<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K

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

                  For the fiscal year ended September 29, 2000
                                       OR

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


          For the transition period from______________ to ____________

<TABLE>
<S>                                              <C>
   Commission File Number: 33-96858-01                 Commission File Number: 33-96858

   COMMUNICATIONS & POWER INDUSTRIES HOLDING        COMMUNICATIONS & POWER INDUSTRIES, INC.
                  CORPORATION                            (Exact name of registrant as
         (Exact name of registrant as                      specified in its charter)
           specified in its charter)
                   DELAWARE                                        DELAWARE
           (State of Incorporation)                        (State of Incorporation)
                  77-0407395                                      77-0405693
     (IRS employer identification number)            (IRS employer identification number)
                607 HANSEN WAY                                  607 HANSEN WAY
       PALO ALTO, CALIFORNIA 94303-1110                PALO ALTO, CALIFORNIA 94303-1110
                (650) 846-2900                                  (650) 846-2900
  (Address, including zip code, and telephone    (Address, including zip code, and telephone
                    number,                                         number,
including area code, of registrant's principal       including area code, of registrant's
              executive offices)                         principal executive offices)
   Securities registered pursuant to Section       Securities registered pursuant to Section
               12(b) of the Act:                               12(b) of the Act:
                     NONE                                            NONE
   Securities registered pursuant to Section       Securities registered pursuant to Section
               12(g) of the Act:                               12(g) of the Act:
                     NONE                                            NONE
</TABLE>

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

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

The aggregate market value of voting stock of Communications & Power Industries
Holding Corporation held by non-affiliates is $1,050,000, based upon the selling
price of such stock. No voting stock of Communications & Power Industries, Inc.
is held by non-affiliates of Communications & Power Industries, Inc.
Communications & Power Industries, Inc.'s voting stock is wholly owned by
Communications & Power Industries Holding Corporation, a Delaware corporation.
Neither Communications & Power Industries, Inc.'s nor Communications & Power
Industries Holding Corporation's common stock is publicly traded.

Indicate the number of shares outstanding for each of the Registrant's classes
of Common Stock, as of the latest practicable date: COMMUNICATIONS & POWER
INDUSTRIES HOLDING CORPORATION: 4,908,172 SHARES OF COMMON STOCK, $.01 PAR
VALUE, AT DECEMBER 1, 2000. COMMUNICATIONS & POWER INDUSTRIES, INC.: 1 SHARE OF
COMMON STOCK, $.01 PAR VALUE, AT DECEMBER 1, 2000.

                      DOCUMENTS INCORPORATED BY REFERENCE:
                                     (None)


<PAGE>   2

FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements. These statements relate to
future events or the Company's future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "except," "plan," "anticipate," "believe," "estimate," "predict,"
"potential" or "continue," the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially.

Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance or achievements. Moreover, neither the
Company nor any other person assumes responsibility for the accuracy and
completeness of the forward-looking statements. All written and oral
forward-looking statements made in connection with this report which are
attributable to the Company or persons acting on the Company's behalf are
expressly qualified in their entirety by the "risk factors" and other cautionary
statements included herein. The Company is under no duty to update any of the
forward-looking statements after the date of this report to conform such
statements to actual results or to changes in the Company's expectations.

You should read the following discussion and analysis in conjunction with the
Financial Statements and related Notes thereto contained elsewhere in this
report. The information in this report is not a complete description of the
Company's business or the risks associated with an investment in the Company's
securities. We urge you to carefully review and consider the various disclosures
made by the Company in this report and in the Company's other reports filed with
the SEC.


                                     PART 1

ITEM 1: BUSINESS

GENERAL

Communications & Power Industries Holding Corporation ("Holding"), through its
wholly owned subsidiary, Communications & Power Industries, Inc. ("CPI", both
companies together referred to as the "Company"), is a world leader in the
development, manufacture and distribution of components for systems used
primarily to generate, amplify and transmit high-power/high-frequency microwave
and radio frequency signals. End-use applications of these systems include the
transmission and amplification of voice, data and video signals for
broadcasting, internet and telecommunications; transmission of radar signals for
navigation and location; transmission of false signals for electronic
countermeasures (e.g., decoys and signal "jammers"); and various other uses in
the industrial, medical and scientific markets.

The Company's products include microwave and power grid vacuum electronic
devices, microwave amplifiers, modulators, and various other power supply
equipment and devices. In Fiscal 1999, the Company added a line of solid-state
products including GaAs FET amplifiers, frequency converters and multiplier
amplifiers. The majority of the Company's products are consumable and have a
finite life. The Company operates six manufacturing operations in North America,
and sells and services its products and customers worldwide primarily through a
direct sales force.

CPI is a wholly owned subsidiary of Communications & Power Industries Holding
Corporation. Both Holding and CPI are Delaware corporations formed in 1995.
Prior to August 11, 1995, the Company's operations were part of the Electron
Devices Business (the "Predecessor") of Varian Associates, Inc. ("Varian"). The
principal executive offices of Holding and CPI are located at 607 Hansen Way,
Palo Alto, California 94303 and their telephone number is (650) 846-2900.



                                      -1-
<PAGE>   3

PRODUCTS

The Company offers a comprehensive range of microwave and power grid vacuum
electronic devices, microwave amplifiers, modulators and various other power
supply equipment and devices for use in the communications, radar, electronic
countermeasures, medical, industrial and scientific markets. The Company offers
over 6,800 products that generally have selling prices from $2,000 to $50,000,
with certain products ranging in price up to $1,000,000. Most of these products
are consumable and have a finite life based upon hours of usage, operating
environment and application. Certain of the Company's products are sold in more
than one market depending on the specific power and frequency requirements of
the end-user and the physical operating conditions of the environment in which
the vacuum electronic device will be located.

MARKETS

The Company operates in six different markets:

-       Communications Market - The communications market is comprised of
        applications for satellite communications ("satcom"), wireless
        point-to-point and point-to-multipoint radio and broadcast sectors. In
        this market, the Company's products generate, amplify and transmit
        signals and data within an overall communication system. Sales in the
        communications market were $87.8 million in Fiscal 2000 compared to
        $105.4 million in Fiscal 1999 and $118.8 million in Fiscal 1998.

-       Radar Market - The radar market includes microwave and power grid vacuum
        electronic devices, amplifiers, receiver protectors and related
        equipment for air, ground and shipboard radar systems. The Company's
        vacuum electronic devices have been an integral component of radar
        systems for over five decades. Sales in the radar market were $90.8
        million in Fiscal 2000 compared to $85.4 million in Fiscal 1999 and
        $87.4 million in Fiscal 1998.

-       Electronic Countermeasures Market - The electronic countermeasures
        market utilizes microwave vacuum electronic devices for systems that
        provide protection for ships, aircraft and high-value land targets
        against radar-guided munitions. Sales in the electronic countermeasures
        market were $21.9 million, $19.4 million and $12.1 million in Fiscal
        2000, Fiscal 1999 and Fiscal 1998, respectively.

-       Medical Market - The Company participates in the diagnostic and
        treatment sectors of the medical market. In the diagnostic market, the
        Company provides x-ray generators, including state-of-the-art,
        high-efficiency, lightweight power supplies and modern digital-based
        consoles for diagnostic equipment. In the treatment market, the Company
        provides microwave generators (klystrons) for high-end cancer therapy
        machines. Sales in this market were $20.9 million, $20.5 million and
        $18.8 million in Fiscal 2000, Fiscal 1999 and Fiscal 1998, respectively.

-       Industrial Market - The industrial market includes applications for a
        wide range of systems used for materials processing, instrumentation and
        voltage generation. Sales in this market were $17.5 million, $17.2
        million and $19.4 million in Fiscal 2000, Fiscal 1999 and Fiscal 1998,
        respectively.

-       Scientific Market - The scientific market consists primarily of
        equipment utilized in reactor fusion programs and accelerators for
        high-energy particle physics, referred to as "Big Science." Sales in the
        scientific market were $4.2 million, $7.8 million and $4.2 million in
        Fiscal 2000, Fiscal 1999 and Fiscal 1998, respectively.

The Company's products have applications among both commercial and government
customers. The commercial sector represents all sales for which the U.S.
Government is not the end-user. However, the end-user markets identified above
are not categorized based upon whether they consist entirely of sales


                                      -2-
<PAGE>   4

into commercial or government sectors. Therefore, sales in any one of the
Company's markets may consist of sales to either commercial customers, the U.S.
Government, or both. The commercial sector contributed approximately $188.9
million, or 77.7%, of the Company's total sales in Fiscal 2000 compared to
approximately $199.7 million, or 78.1%, in Fiscal 1999 and $201.4 million, or
77.3%, in Fiscal 1998. U.S. Government sales, both direct and through original
equipment manufacturers ("OEMs"), contributed approximately $54.2 million, or
22.3%, of the Company's total sales in Fiscal 2000 compared to approximately
$56.0 million, or 21.9%, in Fiscal 1999 and $59.3 million, or 22.7%, in Fiscal
1998. These percentages reflect the Company's development of products for the
commercial marketplace. Since the late 1980s, the United States defense budget
has been shrinking; however, based on a stable trend of order receipts for
spares and upgrades from Fiscal 1995 to Fiscal 2000, management expects that
U.S. Government and defense-related end-users will continue to provide a steady
source of revenue.

