into agreements with each of
Messrs. Packard, Cornelius, Lea, and Corrigan. The
agreements provide that if the employees employment is
terminated for any reason other than by the employee voluntarily
except in the event of a substantial diminution in
responsibilities, for cause (as defined in the employment
agreements) or as a result of death or disability, the
individual shall receive for a period of one year following the
date of termination the then-current salary and benefits that he
would otherwise have been entitled to receive (except for
Mr. Packard who would receive salary and benefits for two
years).

Each of the agreements provides that if the
individuals employment is terminated within twelve months
following a change of control (as defined in the employment
agreements) for any reason other than for cause, he would be
entitled to receive an additional one year period of salary and
benefits following the expiration of the salary and benefits the
employee is entitled to receive in the event of termination for
any other reason.

Any benefits payable under the agreements will be
payable at such time and in such manner as if the employee
remained employed, and such benefits shall continue
notwithstanding re-employment and/or death of the employee
following termination of employment.

Item 12. Security Ownership of
Certain Beneficial Owners and Management

The table below sets forth certain information
regarding beneficial ownership of our common stock as of
March 15, 2002 by each person or entity known by us to own
beneficially 5% of more of our common stock, each director and
certain of our executives officers and all executive officers
and directors as a group.

As of March 15, 2002, there were 1,969,000
shares of our common stock outstanding.

|                                                                    |  |           |           |  |            |  |       | 
|------------------------------------------------------------------- |  | --------- | --------- |  | ---------- |  | ----- | 
|Name                                                                |  | Number(a) |           |  | Percent(a) | 
|                                                                    |  |           |           |  |            | 
|Genstar Capital Corporation(b)                                      |  |           | 1,920,000 |  |            |  | 97.5% | 
|North Bay Limited(c)                                                |  |           | 178,580   |  |            |  | 9.0   | 
|P. Kim Packard(d)                                                   |  |           | 133,304   |  |            |  | 6.4   | 
|Crown Life Insurance Company(c)                                     |  |           | 142,880   |  |            |  | 7.2   | 
|Paul Capital Partners VI Holdings(c)                                |  |           | 107,140   |  |            |  | 5.4   | 
|Kenneth C. Cornelius(e)                                             |  |           | 31,323    |  |            |  | 1.6   | 
|Michael Lea(f)                                                      |  |           | 24,397    |  |            |  | 1.2   | 
|Dennis P. Chelminski(g)                                             |  |           | 19,101    |  |            |  | *     | 
|Peter J. Corrigan(h)                                                |  |           | 17,949    |  |            |  | *     | 
|John Jenkins(i)                                                     |  |           | 2,051     |  |            |  | *     | 
|Kenneth C. Wilson(j)                                                |  |           | 1,002     |  |            |  | *     | 
|Richard D. Paterson(c)(k)                                           |  |           | 89,300    |  |            |  | 4.5   | 
|Ross J. Turner(c)(k)                                                |  |           | 89,300    |  |            |  | 4.5   | 
|John A. West(c)(k)                                                  |  |           | 89,300    |  |            |  | 4.5   | 
|All executive officers and directors as a group
    (10 persons)(l) |  |           | 318,427   |  |            |  | 14.8  | 

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|  |             
|- | ------------
|* | Less than 1%