In Fiscal 2000, approximately 67.3% of sales were derived from U.S. customers,
while approximately 32.7% were derived from international customers compared to
Fiscal 1999 where approximately 65.5% of sales were derived from the U.S. and
approximately 34.5% were from international customers. However, many domestic
OEMs, primarily those in the satcom market, export their products, and
management believes that some percentage of the Company's sales to U.S.
customers ultimately have international end-users. Excluding sales to the U.S.
Government, no single customer accounted for more than 5% of the Company's total
sales in Fiscal 2000, Fiscal 1999 or Fiscal 1998.

SALES, MARKETING AND SERVICE

As of September 29, 2000, the Company has over 150 direct sales, marketing and
technical support professionals representing the largest direct sales, service
and technical support organization focused exclusively on
high-power/high-frequency signal generation, amplification and transmission. The
Company's sales and service organization is supplemented by outside
representatives and a distributor, which service certain lower volume accounts.
Most of the Company's sales professionals are responsible for marketing the
Company's entire product line. Company sales professionals receive extensive
technical training in all of the Company's products, which allows them to
provide customers with appropriate technical support, including information on
product application and implementation.

In addition to its direct sales force, the Company utilizes over 35 external
sales organizations and one stocking distributor, Richardson Electronics, Ltd.,
to service the needs of low volume customers. The majority of the third-party
organizations that the Company utilizes are located outside the U.S. and focus
primarily on customers in South America, South East Asia, the Far East, the
Middle East, Africa and Eastern Europe. Through the use of third-party sales
organizations, the Company has been better able to meet the needs of its foreign
customers by establishing a local presence in lower volume markets.

The Company also has a specialized network of eleven factory service centers for
the satcom replacement market. These service centers are located in the United
States (California and New Jersey), Amsterdam, Brazil, China, India, Indonesia,
Japan, Russia, Singapore and South Africa.

MANUFACTURING

The Company manufactures its products within six manufacturing operations in
North America. The Company has implemented modern manufacturing methodologies
based upon "continuous improvement," including JIT materials handling, Demand
Flow Technology, Statistical Process Control and Value Managed Relationships
with suppliers and customers. The Company has achieved the ISO-9000
international certification standard.



                                      -3-
<PAGE>   5

Generally, each of the Company's manufacturing units use similar production
processes consisting of product development, purchasing, high level assembly and
test. For satcom equipment and solid-state devices, the process is primarily one
of integration and contract manufacturers are used whenever possible. Satcom
equipment utilizes both vacuum electronic devices ("VEDs") and solid-state
technology and, therefore, procures components from the Company's other
manufacturing units. For VEDs, the process starts with procurement of raw
material and sub-assemblies from qualified suppliers, who often deliver on a JIT
basis. Raw materials are then formed, primarily by machining, cleaning and
plating certain parts. These steps utilize statistical process control
techniques to assure quality and high production yields. Subassembly is then
performed to produce a vacuum envelope, the essential part of a vacuum
electronic device. This subassembly process is performed utilizing Demand Flow
Technology, which helps to minimize inventory. Vacuum assemblies are processed
by pumping the atmosphere from the assemblies while heating them in a furnace
and simultaneously charging them with an electrical current. When this step is
complete, final assembly and testing is performed on each product before
shipment. The Company has developed sophisticated test programs to assure that
each product meets operating specifications.

Certain materials necessary for the manufacture of the Company's products, such
as molybdenum, OFHC copper, and some cathodes, are obtained from sole, or a
limited group of, suppliers. In addition, prices of these raw materials and key
components are subject to fluctuation.

COMPETITION

The industries and markets in which the Company operates are highly competitive.
The Company encounters intense competition in most of its business areas from
numerous other companies (such as Litton Industries, Inc., Marconi Applied
Technologies (formerly, EEV Limited), Xicom and Thomson- CSF), some of which
have resources substantially greater than those of the Company. Some of these
competitors are also customers of the Company. The Company's ability to compete
in its markets depends to a large extent on its ability to provide high quality
products with shorter lead times at competitive prices, and its readiness in
facilities, equipment and personnel.

The Company must also continually engage in effective research and development
efforts in order to introduce innovative new products for technologically
sophisticated customers and markets. There is an inherent risk that advances in
existing technology, including solid-state technology, or the development of new
technology could adversely affect the Company's financial condition and results
of operations. However, with the Company's recent acquisition of a line of
solid-state products, the Company is now more strategically set to address the
marketplace with both solid-state technology as well as vacuum electronic device
technology. Solid-state devices generally serve end-users' low-power
requirements more cost effectively and efficiently than microwave vacuum
electronic devices, however, only microwave vacuum electronic devices currently
serve high-power/high-frequency demands. The laws of physics limit the ability
of solid-state technology to efficiently or cost effectively serve the
high-power/high-frequency applications of the Company's customers. These
applications' extreme operating parameters necessitate heat dissipation
capabilities that are best satisfied by the Company's vacuum electron device
products. The Company's management believes that each technology serves its own
niche without significant overlap.



                                      -4-
<PAGE>   6

BACKLOG

As of September 29, 2000, the Company had an order backlog of $161.6 million
compared to order backlog of $146.4 million as of October 1, 1999 and $160.8
million as of October 2, 1998. Backlog increased $15.2 million in Fiscal 2000
primarily due to the Company's participation in the terrestrial wireless portion
of the XM Radio satellite service, which will provide digital quality audio
programming across the United States. This new business opportunity generated an
order for $13.6 million with shipments scheduled in Fiscal 2001. Backlog has
fluctuated over the last three years due to changes in customer procurement
practices that demand shorter lead times and the receipt of large multi-year
orders. Although the backlog consists of firm orders for which goods and
services are yet to be provided, these orders can be and sometimes are modified
or terminated. However, the amount of modifications and terminations has
historically not been material compared to total contract volume.

INTELLECTUAL PROPERTY

The Company owns a number of United States and foreign patents having various
expiration dates (collectively, the "Patents"). The Patents are directed to
various aspects of the technologies used by the Company in many of its
operations. In addition to the Patents, the Company has certain trade secrets,
know-how, trademarks and copyrights related to its technology and products. The
Company also has acquired certain intellectual property rights and incurred
certain obligations through license and research and development agreements with
third parties. These agreements may include royalty-bearing licenses, technology
cross licenses and manufacturing supply agreements. Management does not believe
that any single patent or license is material to the success of the Company as a
whole. As a result of contracts with the U.S. Government which contain patent
and/or data rights clauses, the U.S. Government also has acquired royalty-free
licenses or other rights in inventions and technology resulting from certain
work done by the Company on behalf of the U.S. Government. The Company also has
certain software license agreements with vendors and suppliers which affect the
Company's intellectual property rights. The Company generally enters into
confidentiality agreements with its employees, consultants and vendors, and
generally limits access to and distribution of its proprietary information. The
Company maintains an intellectual property protection program designed to
preserve the intellectual property assets for the Company's future products.
This program includes the filing of new domestic and foreign patent
applications, copyright and trademark applications and the pursuit of
enforcement of its intellectual property rights. Nevertheless, there can be no
assurance that the steps taken by the Company will prevent misappropriation or
loss of its technology.

Six United States patents and one United States patent application, and their
foreign counterparts, are jointly owned by the Company and Varian along with
related trade secrets and know-how, including drawings, manufacturing and
testing processes and designs (the "Key Component Technology"). The Key
Component Technology relates to the manufacture and testing of certain key
electron beam guns and key medical klystrons, and any improvements thereto. In
August 1995, the Company and Varian entered into a Cross-License Agreement to
allocate the rights to the Key Component Technology between the Company and
Varian.

In addition, in August 1995, the Company and Varian entered into a Trademark
License Agreement that allows the Company to identify its products as "formerly
made by Varian" for a period of ten years.



                                      -5-
<PAGE>   7

RESEARCH AND DEVELOPMENT

Company-sponsored research and development ("R&D") expense was approximately
$8.7 million, $9.0 million and $7.5 million during Fiscal 2000, Fiscal 1999 and
Fiscal 1998, respectively. The Company has increased its internal R&D efforts
primarily to focus on meeting the needs of the satellite communications market.
Customer-sponsored R&D was approximately $6.5 million, $8.6 million and $6.0
million during Fiscal 2000, Fiscal 1999 and Fiscal 1998, respectively. For
customer-sponsored R&D, the costs were charged to cost of sales to match revenue
received.

EMPLOYEES

As of September 29, 2000, the Company had approximately 1,653 employees compared
to 1,683 employees as of October 1, 1999. None of the Company's employees is
subject to a collective bargaining agreement although a limited number of the
Company's sales force members located in Europe are members of work councils or
unions. The Company has not experienced any work stoppages and believes that it
has good relations with its employees.

Because of the specialized and technical nature of the Company's business, the
Company is highly dependent on the continued service of, and on its ability to
attract and retain qualified technical, marketing, sales and managerial
personnel. The competition for such personnel is intense, and the failure to
retain and/or recruit additional or substitute key personnel in a timely manner,
could have a material adverse effect on the Company's business and operating
results.

U.S. GOVERNMENT CONTRACTS AND REGULATIONS

Management expects that a decreasing but significant portion of the Company's
sales will continue in the foreseeable future to result from contracts with the
U.S. Government, either directly or through prime contractors or subcontractors.
The Company's business with the U.S. Government is performed under fixed-price
and, to a lesser degree, cost-plus contracts. Fixed-price contracts accounted
for 91.6% of the Company's U.S. Government sales in Fiscal 2000 and cost-plus
contracts accounted for 8.4% compared to Fiscal 1999's mix of approximately 93%
fixed-price and approximately 7% cost-plus and Fiscal 1998's mix of
approximately 94% fixed-price and approximately 6% cost-plus.

Under fixed-price contracts, the Company agrees to perform certain work for a
fixed price and, accordingly, realizes all the benefit or detriment from
decreases or increases in the costs of performing the contract. In addition,
under U.S. Government regulations, certain costs, including certain financing
costs, portions of research and development costs, and certain expenses related
to the preparation of competitive bids and proposals and international sales are
not reimbursable. The U.S. Government also regulates the methods under which
costs are allocated to U.S. Government contracts.

U.S. Government contracts are, by their terms, subject to termination by the
U.S. Government either for its convenience or default by the contractor.
Cost-plus contracts provide that, upon termination, the contractor is generally
entitled to reimbursement of its incurred costs and, if the termination is for
convenience, a fee proportionate to the percentage of the work completed under
the contract is permitted. If the termination is for default, a contractor may
also receive a fee proportionate to any items delivered to and accepted by the
U.S. Government. Fixed-price contracts provide for payment upon termination for
items delivered to and accepted by the U.S. Government, and, if the termination
is for convenience, for reimbursement of its other incurred costs and a
reasonable profit on incurred costs. If a contract termination is for default,
however, (i) the contractor is paid an amount agreed upon for completed and
partially completed products and services accepted by the U.S. Government, (ii)
the U.S. Government is not liable for the contractor's incurred costs with
respect to unaccepted items, and is entitled to repayment of advance payments
and progress payments, if any, related to the terminated



                                      -6-
<PAGE>   8

portions of the contracts and (iii) the contractor may be liable for excess
costs incurred by the U.S. Government in procuring undelivered items from
another source.

In addition to the right of the U.S. Government to terminate, U.S. Government
contracts are conditioned upon the availability of congressional appropriations.
Congress usually appropriates funds for a given program on a fiscal year basis
even though contract performance may take many years. Consequently, at the
outset of a major program, multi-year contracts are usually funded for only the
first year (including any termination penalty), and additional monies are
normally committed to the contract by the procuring agency only as
appropriations are made by Congress for future fiscal years.

The Company's contracts with foreign governmental defense agencies are subject
to certain similar limitations and risks as those encountered with U.S.
Government contracts. Licenses are required from U.S. Government agencies to
export many of the Company's products. Certain of the Company's products are not
permitted to be exported.

Due to its business with the U.S. Government, the Company may also be subject to
"qui tam" (whistle blower) suits brought by private plaintiffs in the name of
the U.S. Government upon the allegation that the Company submitted a false claim
to the U.S. Government, as well as to false claim suits brought by the U.S.
Government. A judgment against the Company in a qui tam or false claim suit
could cause the Company to be liable for substantial damages and could carry
penalties of suspension or debarment which would make the Company ineligible to
be awarded any U.S. Government contracts for a period of up to three years and,
thereby, could potentially have a material adverse effect on the Company's
financial condition and results of operations.

Similar to other companies that derive a substantial portion of their sales from
contracts with the U.S. Government for defense-related products, the Company is
subject to business risks, including changes in governmental appropriations,
national defense policies or regulations and availability of funds. Any of these
factors could adversely affect the Company's business with the U.S. Government
in the future.



ENVIRONMENTAL MATTERS

The Company is subject to a variety of federal, state and local environmental
laws and regulations and utilizes in its operations a number of chemicals or
similar substances that are classified as hazardous. Management believes that
the Company's current operations are in substantial compliance with current
environmental laws and regulations. However, changes in law or limitations on
chemical uses or certain manufacturing processes could restrict the ability of
the Company to operate in the manner in which the Company is currently operated
or is permitted to be operated. In addition, it is possible that the Company may
experience releases of certain chemicals or other events that could cause the
incurrence of material cleanup costs or other damages. The Company is involved
from time to time in legal proceedings involving compliance with environmental
requirements applicable to its ongoing operations, and may be involved in legal
proceedings involving regulatory compliance, exposure to chemicals or the
remediation of environmental contamination.

Varian has agreed to indemnify the Company for environmental claims arising from
the Predecessor's operations (including pre-existing contamination) prior to
August 11, 1995, subject to certain exceptions and limitations. Environmental
investigation and remedial work is being undertaken by Varian, pursuant to the
agreement between CPI and Varian dated August 11, 1995, at two of the Company's
manufacturing facilities, Palo Alto and Beverly, and the San Carlos and
Georgetown facilities also have soil and groundwater contamination which may
require remediation. The Company subleases a portion of the larger Varian Palo
Alto campus, as to which Varian has entered into a



                                      -7-
<PAGE>   9

Consent Order with the California Environmental Protection Agency for
remediation of soil and groundwater contamination. The Palo Alto site also abuts
a federal Superfund site and a state Superfund site. Varian also has been sued
or threatened with suit with respect to some of the Company's facilities. Since
the consummation of the acquisition, Varian has at its expense conducted all
required investigation and remediation work at the Company's facilities arising
from the Predecessor's operations.

Although the Company believes that Varian currently has sufficient financial
resources to satisfy its environmental indemnification obligations to the
Company, because of the long-term nature of Varian's remediation obligations,
there can be no assurance that Varian will continue to have the financial
resources to comply fully with its indemnification obligations to the Company.
Unreimbursed liabilities arising from environmental claims, if significant,
could have a material adverse effect on the Company's results of operations and
financial condition.

With certain limited exceptions, the Company is not indemnified by Varian for
environmental claims arising from the Company's operations after August 11,
1995. There can be no assurance that material costs or liabilities will not be
incurred by the Company in connection with proceedings or claims related to
environmental conditions arising from the Company's operations.


ITEM 2: PROPERTIES

The Company owns, leases or subleases manufacturing, assembly, warehouse,
service and office properties having an aggregate floor space of approximately
1,132,166 square feet, of which approximately 98,000 square feet are leased or
subleased to third parties. The table that follows provides summary information
regarding principal properties owned or leased by the Company:


<TABLE>
<CAPTION>
                                           (square footage)
        Property                       Owned       Leased/Subleased
        --------                       -----       ----------------
<S>                                   <C>          <C>
San Carlos, California.........       320,000(a)
Beverly, Massachusetts.........       213,000(b)
Georgetown, Ontario, Canada....       126,000
Palo Alto, California..........            --         429,000(c)
San Jose, California...........            --          27,727(d)
Various locations..............            --          16,439(e)
</TABLE>

        (a)  The San Carlos, California square footage includes approximately
             42,000 square feet leased to two tenants who provide services to
             the Company and others.

        (b)  The Beverly, Massachusetts square footage includes approximately
             42,000 square feet leased to three tenants.

        (c)  This facility is primarily leased by way of assignment of Varian's
             lessee interest with the remainder subleased from Varian. The Palo
             Alto, California square footage includes approximately 14,000
             square feet leased to three tenants.

        (d)  This facility is leased from Watch Holdings, LLC c/o GE Capital
             Realty Group. Lease will expire 6/30/02 with a five-year extension
             available upon request prior to expiration.

        (e)  Includes both leased facilities occupied entirely by the Company's
             field sales and service organizations and three foreign shared use
             facilities which the Company is sharing for varying periods of time
             under rental agreements with Varian.

Based on lease and sublease arrangements mentioned above, the Company has
eliminated much of its excess space. On October 18, 2000, the Company's Board of
Directors approved the development of a detailed plan to relocate its Satcom
Division's production operation from Palo Alto, California to its facility in
Ontario, Canada. Concurrently, the Company plans to relocate its administrative
offices into a single building in Palo Alto and will look to sublease an
additional 52,300 square feet of office space.



                                      -8-
<PAGE>   10

The Company is undertaking these moves in the interest of cost-efficiency and
expects to complete the consolidation over the next 12 to 18 months.