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Beneficial ownership is determined in accordance
    with the rules of the Securities and Exchange Commission and
    generally includes voting or investment power with respect to
    securities. Shares of common stock subject to options or
    warrants currently exercisable or convertible, or exercisable or
    convertible within 60 days of March 15, 2002, are
    deemed outstanding for computing the percentage of the person
    holding such option or warrant but are not deemed outstanding
    for computing the percentage of any other person. Except as
    indicated in the footnotes to this table and pursuant to
    applicable community property laws, the persons named in the
    table have sole voting and investment power with respect to all
    shares of common stock beneficially owned.
|   
|(b) | On January 22, 2002, the shares of
    Prestolite Holding, Inc. formerly held by Genstar Capital
    Corporation were distributed to the 39 shareholders of Genstar
    Capital Corporation. Those shares were placed into a trust.
    Under the terms of the trust agreement, all voting power
    associated with the shares is exercised by Genstar Capital
    Corporation. Among the shares so distributed were 89,300
    distributed to Genstar Investment Corporation.                                                                                                                                                                                                                                                                                                                                                 
|   
|(c) | Voting rights associated with these shares have
    been ceded to Genstar Capital Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(d) | Consists of 17,000 shares of common stock and
    116,304 shares issuable upon exercise of options that are
    currently exercisable or exercisable within 60 days of
    March 15, 2002. Does not include 6,196 shares issuable upon
    exercise of options which vest more than 60 days after
    March 15, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(e) | Consists of 8,000 shares of common stock and
    23,323 shares issuable upon exercise of options that are
    currently exercisable or exercisable within 60 days of
    March 15, 2002. Does not include 9,177 shares issuable upon
    exercise of options which vest more than 60 days after
    March 15, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(f) | Consists of 8,000 shares of common stock owned by
    Mrs. Rhonda Lea, Mr. Leas wife, as to which
    Mr. Lea may be deemed to be beneficial owner and 16,397
    shares issuable upon exercise of options that are currently
    exercisable or exercisable within 60 days of March 15,
    2002. Does not include 1,203 shares issuable upon exercise of
    options which vest more than 60 days after March 15,
    2002.                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(g) | Consists of 8,000 shares of common stock and
    11,101 shares issuable upon exercise of options that are
    currently exercisable or exercisable within 60 days of
    March 15, 2002. Does not include 899 shares issuable upon
    exercise of options which vest more than 60 days after
    March 15, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(h) | Consists of 8,000 shares of common stock and
    9,949 shares issuable upon exercise of options that are
    currently exercisable or exercisable within 60 days of
    March 15, 2002. Does not include 1,351 shares issuable upon
    exercise of options which vest more than 60 days after
    March 15, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(i) | Consists of 2,051 shares issuable upon exercise
    of options that are currently exercisable or exercisable within
    60 days of March 15, 2002. Does not include 1,149
    shares issuable upon exercise of options which vest more than
    60 days after March 15, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(j) | Consists of 1,002 shares issuable upon exercise
    of options that are currently exercisable or exercisable within
    60 days of March 15, 2002. Does not include 1,898
    shares issuable upon exercise of options which vest more than
    60 days after March 15, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(k) | Consists of 89,300 shares of common stock owned
    by Genstar Investment Corporation as to which
    Messrs. Paterson, Turner and West may be deemed to be
    beneficial owners. Excludes the remaining shares of Common Stock
    controlled by Genstar Capital Corporation as to which
    Messrs. Paterson, Turner and West disclaim beneficial
    ownership. See Item 13. Certain Relationships and
    Related Transactions. Genstar Capital Corporation controls
    87.6% of our common stock on a fully-diluted basis.                                                                                                                                                                                                                                                                                             
|   
|(l) | Amount shown includes an aggregate of 180,127
    shares of common stock issuable upon the exercise of options
    exercisable within 60 days of March 15, 2002. Does not
    include an aggregate of 21,873 shares issuable upon exercise of
    options which vest more than 60 days after March 15,
    2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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Item 13. Certain Relationships and
Related Transactions

Three of our directors, Messrs. Paterson,
Turner and West, are executive officers and shareholders of
Genstar Investment Corporation. Genstar Investment Corporation
manages Genstar Capital Corporation and owns 89,300 of our
outstanding shares.

We have a management agreement with Genstar
Investment Corporation under which Genstar Investment
Corporation has agreed to provide Prestolite with ongoing
management and financial advisory services. Payments are made
quarterly. In 2000 Prestolite paid management and advisory fees
of $900,000, plus out-of-pocket expenses, to Genstar Investment
Corporation. In 2001 and 2002, Prestolite paid management and
advisory fees of $600,000, plus out-of-pocket expenses, to
Genstar Investment Corporation.

Item 14. Controls and
Procedures

Within the 90 day prior to the date of this
report, the Company carried out an evaluation, under the
supervision and the the participation of the Companys
management, including the President and Chief Executive Officer
and the Chief Financial Officer of the Company, of the
effectiveness of the design and operation of the Companys
disclosure controls and procedures pursuant to Exchange Act
Rule 13-a14. Based upon that evaluation, the principal
executive officers and 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
subsidiaries) required to be included in the Companys
periodic SEC filings.

Subsequent to the evaluation, there were no
significant changes in internal controls or other factors that
could significantly affect internal controls, including any
corrective actions with regard to significant deficiencies and
material weaknesses.

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PART IV




|         |                                                                      
|-------- | ---------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statements, Schedules and
    Reports of Form 8-K

(a) Financial Statements

|                                                                                                                                              |  |  |                 | 
|--------------------------------------------------------------------------------------------------------------------------------------------- |  |  | --------------- | 
|Consolidated Balance Sheet as of
    December 31, 2002 and 2001                                                                               |  |  | Part II, Item 8 | 
|Consolidated Statement of Operations for each of
    the years in the three year period ended December 31, 2002                               |  |  | Part II, Item 8 | 
|Consolidated Statement of Stockholders
    (Deficit) Equity for each of the three years in the three year
    period ended December 31, 2002 |  |  | Part II, Item 8 | 
|Consolidated Statement of Cash Flows for each of
    the three years in the three year period ended December 31,
    2002                     |  |  | Part II, Item 8 | 
|Notes to the Consolidated Financial Statements                                                                                                |  |  | Part II, Item 8 | 
|Independent Accountants Report                                                                                                               |  |  | Part II, Item 8 | 
|Schedule II  Valuation and
    Qualifying Accounts                                                                                           |  |  | Part II, Item 8 | 