The Company's lenders under its secured credit facility, have the right to a
security interest in all of the Company's interest in the real property that it
owns and leases excluding its San Carlos, California real property. On December
22, 2000, a sale-leaseback transaction related to CPI's facilities in San Carlos
was accomplished between CPI and Holding. Holding paid CPI aggregate
consideration of $23.0 million for the San Carlos real estate, consisting of
$17.25 million in cash and an unsecured promissory note in the principal amount
of $5.75 million maturing in nine years, with interest-only payments on a
quarterly basis at the rate of 15.5% per annum, with up to 35.25% of each
interest payment payable in kind, at Holding's option, by its issuance of
additional notes. CPI and Holding entered into a lease of the San Carlos real
property for a term of twenty (20) years on a net basis with a fixed annual rent
(payable in equal monthly installments) of $2.45 million. Holding financed the
cash portion of the San Carlos purchase price and its fees and expenses with
respect to the transaction by borrowing $18.0 million from Wells Fargo Bank,
which loan matures June 1, 2002, bears interest at LIBOR plus 3.25% and is
secured on a non-recourse basis (subject to normal and customary exceptions) by
the San Carlos real property.

The Company's right to continued occupancy of the leased and subleased premises
is dependent upon Varian's compliance with its obligations to the master lessor.
In particular, the Company's headquarters and one principal complex, including
two of the Company's manufacturing facilities, located at the Palo Alto,
California site adjacent to Varian's world headquarters and primary
manufacturing facilities, are leased by way of assignment or subleased from
Varian. Therefore, the Company's occupancy rights are dependent on Varian's
fulfillment of its responsibilities to the master lessor, including its
obligation to continue environmental remediation activities under a consent
order with the California Environmental Protection Agency. The consequences of
the loss by the Company of such occupancy rights could include the loss of
valuable improvements and favorable lease terms, the incurrence of substantial
relocation expenses and the disruption of the Company's business operations.


ITEM 3: LEGAL PROCEEDINGS

The Company is involved from time to time in various legal proceedings and is
the subject of various cost accounting and other government pricing claims.
Pursuant to the agreement between CPI and Varian dated August 11, 1995, Varian
has agreed to indemnify the Company against liabilities arising from litigation
and governmental claims pertaining to the operation of the Predecessor prior to
August 11, 1995. Accordingly, management believes that litigation and
governmental claims pending against Varian and relating to the operation of the
Predecessor prior to August 1995, will not have a material adverse effect on the
Company's financial condition or results of operations. See "Business -
Environmental Matters."

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

There were no matters submitted to a vote of security holders during the fourth
quarter of Fiscal 2000.



                                      -9-
<PAGE>   11

                                     PART II


ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.

CPI is a wholly owned subsidiary of Holding. Neither CPI's nor Holding's common
stock is publicly traded. No cash dividends have been declared on the common
stock of the Company during the 52-week period ended September 29, 2000.
Restrictive covenants under the Company's senior credit facility generally
restrict the declaration or payment of dividends on the Company's common stock.
The Notes also restrict the declaration and payment of dividends unless the
Company satisfies certain financial covenants, among other things.

ITEM 6: SELECTED FINANCIAL DATA

The following selected financial data has been derived from the consolidated
financial statements. The information set forth below is not necessarily
indicative of results of future operations, and should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes thereto
included elsewhere in this Annual Report on Form 10-K.



                                      -10-
<PAGE>   12

FIVE-YEAR SELECTED FINANCIAL DATA


<TABLE>
<CAPTION>
                    Years Ended                         52 Weeks        52 Weeks       52 Weeks       53 Weeks        52 Weeks
              (Dollars in Thousands)                      Ended           Ended          Ended           Ended          Ended
                                                      September 29,     October 1,     October 2,      October 3,    September 27,
                                                           2000           1999            1998            1997           1996
                                                        ---------       ---------       ---------      ---------       ---------
<S>                                                   <C>               <C>            <C>             <C>           <C>
CPI AND HOLDING STATEMENT OF OPERATIONS DATA:
 Sales                                                  $ 243,054         255,680         260,688        253,439         257,449
 Gross profit                                              54,306          56,042          66,278         69,761          72,967
 Operating income                                           8,303           8,752          26,720         29,811          29,305
 Interest expense                                          18,663          17,805          17,793         19,039          18,894
 Income tax expense (benefit)                               1,232             605           3,750         (3,000)          2,068
                                                        ---------       ---------       ---------      ---------       ---------
 Net (loss) earnings before preferred dividends         $ (11,592)         (9,658)          5,177         13,772           8,343
                                                        =========       =========       =========      =========       =========
 EBITDA(a)                                                 23,619          22,527          38,017         39,441          38,736
 Certain One-Time Charges(b)                                   --           7,432              --             --              --
                                                        ---------       ---------       ---------      ---------       ---------
 Adjusted EBITDA                                           23,619          29,959          38,017         39,441          38,736
                                                        =========       =========       =========      =========       =========

 Certain Non-Cash Charges:
     Depreciation and amortization                         15,316          13,635          11,297          9,630           7,731
     Impact on cost of sales of inventory write-up
         related to purchase accounting                        --             140              --             --           1,700
     Amortization of deferred debt issue costs              1,288           1,209           1,372          1,952           1,962
 Capital expenditures(c)                                    5,325           8,588           8,204         10,767          12,501


CPI BALANCE SHEET DATA:
 Working capital                                        $  19,881          26,907          45,957         40,467          34,576
 Total assets                                             226,985         233,584         229,212        237,396         228,142
 Long-term debt and redeemable preferred stock            139,160         142,039         146,981        149,100         150,472
 Total (deficit) equity                                   (12,018)          3,660          16,912         15,306           4,400

HOLDING BALANCE SHEET DATA:
 Working capital                                        $  19,881          26,907          45,957         40,467          34,576
 Total assets                                             226,985         233,584         229,212        237,396         228,142
 Long-term debt and redeemable preferred stock            139,160         142,039         146,981        149,100         150,472
 Total (deficit) equity                                   (31,188)        (12,962)          2,512          2,841          (6,379)
</TABLE>

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

The Company has paid no cash dividends on its common stock in any of the years
presented above.

(a) EBITDA represents earnings before provision for income taxes, interest
    expense, depreciation and amortization and excludes any charge related to
    the purchase accounting write-up of inventory.

(b) Represents certain charges related to changes in management and
    corresponding changes in estimated costs-to-complete for certain contracts
    due to technical complexity, write-off of certain excess inventory and the
    discontinuation of a satcom product line. (See "MD&A")

(c) Capital expenditures as reported here include equipment acquired under a
    capital lease. Capital leases, primarily related to the purchase of new
    business system hardware and software were $0 in Fiscal 2000, $309,000 in
    Fiscal 1999 and $1,545,000 in Fiscal 1998.



                                      -11-
<PAGE>   13

ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following should be read in conjunction with the consolidated financial
statements and notes thereto:

OVERVIEW

The Company serves the communications, radar, electronic countermeasures,
medical, industrial and scientific markets. In addition, the Company divides the
communications market into applications for ground-based satellite uplinks for
military and commercial uses ("satcom") and broadcast sectors. The Company
defines and discusses its orders and sales trends by these end markets in order
to more clearly relate its business to outside investors. Internally, however,
the Company is organized into six operating units that are differentiated based
on products. Four of these operating units comprise the Company's vacuum
electronic device ("VED") segment. The Company also has a satellite
communications equipment segment and its recently acquired solid-state products
segment. Segment data is included in Note 11 of the Notes to Consolidated
Financial Statements.

Orders for Fiscal 2000 were $260.2 million compared to orders of $242.2 million
in Fiscal 1999. This $18.0 million, or 7.4% increase in orders was predominantly
due to the Company's participation in the terrestrial wireless portion of the XM
Radio satellite service, which will provide digital quality audio programming
across the United States. This new business opportunity generated an order for
$13.6 million in the second quarter of Fiscal 2000. Overall, order receipts for
the Company's communications products were $106.6 million, an increase of $11.6
million, or 12.2%, from the prior fiscal year. Orders for products sold to four
of the Company's other five markets also increased. Radar orders were $87.8
million, an increase of $3.4 million or 4.1%. Medical orders were $22.0 million,
an increase of $3.9 million or 21.7%. Electronic countermeasures orders were
$20.8 million, an increase of $1.4 million or 7.5%. Industrial orders were $17.1
million, an increase of $0.6 million or 3.6%. Only orders for products sold to
the scientific market, the Company's smallest market, declined by $2.9 million,
or 33.1%, for a total of $5.9 million. Nevertheless, incoming order levels
fluctuate significantly on a quarterly basis and a particular year's order rate
may not be indicative of future order levels. In addition, the Company's sales
are highly dependent upon manufacturing scheduling and performance and,
accordingly, it is not possible to accurately predict when orders will be
recognized as sales.

Sales for Fiscal 2000 were $243.1 million compared to sales of $255.7 million in
Fiscal 1999, a decline of $12.6 million or 4.9%. This reduction was primarily
related to lower sales of products used in the satcom portion of the Company's
communications market in spite of an increase in order receipts. Sales were
negatively impacted by production delays within the new Gen IV product line due
to material shortages and resource allocation issues with the qualification and
ramp-up requirements of the XM Radio contract. Production volume for Gen IV
units did improve late in the fourth quarter of Fiscal 2000 and all of the
production units for the XM project are scheduled for shipment in Fiscal 2001.

Looking forward, based on the higher level of order receipts and the
corresponding increase in backlog in Fiscal 2000 along with the production
ramp-up of new products, the Company expects that sales volume will increase
over the next twelve months with specific improvement in its communications
business. The Company's radar market remains strong with a high degree of repeat
business through spare and repair VED requirements. The medical, industrial and
scientific markets are expected to remain flat to slow growth through the next
twelve months.



                                      -12-
<PAGE>   14

RESULTS OF OPERATIONS

The following table sets forth the Company's historical results of operations as
a percentage of sales for each of the periods indicated.

<TABLE>
<CAPTION>
                                                  52 Weeks                 52 Weeks                 52 Weeks
                                                    Ended                    Ended                    Ended
                                              September 29, 2000         October 1, 1999          October 2, 1998
                                              ------------------         ---------------          ---------------
<S>                                           <C>                        <C>                      <C>
Sales                                               100.0%                   100.0%                   100.0%
Cost of sales                                        77.7                     78.1                     74.6
                                                     ----                     ----                     ----
      Gross profit                                   22.3                     21.9                     25.4
Research and development                              3.6                      3.5                      2.9
Selling and Marketing                                 7.6                      7.7                      7.3
General and administrative(a)                         7.7                      7.3                      5.0
                                                     ----                     ----                     ----
Operating income                                      3.4                      3.4                     10.2
Interest expense                                      7.7                      7.0                      6.8
                                                     ----                     ----                     ----
      Earnings (loss) before taxes                   (4.3)                    (3.6)                     3.4
Income tax expense                                    0.5                      0.2                      1.4
                                                     ====                     ====                     ====
      Net earnings (loss)                            (4.8)%                   (3.8)%                    2.0%
                                                     ====                     ====                     ====
Other Data:
      EBITDA(b)                                       9.7%                     8.8%                    14.6%
      Preferred Dividends                             2.6%                     2.2%                     1.9%
</TABLE>

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

(a) For purposes of MD&A, general and administrative results include foreign
    currency (loss) gain.

(b) EBITDA represents earnings before provision for income taxes, interest
    expense, depreciation and amortization and excludes any charge related to
    the purchase accounting write-up of inventory.


Fiscal 2000 Compared to Fiscal 1999

SALES. Sales for Fiscal 2000 of $243.1 million were $12.6 million, or 4.9%,
below the prior year level of $255.7 million as declines in products sold to the
Company's communications and scientific markets were partially offset by
increases in sales of products to radar, electronic countermeasures, medical and
industrial markets. Communications sales were $87.8 million in Fiscal 2000,
which represents a decline of $17.6 million, or 16.7% from Fiscal 1999 sales of
$105.4 million. Sales of products to the scientific market were approximately
$4.2 million, down $3.6 million, or 46.7%, from Fiscal 1999 sales of $7.8
million. Radar sales, on the other hand, increased $5.4 million, or 6.3%, to
$90.8 million in Fiscal 2000 compared to $85.4 million in Fiscal 1999. Also on
the upside, sales of products to the Company's electronic countermeasures market
of $21.9 million in Fiscal 2000 reflects an increase of $2.5 million, or 12.7%,
from Fiscal 1999 as expendable decoy products continue to gain increasing
attention from military customers as a cost effective means of protecting
personnel and hardware. Medical and Industrial sales were $20.9 million and
$17.5 million, respectively which represents an increase of $0.4 million and
$0.3 million, respectively over Fiscal 1999.

COST OF SALES. Cost of sales in Fiscal 2000 were $188.7 million, or 77.7% of
sales, compared to $199.6 million, or 78.1% of sales in Fiscal 1999. This
decrease in cost of $10.9 million, or 5.5%, was primarily due to lower volume.
Adjusting Fiscal 1999 to exclude the unfavorable impact of one-time charges of
approximately $6.2 million (see discussion under "Fiscal 1999 Compared to Fiscal
1998"), adjusted cost of sales in Fiscal 1999 were $193.4 million, or 75.6% of
sales. Excluding these one-time charges, cost of sales in Fiscal 2000 actually
increased as a percentage of sales from adjusted Fiscal 1999 due in part to
higher depreciation costs ($10.4 million in Fiscal 2000 compared to $9.3 million
in Fiscal 1999) and in part to the mix of new products with inherently higher
costs at the early stages of their learning curve. Cost of sales in Fiscal 2000
were also unfavorable impacted by higher material



                                      -13-
<PAGE>   15

costs that resulted from expediting part shortages during the implementation of
new business systems in the early part of the fiscal year.

RESEARCH AND DEVELOPMENT. R&D expenses in Fiscal 2000 decreased by $0.3 million
to $8.7 million, or 3.6% of sales, compared to Fiscal 1999's level of $9.0
million, or 3.5% of sales. The Company internal R&D efforts remained high as a
percentage of sales primarily to focus on meeting the needs of its satcom
market.

SELLING, MARKETING, GENERAL AND ADMINISTRATIVE. Selling, marketing, general and
administrative expenses in Fiscal 2000 were $37.3 million, or 15.3% of sales, as
compared to $38.3 million, or 15.0% of sales, in Fiscal 1999. Selling and
marketing costs decreased $1.1 million in Fiscal 2000 due to lower international
selling expenses related to lower international sales, and a reduction in
marketing costs due to the consolidation of the Traveling Wave Technology (TWT)
Division into the Microwave Power Products (MPP) Division in the second half of
Fiscal 1999. General and administrative (G&A) costs appear consistent with
Fiscal 1999; however, Fiscal 1999 included one-time charges to G&A of $1.2
million (see discussion under "Fiscal 1999 compare to Fiscal 1998"). The
increase in G&A, excluding the one-time charges, is due primarily to higher
depreciation costs for new management information systems and the use of outside
consultants in the implementation of these systems.

EBITDA. EBITDA was $23.6 million, or 9.7% in Fiscal 2000 compared to EBITDA of
$22.5 million, or 8.8% of sales, in Fiscal 1999. Adjusting Fiscal 1999 to
exclude the unfavorable impact of one-time charges of an aggregate $7.4 million
(see discussion under "Fiscal 1999 Compared to Fiscal 1998"), adjusted EBITDA
for Fiscal 1999 was approximately $30.0 million, or 11.7% of sales. Fiscal 2000
EBITDA actually declined by $6.3 million compared to adjusted Fiscal 1999 due
primarily to lower sales volume and shifts in product mix towards lower margin
new products.


NET LOSS. Net loss before taxes and preferred dividends was $10.4 million for
Fiscal 2000 compared to a net loss before taxes and preferred dividends of $9.1
million for Fiscal 1999. Net loss after taxes but before preferred dividends was
$11.6 million for Fiscal 2000, a decline of $1.9 million compared to losses of
$9.7 million for Fiscal 1999. In spite of a consolidated pretax loss, a
provision for income tax expense was booked in both Fiscal 2000 and Fiscal 1999
due to the fact that most foreign operations were profitable.


Fiscal 1999 Compared to Fiscal 1998

SALES. Sales for Fiscal 1999 of $255.7 million were $5.0 million, or 1.9%, below
the prior year level of $260.7 million as declines in products sold to the
Company's communications, industrial and radar markets were partially offset by
increases in sales of products to electronic countermeasures, scientific and
medical markets. Communications sales were $105.4 million in Fiscal 1999, which
represents a decline of $13.4 million, or 11.3%, from Fiscal 1998. Fortunately,
the Company was able to minimize some of the impact from satcom market declines
with its acquisition of a line of solid-state products (completed early in the
fiscal year) that added $6.4 million of new business in Fiscal 1999. Sales of
products to the industrial market were $17.2 million, down approximately $2.3
million, or 11.7%, from Fiscal 1998 due to delayed demand from the Company's
semiconductor equipment manufacturers. Radar sales of $85.4 million in Fiscal
1999 reflects a slight decline of $2.0 million, or 2.3%, from prior year
primarily due to U.S. sanctions against India, however the Company continued to
work closely with the State Department and several licenses were cleared in the
fourth quarter. On the upside, sales of products to the Company's electronic
countermeasures market of $19.4 million in Fiscal 1999 reflects an increase of
$7.4 million, or 61.0%, from Fiscal 1998 as expendable decoy products have
gained increasing attention from military customers as a cost effective means of
protecting personnel and hardware. Increased production of the Company's new low
band transmitter device also contributed.



                                      -14-
<PAGE>   16

Scientific sales benefited from customer-sponsored research and development
efforts with sales of $7.8 million in Fiscal 1999, an increase of $3.6 million,
or 84.1%, from Fiscal 1998. Medical sales of $20.5 million were $1.7 million, or
9.1%, above sales in Fiscal 1998. Stable shipments of microwave generators for
cancer therapy equipment sold to Varian Medical Systems as well as growth in
x-ray generators for diagnostic equipment sold in Europe were the primary
drivers of the increase.