Reports on form 8-K.



| |                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have filed no reports on Form 8-K during
    the fourth quarter of 2002. The following details the reports
    filed in the first quarter of 2003 prior to the filing of our
    Form 10-K:                                                 
|
| | January 30,
    2003:Item 9 Regulation FD
    Disclosure of partial earnings press release corresponding with
    announcement of same information at a conference and posting of
    said press release to our web site at www.prestolite.com.
|
| | February 28,
    2003:Item 9 Regulation FD
    Disclosure of earnings release corresponding with earnings press
    release and posting of said release to our web site at
    www.prestolite.com.                                             

(b) Exhibits.

|        |      |  |             |                                                                                                                                                                                            
|------- | ---- |  | ----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |  |            
|Number  |      |  | Description
|        |      |  |            
|        | 10.1 |  |             | Amendment No. 3 dated December 26, 2002
    to the Credit Agreement by and between Prestolite Electric
    Incorporated and Comerica Bank dated October 31, 2001.                          
|        | 10.2 |  |             | Commercial variable rate loan Agreement by and
    between Prestolite Electric Limited, Prestolite Electric
    Incorporated and National Westminster Bank, Plc. Dated
    August 29, 2002.
|        | 10.3 |  |             | Advice of borrowing terms by and between
    Prestolite Electric Limited and National Westminster Bank, Plc.
    Dated August 29, 2002.                                                    
|        | 10.4 |  |             | Interest rate swap agreement by and between
    Prestolite Electric Limited and National Westminster Bank, Plc.
    (a member of the Royal Bank of Scotland) dated December 30,
    2002.  
|        | 10.5 |  |             | Argentina financial statements and notes for
    balance sheets dated December 31, 2002 and 2001 and
    operating statements for the three years ended December 31,
    2002.             
|        | 99.1 |  |             | Certification of Chief Executive Officer pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                     
|        | 99.2 |  |             | Certification of Chief Financial Officer pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                     

61



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SIGNATURES


Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, Prestolite
Electric Holding, Inc. has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in
the City of Ann Arbor, State of Michigan on the 26th day of
March, 2003.



| |                                  
| | ---------------------------------
| | PRESTOLITE ELECTRIC HOLDING, INC.



| |     |                   
| | --- | ------------------
| | By: | /s/ P. KIM PACKARD

| |                                                 
| | ------------------------------------------------
| |                                                 
| | P. Kim Packard                                  
| | Director, President, and Chief Executive Officer

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

|                                             |  |                                                                                                               |  |               
|-------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------- |  | --------------
|Signatures                                   |  | Title                                                                                                         |  | Date          
|                                             |  |                                                                                                               |  |               
|/s/ P. KIM PACKARDP. Kim Packard             |  | President, Chief Executive Officer (principal
    executive officer)
    Director                             |  | March 26, 2003
|/s/ RICHARD D. PATERSONRichard D. Paterson   |  | Chairman of the Board, Director                                                                               |  | March 26, 2003
|/s/ KENNETH C. CORNELIUSKenneth C. Cornelius |  | Senior Vice President, Chief Financial Officer
    (principal accounting and financial officer) and Secretary |  | March 26, 2003
|/s/ ROSS J. TURNERRoss J. Turner             |  | Director                                                                                                      |  | March 26, 2003
|/s/ JOHN A. WESTJohn A. West                 |  | Director                                                                                                      |  | March 26, 2003

62



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CERTIFICATION ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002


In connection with the Annual Report of
Prestolite Electric Holding, Inc. (the Company) on
Form 10-K for the period ending December 31, 2002 as
filed with the Securities and Exchange Commission on the date
hereof (the Report):



| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | I, P. Kim Packard, Chief Executive Officer
    of the Company. certify, pursuant to Rule 13a-14, as
    adopted pursuant to § 302 of the Sarbanes-Oxley Act of
    2002, that:



| |     |                                                                                                                                                                                                                                                                                                                                                                 
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | I have reviewed this annual report on
    Form 10-K of the Company;                                                                                                                                                                                                                                                                                             
|
| | (2) | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, nor are the statements misleading with respect to the
    periods covered by this annual report;
|
| | (3) | Based on my knowledge, the financial statements
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the Company as of, and
    for, the periods presented in this annual report;                                               
|
| | (4) | Prestolite Electric Holding, Inc.s other
    certifying officers and I are responsible for establishing and
    maintaining disclosure controls and procedures (as defined in
    Exchange Act Rules 13a-14 and 15d-14) for the Company and
    we have:                                                                                                       



| |    |                                                                                                                                                                                                                                                                                                          
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | Designed such disclosure controls and procedures
    to ensure that material information relating to the Company,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;



| |    |                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | Evaluated the effectiveness of the Companys
    disclosure controls and procedures as of a date within
    90 days prior to the filing of this annual report (the
    Evaluation Date); and



| |    |                                                                                                                                                                             
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c. | Presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date.