COST OF SALES. Cost of sales in Fiscal 1999 were $199.6 million, or 78.1% of
sales, compared to $194.4 million, or 74.6% of sales in Fiscal 1998. This
increase in cost of $5.2 million, or 2.7%, was primarily due to one-time charges
of approximately $6.2 million (see "EBITDA"). Excluding these one-time charges,
the Company's cost of sales would have been 75.6% of sales which reflects the
fact that new products have become increasingly important to the sales mix and
their inherently higher costs have resulted in some margin erosion that
continued somewhat into Fiscal 2000.

RESEARCH AND DEVELOPMENT. R&D expenses in Fiscal 1999 increased $1.5 million to
$9.0 million, or 3.5% of sales, compared to Fiscal 1998's level of $7.5 million,
or 2.9% of sales. The Company increased its internal R&D efforts primarily to
focus on meeting the needs of its satcom market.

SELLING, MARKETING, GENERAL AND ADMINISTRATIVE. Selling, marketing, general and
administrative expenses were $38.3 million, or 15.0% of sales, compared to
$32.1, or 12.3% of sales. These operating costs increased by $6.2 million
primarily due to higher costs of $2.3 million related to the Company's
acquisition of its new Solid State Products Division ($1.3 million of which was
amortization of goodwill and intangibles), one-time charges of $1.2 million (see
"EBITDA"), higher information systems costs of $0.9 million related to
implementing new business systems and unfavorable currency fluctuations of $0.7
million.

EBITDA. EBITDA was $22.5 million, or 8.8% of sales, in Fiscal 1999 compared to
EBITDA of $38.0 million, or 14.6% of sales, in Fiscal 1998. Results for Fiscal
1999 reflect an aggregate $7.4 million in one-time charges principally related
to the Company's TWT Division and changes in estimated costs-to-complete for
certain customer contracts due to technical complexity and the write-off of
certain excess inventory which the Company believes is not realizable. In
addition, certain charges for the discontinuation of a satcom product line were
also reflected. The TWT business, historically conducted as a separate Palo Alto
division, was integrated into the Company's MPP Division, also located in Palo
Alto. The charges also include a provision for severance expenses in connection
with the integration of the TWT Division and settlement costs with a customer in
connection with a product performance dispute. Excluding the one-time charges of
$7.4 million, EBITDA for Fiscal 1999 was $30.0 million, or 11.7% of sales. This
decrease of EBITDA of approximately $8.0 million compared to Fiscal 1998 was due
primarily to lower volume and shifts in product mix towards lower margin new
products, combined with higher operating costs associated with R&D efforts,
implementation of new business systems and the acquisition of a new operating
division.

NET LOSS. Net loss before taxes and preferred dividends was $9.1 million for
Fiscal 1999, compared to net earnings before taxes and preferred dividends of
$8.9 million for Fiscal 1998. Net loss after taxes but before preferred
dividends was $9.7 million for Fiscal 1999, a decrease of $14.8 million from the
prior fiscal year. In spite of a consolidated pretax loss, a provision for
income tax expense was booked in Fiscal 1999 due to the fact that most foreign
operations were profitable. However, the current fiscal year provision required
was $3.2 million lower than in the prior fiscal year.



                                      -15-
<PAGE>   17

FINANCIAL CONDITION

In Fiscal 2000, the Company incurred a loss of $11.6 million due primarily to
lower sales volume and higher costs related to the release of new satcom
products. The Company was, however, still able to generate $9.9 million in cash
from operations primarily due to non-cash depreciation and amortization charges
of $15.3 million, a net decrease in accounts receivable of $7.5 million, and net
increases in accounts payable and advance payments from customers of $4.9
million and $3.5 million, respectively. Cash generated from operations was
partially offset by an $11.4 million increase in inventory levels required to
support increased order backlog.

Investing activities were comprised principally of investment in property, plant
and equipment totaling $5.3 million in Fiscal 2000, $8.3 million in Fiscal 1999
and $6.6 million in Fiscal 1998. The Company's investment in plant and equipment
in Fiscal 2000 was lower that historical levels due to cost control measures
implemented by the Company during the second half of the fiscal year. The
Company's continuing operations typically do not have large capital
requirements. Capital expenditures are generally made to replace existing
assets, increase productivity, facilitate cost reductions or meet regulatory
requirements. The Company expects the level of capital expenditures in Fiscal
2001 to be relatively consistent with past historical trends and estimates
approximately $7.0 to $8.0 million of capital spending will be required by
normal operations in Fiscal 2001.

Financing activities during the three-year period were related almost entirely
to repayments of, or proceeds from, the company's Senior Credit Agreement. This
Agreement was terminated and replaced by a $61.0 million secured credit facility
("Credit Facility") on December 22, 2000. This new facility consists of a $41.0
million revolving line of credit, with a sub-facility of $10.0 million for
letters of credit, which expires December 22, 2004, and a $20.0 million term
loan that expires December 22, 2002. The Credit Facility is secured by
substantially all of the assets of CPI and is guaranteed by Holding and all of
CPI's subsidiaries. Availability under the revolving credit facility is based
upon eligible receivables, machinery and equipment and certain real estate. Also
on December 22, 2000, a sale-leaseback transaction related to CPI's facilities
in San Carlos was accomplished between CPI and Holding. Holding paid CPI
aggregate consideration of $23.0 million for the San Carlos real estate,
consisting of $17.25 million in cash and an unsecured promissory note in the
principal amount of $5.75 million maturing in nine years, with interest-only
payments on a quarterly basis at the rate of 15.5% per annum, with up to 35.25%
of each interest payment payable in kind, at a Holding's option, by its issuance
of additional notes. CPI and Holding entered into a lease of the San Carlos real
property for a term of twenty (20) years on a net basis with a fixed annual rent
(payable in equal monthly installments) of $2.45 million. Holding financed the
cash portion of the San Carlos purchase price and its fees and expenses with
respect to the transaction by borrowing $18.0 million from Wells Fargo Bank,
which loan matures June 1, 2002, bears interest at LIBOR plus 3.25% and is
secured on a non-recourse basis (subject to normal and customary exceptions) by
the San Carlos real property.

In a further effort to provide capital and liquidity in the long term and in an
effort to decrease production costs and more efficiently use the Company's
facilities, the Company's Board of Directors agreed on October 18, 2000 to
reorganize the Company's manufacturing divisions under two co-Chief Operating
Officers and approved the development of a detailed plan to relocate its Satcom
Division's production operation from Palo Alto, California to its facility in
Ontario, Canada. Concurrently, the Company plans to relocate its administrative
offices into a single building in Palo Alto and will look to sublease 52,300
square feet of office space. The Company expects to complete this consolidation
over the next 12 to 18 months. Although still under development, this new plan
could add additional capital spending requirements of approximately $3.0 to $4.4
million.



                                      -16-
<PAGE>   18

Management believes that as a result of its recent debt restructuring, the
Company will have adequate capital resources and liquidity to meet its
obligations, fund all required capital expenditures and pursue its business
strategy related to consolidation efforts described below for at least the next
twelve months. Such capital resources and liquidity are expected to be available
from the Company's cash flow provided by operations and borrowings under CPI's
Credit Facility and Holding's mortgage financing.


Market Risk

The Company is exposed to interest rate risk on its outstanding debt, as well as
foreign currency exchange rate risk inherent in its sales commitments, and
non-U.S. dollar denominated assets and liabilities. The Company regularly
assesses the potential impact of these risks and therefore does not anticipate
any material losses in these areas. The Company does not use derivative
financial instruments for speculative or trading purposes.

The Company has outstanding debt associated with its purchase of the Electron
Device Business of Varian in August 1995, the majority of which relates to the
Senior Subordinated Notes, which mature in 2005 and bear a fixed interest rate
of 12 percent per annum. The remaining debt, with a carrying value of
approximately $55.8 million at September 29, 2000, is subject to changes in the
Prime or LIBOR Rates. To reduce the Company's exposure to interest rate risk,
the Company consistently monitors available money rates accessible under its
senior credit facility and will lock in rates for specific periods of time.

The majority of the Company's revenue and expense activities are transacted in
U.S. dollars. However, CPI does enter into these transactions in other
currencies, primarily the British pound, the German mark, the Australian dollar
and the French and Swiss franc. The Company limits its foreign currency exposure
primarily through natural hedging (offsetting foreign currency payables with
foreign currency receivables), but may enter into forward contracts if
necessary. These efforts reduce, but do not eliminate the impact of foreign
currency rate movements.

The Company performed a sensitivity analysis in which it assessed the potential
loss in future earnings from the impact of a 10 percent adverse movement in
interest and foreign currency exchange rates on outstanding debt and non-U.S.
dollar denominated assets and liabilities. The impact was determined based on
the hypothetical change from shifts in the market rates over a period of one
year. Other market sensitive financial instruments were not included in the
analysis as they were not material. In terms of interest rate risk, a 10 percent
adverse movement in the Base Rate or Effective Rate on the Company's variable
rate debt would result in a decrease in future earnings of less than $0.4
million. In terms of foreign currency exchange rate risk, a 10 percent adverse
movement in the levels of foreign currency exchange rates against the U.S.
dollar with all other variables held constant would result in a decrease in
future earnings of less than $0.3 million. Actual results, however, could differ
materially.


Recent Accounting Pronouncements

Statement of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133) is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000 and will be adopted
by the Company in its fiscal year 2001. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that derivatives be recognized in the statement of financial position
at fair value and specifies the accounting for changes in fair value.
Historically, the Company has not entered into derivative contracts either to
hedge existing risks or for speculative purposes. Accordingly, the Company does
not expect adoption of this new standard to affect its consolidated financial
position, results of operations or cash flows.



                                      -17-
<PAGE>   19

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB 101"). The
Staff Accounting Bulletin summarizes certain of the staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The Staff Accounting Bulletin is effective for the Company beginning
September 30, 2000 and will be adopted in the fourth quarter of fiscal 2001 and
is not expected to have any material impact on the consolidated financial
statements.


Year 2000

The Company completed its transition from calendar year 1999 to 2000 with no
reported significant impact to operations. The Year 2000 project costs and
resource consumption incurred through Fiscal 2000 totaled approximately $8.5
million. Internal staff members that were dedicated to the Year 2000 project
either full-time or part-time have been redeployed to other areas of focus.


Risk Factors

You should carefully consider the following risks and the other information in
this report and the Company's other filings with the SEC before you decide to
invest in the Company or to maintain or increase your investment. The risks and
uncertainties described below are not the only ones facing the Company.
Additional risks and uncertainties may also adversely impact and impair the
Company's business. If any of the following risks actually occur, the Company's
business, results of operations, or financial condition would likely suffer. In
such case, the trading price of the Company's capital stock could decline, and
you may lose all or part of your investment.

        -    The Company has had historical losses. The Company has had
             operating losses for the past two fiscal years, and has an
             accumulated deficit, as of September 29, 2000, of $49.2 million.
             The Company's ability to generate revenues and profits is subject
             to the risks and uncertainties encountered by companies in very
             competitive markets.

        -    The Company's leverage is substantial, which could adversely affect
             its financial health and ability to obtain financing in the future
             and react to changes in its business. The Company has a significant
             amount of debt, which could make it more difficult for the Company
             to satisfy its obligations under its credit facilities. It could
             also require the Company to dedicate a substantial portion of its
             cash flow from operations to payments on debt, which will reduce
             the funds available for working capital, capital expenditures, and
             other general corporate expenses. In addition, it could have the
             effect of limiting the Company's flexibility in planning for, or
             reacting to, changes in its business and the markets in which it
             competes.

        -    The Company's ability to generate the significant amount of cash
             needed to service its debt and grow its business depends on many
             factors beyond the Company's control. The Company's ability to make
             payments on its debt and to fund its planned capital expenditures
             will depend on its ability to generate cash and to secure financing
             in the future. This, to a certain extent, is subject to general
             economic, financial, competitive, legislative, regulatory and other
             factors beyond the Company's control. If the business does not
             generate sufficient cash flow from operations, and sufficient
             future borrowings are not available to the Company under its credit
             facilities or from other sources of financing, the Company may not
             be able to repay its debt, grow its business or fund its other
             liquidity needs.

        -    The markets in which the Company operates are competitive. The
             Company encounters competition in certain business areas from other
             companies, some of which have resources substantially greater than
             those of the Company. The Company's ability to compete in such



                                      -18-
<PAGE>   20

             markets depends to a large extent on its ability to provide high
             quality products with shorter lead times at competitive prices, and
             its readiness in facilities, equipment and personnel.

        -    Certain markets in which the Company operates are subject to
             technological change. The Company must continually engage in
             effective research and development efforts in order to introduce
             innovative new products for technologically sophisticated customers
             and markets. There is an inherent risk that advances in existing
             technology, including solid-state technology, or the development of
             new technology could adversely affect the Company's financial
             condition and results of operations. The Company's success will
             depend on its ability to anticipate or adapt to new technology on a
             timely basis, and if it fails to adapt successfully to
             technological changes or fails to obtain access to important
             technologies, the business will suffer.

        -    Changes to governmental environmental regulation and legislation
             could adversely affect the Company's business. The Company is
             subject to a variety of federal, state and local environmental laws
             and regulations and utilizes in its operations a number of
             chemicals or similar substances that are classified as hazardous.
             Management believes that the Company's current operations are in
             substantial compliance with current environmental laws and
             regulations. However, changes in law or limitations on chemical
             uses or certain manufacturing processes could restrict the ability
             of the Company to operate in the manner in which the Company is
             currently operated or is permitted to be operated. In addition, it
             is possible that the Company may experience releases of certain
             chemicals or other events that could cause the incurrence of
             material cleanup costs or other damages.

        -    A portion of the Company's sales are, and are expected to continue
             to be, from contracts through the United States Government, which
             are subject to Government regulation, changes in Governmental
             appropriations, national defense policies and availability of
             government funds. United States Government contracts are
             conditioned upon the availability of congressional appropriations.
             Congress usually appropriates funds for a given program on a fiscal
             year basis even though contract performance may take many years.
             Consequently, at the outset of a major program, multi-year
             contracts are usually funded for only the first year, and
             additional monies are normally committed to the contract by the
             procuring agency only as appropriations are made by Congress for
             future fiscal years. Government contracts are, by their terms,
             subject to termination by the United States Government at its
             convenience or by default of the contractor. Changes in
             governmental regulation or congressional appropriation could
             negatively impact the Company's revenues.

        -    The Company depends on a limited group of suppliers for certain
             materials necessary for the manufacture of its products. If the
             Company is unable to procure the necessary materials from its
             suppliers, its ability to manufacture products could be severely
             impaired, and the Company's growth, financial condition and results
             of operations could suffer. In addition, the prices of these raw
             materials are subject to fluctuation and could also negatively
             impact the Company's financial condition.

        -    The Company's principal common stockholders can exercise
             significant control over the Company and could limit the ability of
             the Company's other stockholders to influence the outcome of
             transactions requiring shareholder vote. As of December 1, 2000,
             approximately 76% of the Company's outstanding common stock is
             owned by the Company's executive officers, directors and principal
             stockholders. These stockholders will have the ability to exercise
             influence over all matters requiring approval by the Company's
             stockholders, including the election of directors and approval of
             significant corporate transaction.



                                      -19-
<PAGE>   21

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information called for by this item is set forth in the consolidated financial
statements of CPI and Holding contained in this report. Specific financial
statements can be found at the pages listed in the following index:

COMMUNICATIONS & POWER INDUSTRIES, INC.

<TABLE>
<CAPTION>
                                                                                               Page
                                                                                               ----
<S>                                                                                            <C>
Index to Financial Statements............................................................        F-1

Independent Auditors' Report.............................................................        F-2

Consolidated Balance Sheets as of September 29, 2000 and October 1, 1999.................        F-3

Consolidated Statements of Operations for the 52-week periods ended September 29, 2000,
    October 1, 1999, and October 2, 1998.................................................        F-4

Consolidated Statements of Stockholders' Equity (Deficit) for the 52-week
    periods ended September 29, 2000, October 1, 1999, and October 2, 1998...............        F-5

Consolidated Statements of Cash Flows for the 52-week periods ended September 29, 2000,
    October 1, 1999, and October 2, 1998.................................................        F-6

Notes to the Consolidated Financial Statements...........................................        F-8

Financial Statement Schedule.............................................................       F-50
</TABLE>

COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION

<TABLE>
<CAPTION>
                                                                                                Page
                                                                                                ----
<S>                                                                                             <C>
Independent Auditors' Report.............................................................       F-26

Consolidated Balance Sheets as of September 29, 2000 and October 1, 1999.................       F-27

Consolidated Statements of Operations for the 52-week periods ended September 29,
    2000, October 1, 1999, and October 2, 1998...........................................       F-28

Consolidated Statements of Stockholders' Equity (Deficit) for the 52-week
    periods ended September 29, 2000, October 1, 1999, and October 2, 1998...............       F-29

Consolidated Statements of Cash Flows for the 52-week periods ended September 29,
    2000, October 1, 1999, and October 2, 1998...........................................       F-30

Notes to the Consolidated Financial Statements...........................................       F-32

Financial Statement Schedule.............................................................       F-51
</TABLE>

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

In connection with the audit of the financial statements for the three years
ended September 29, 2000, there were no disagreements with KPMG LLP on
accounting or financial disclosure.



                                      -20-
<PAGE>   22

                                    PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS

DIRECTORS AND EXECUTIVE OFFICERS OF HOLDING

The following is a table setting forth certain information with respect to the
directors and executive officers of Holding. All directors serve for a period of
one year or until their successors are duly elected and qualified.