| |     |                                                                                                                                                                              
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (5) | The Companys other certifying officers and
    I have disclosed, based on our most recent evaluation, to our
    auditors and the audit committee of our board of directors:



| |    |                                                                                                                                                                                                                                                                                      
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | All significant deficiencies in the design of
    operation of internal controls which could adversely affect our
    ability to record, process, summarize, and report financial data
    and have identified for our auditors and material weaknesses in
    internal controls; and



| |    |                                                                                                                                              
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------
| | b. | Any fraud, whether or not material, that involves
    management or other employees who have a significant role in our
    internal controls.



| |     |                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (6) | The Companys other certifying officers and
    I have indicated in this annual report whether or not there were
    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.



| |     |                   
| | --- | ------------------
| | By: | /s/ P. KIM PACKARD

| |                                      
| | -------------------------------------
| |                                      
| | P. Kim Packard,                      
| | President and Chief Executive Officer

Date: March 26, 2003

63



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##### Table of Contents



CERTIFICATION ADOPTED PURSUANT TO SECTION
302

OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Annual Report of
Prestolite Electric Holding, Inc. (the Company) on
Form 10-K for the period ending December 31, 2002 as
filed with the Securities and Exchange Commission on the date
hereof (the Report):



| |                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | I, Kenneth C. Cornelius, Chief Financial
    Officer of the Company. certify, pursuant to Rule 13a-14,
    as adopted pursuant to § 302 of the Sarbanes-Oxley Act
    of 2002, that:



| |     |                                                                                                                                                                                                                                                                                                                                                                 
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | I have reviewed this annual report on
    Form 10-K of the Company;                                                                                                                                                                                                                                                                                             
|
| | (2) | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, nor are the statements misleading with respect to the
    periods covered by this annual report;
|
| | (3) | Based on my knowledge, the financial statements
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the Company as of, and
    for, the periods presented in this annual report;                                               
|
| | (4) | The Companys other certifying officers and
    I are responsible for establishing and maintaining disclosure
    controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the Company and we have:                                                                                                                                 



| |    |                                                                                                                                                                                                                                                                                                          
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | Designed such disclosure controls and procedures
    to ensure that material information relating to the Company,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;



| |    |                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | Evaluated the effectiveness of the Companys
    disclosure controls and procedures as of a date within
    90 days prior to the filing of this annual report (the
    Evaluation Date); and



| |    |                                                                                                                                                                             
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c. | Presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date.



| |     |                                                                                                                                                                              
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (5) | The Companys other certifying officers and
    I have disclosed, based on our most recent evaluation, to our
    auditors and the audit committee of our board of directors:



| |    |                                                                                                                                                                                                                                                                                      
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | All significant deficiencies in the design of
    operation of internal controls which could adversely affect our
    ability to record, process, summarize, and report financial data
    and have identified for our auditors and material weaknesses in
    internal controls; and



| |    |                                                                                                                                              
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------
| | b. | Any fraud, whether or not material, that involves
    management or other employees who have a significant role in our
    internal controls.



| |     |                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (6) | The Companys other certifying officers and
    I have indicated in this annual report whether or not there were
    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.



| |     |                         
| | --- | ------------------------
| | By: | /s/ KENNETH C. CORNELIUS

| |                                                  
| | -------------------------------------------------
| | Kenneth C. Cornelius,                            
| | Senior Vice President and Chief Financial Officer

Date: March 26, 2003

64



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##### Table of Contents



10-K EXHIBIT INDEX

|            |  |                                                                                                                        | 
|----------- |  | ---------------------------------------------------------------------------------------------------------------------- | 
|Exhibit No. |  | Description                                                                                                            | 
|            |  |                                                                                                                       
|           
|            |  |                                                                                                                        | 
|EX-10.1     |  | Amendment No.
3 to the Credit Agreement                                                                               
|            |  |                                                                                                                        | 
|EX-10.2     |  | Commercial
Variable Rate Loan Agreement                                                                               
|            |  |                                                                                                                        | 
|EX-10.3     |  | Advice of
Borrowing Terms                                                                                             
|            |  |                                                                                                                        | 
|EX-10.4     |  | Interest Rate
Swap Agreement                                                                                          
|            |  |                                                                                                                        | 
|EX-10.5     |  | Argentina
Financial statements and Notes                                                                              
|            |  |                                                                                                                        | 
|EX-99.1     |  | Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|            |  |                                                                                                                        | 
|EX-99.2     |  | Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

F-1