<TABLE>
<CAPTION>
            Name              Age       Position
            ----              ---       --------
<S>                           <C>       <C>
William P. Rutledge........   58        Chairman of the Board and
                                        Director

Bart F. Petrini............   61        Chief Executive Officer,
                                        President and Director

Lynn E. Harvey.............   45        Chief Financial Officer,
                                        Treasurer and Secretary

John R. Beighley...........   48        Vice President and
                                        Assistant Secretary

Leonard I. Green...........   67        Director

John G. Danhakl............   44        Director

Gregory J. Annick..........   36        Director
</TABLE>


DIRECTORS AND EXECUTIVE OFFICERS OF CPI

The following is a table setting forth certain information with respect to the
individuals who are the directors and executive officers of CPI. All directors
serve for a period of one year or until their successors are duly elected and
qualified.

<TABLE>
<CAPTION>
            Name              Age       Position
            ----              ---       --------
<S>                           <C>       <C>
William P. Rutledge........   58        Chairman of the Board and
                                        Director

Bart F. Petrini............   61        Chief Executive Officer,
                                        President and Director

Lynn E. Harvey.............   45        Chief Financial Officer,
                                        Treasurer and Secretary

John R. Beighley...........   48        Vice President and
                                        Assistant  Secretary

O. Joseph Caldarelli.......   50        Vice President and
                                        Co-Chief Operating Officer

Robert A. Fickett..........   40        Vice President and
                                        Co Chief Operating Officer

Don C. Coleman.............   46        Vice President

Kwang Kim..................   67        Vice President

Mike Cheng.................   45        Vice President

Leonard I. Green...........   67        Director

John G. Danhakl............   44        Director

Gregory J. Annick..........   36        Director
</TABLE>



                                      -21-
<PAGE>   23

William P. Rutledge became Chairman of the Board of Holding and CPI in June
1999. He was also interim CEO during the period June 1999 to November 1999.
Prior to this appointment, Mr. Rutledge served as President and Chief Executive
Officer of Allegheny Teledyne Incorporated from August 1996 to March 1997. Mr.
Rutledge held several other positions at Teledyne, Inc. beginning with Group
Executive in 1986, Vice President in 1987, Senior Vice President 1988, Executive
VP in 1989, and President in 1990. In 1991 he was elected as Chief Executive
Officer and appointed as Chairman in 1993. Prior to joining Teledyne, Inc. Mr.
Rutledge held several management positions at FMC from 1971 to 1986. Mr.
Rutledge received a BS in Metallurgical Engineering from Lafayette College and
an MS in Financial Management from George Washington University.

Bart F. Petrini became Chief Executive Officer, President and a director of
Holding and CPI in November 1999. Prior to this, Mr. Petrini served as Executive
Vice President and General Manager in the Electron Device Group of Richardson
Electronics beginning in 1994 and ending with his joining CPI. Bart began his
career with Western Electric (now Lucent Technologies) as a Manufacturing
Engineer and capped a 20-year career in high tech manufacturing as Division Vice
President of Manufacturing in ITT's Electro-Optical Products Division. Mr.
Petrini then joined Varian Associates in 1980 as General Manager of their Eimac
Division and in 1983 was promoted to General Manager of the Microwave Tube
Division. In 1985 Bart left Varian to become President and CEO of a Silicon
Valley start-up microwave company. Bart received a degree in Mechanical
Engineering from Bucknell University in 1960 and an MBA in 1970 from George
Washington University.

Lynn E. Harvey became Chief Financial Officer of Holding and CPI in August 1995.
Ms. Harvey was the Business Support Process Manager and Controller of the Power
Grid Tube Products unit of the Predecessor from 1993 to August 1995. From 1984
until 1993, Ms. Harvey held various finance, supervisory and management
positions with Varian. Ms. Harvey received a B.S. degree from the University of
California, Berkeley.

John R. Beighley became a Vice President of CPI in March 1997 and currently
heads the Company's Worldwide Field Sales Organization. From May 1992 to March
1997, Mr. Beighley was Western Hemisphere Sales Manager responsible for sales in
the Americas, as well as the Far East and Australia. From June 1989 to May 1992,
Mr. Beighley was the North American Sales Manager. From March 1981 to June 1989,
Mr. Beighley held a number of Product Marketing and Field Sales positions with
CPI's predecessor, Varian. Mr. Beighley received a BS degree in Marketing from
San Francisco State University and an MBA from Santa Clara University.

O. Joseph Caldarelli became a Vice President of CPI in August 1995 and Co-Chief
Operating Officer in October 2000. Mr. Caldarelli is also the Division President
of the Communications and Medical Products ("CMP") Division. Mr. Caldarelli was
Vice President and General Manager for this same operating unit under the
Predecessor, from 1985 until August 1995 and was President and a director of
Varian Canada, Inc. from 1992 until August 1995. From 1982 until 1985, Mr.
Caldarelli was Marketing Manager of CMP and served as its Equipment Operations
Manager from 1979 until 1982. Prior to joining Varian, Mr. Caldarelli served as
Manufacturing Engineering Manager for Medtronic Canada, Inc. Mr. Caldarelli
holds a B.S. in Mechanical Engineering from the University of Toronto.

Robert A. Fickett became a Vice President of CPI in April 1998 and Co-Chief
Operating Officer in October 2000. Mr. Fickett has also been the Division
President of the Microwave Power Products ("MPP") Division since April 1998.
From January 1996 to April 1998, Mr. Fickett was Vice President of Operations
for MPP. From 1993 until January 1996, he was President and Chief Executive
Officer of Altair Technologies, Inc., a contract manufacturer. From 1982 until
1993, Mr. Fickett held a number of positions with Varian, including Engineering
Manager of MPP's Klystron Engineering Group, which he was promoted to in 1989.
Mr. Fickett received a B.S. degree in Mechanical Engineering from the University
of California, Berkeley.



                                      -22-
<PAGE>   24

Don C. Coleman became a Vice President of CPI and Division President of the
Beverly Microwave Division ("BMD") in February 1999. Mr. Coleman was Vice
President of Manufacturing for BMD from February of 1996 until accepting his
current position. From 1990 until 1996, Mr. Coleman held the position of
Engineering Manager for Receiver Protector Products at BMD. Mr. Coleman held a
variety of manufacturing and development engineering positions at Varian from
the time he joined the company in 1976 until 1990. Prior to being employed by
Varian, Mr. Coleman attended the University of Massachusetts where he received a
B.S. degree in Engineering.

Kwang Kim became a Vice President of CPI and Division President of the Solid
State Products Division in October 1998. Mr. Kim was President of the Microwave
Components Division of Aydin Corporation for twenty-one years prior to CPI's
acquisition of the division. Mr. Kim holds a BS degree from Kyung Nam University
in Korea and has completed some course work in electrical engineering at the
University of Santa Clara towards an MS degree.

Mike Cheng became a Vice President of CPI in August 2000 and currently heads the
Company's Eimac Division. From April 1999 to August 2000, Mr. Cheng was Vice
President of Operations for MPP. From 1994 until April 1999, he was Vice
President of Marketing for MPP. From 1980 until 1994, Mr. Cheng held a number of
manufacturing and engineering positions with Varian, including Production
Manager of MPP's Klystron Engineering Group, which he was promoted to in 1989.
Prior to joining Varian, Mr. Cheng was an engineer in the Nuclear Energy
Division of General Electric Corporation. Mr. Cheng received a B.S. degree in
Chemical Engineering from the University of California, Berkeley and an MBA from
Golden Gate University.

Leonard I. Green became a director of the Company in August 1995. He has been an
executive officer of Leonard Green & Partners, L.P. ("LGP"), a merchant banking
firm which manages Green Equity Investors II, L.P. ("GEI"), since the formation
of LGP and GEI in 1994. Mr. Green has been, individually or through a
corporation, a partner in a merchant-banking firm affiliated with LGP since
1989. Prior to 1989, Mr. Green had been a partner of Gibbons, Green, van
Amerongen for more than five years. Mr. Green is also a director of Rite Aid
Corporation and several private companies.

John G. Danhakl became a director of the Company in August 1995. He has been an
executive officer of LGP, a merchant-banking firm that manages GEI, since 1995.
Mr. Danhakl had previously been a Managing Director at Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") and had been with DLJ since 1990. Prior
to joining DLJ, Mr. Danhakl was a Vice President at Drexel Burnham Lambert
Incorporated. Mr. Danhakl is also a director of Twinlab Corporation, The Arden
Group, Inc. and several private companies.

Gregory J. Annick became a director of the Company in August 1995. He has been
an executive officer and an equity owner, through a trust, of LGP, a
merchant-banking firm that manages GEI, since the formation of LGP and GEI in
1994. He joined a merchant-banking firm affiliated with LGP as an associate in
1989, became a principal in 1993, and through a corporation became a partner in
1994. From 1988 to 1989, he was an associate with the merchant-banking firm of
Gibbons, Green, van Amerongen. Before that time, Mr. Annick was a financial
analyst in mergers and acquisitions with Goldman, Sachs & Co. Mr. Annick is also
a director of several private companies.



                                      -23-
<PAGE>   25

ITEM 11: EXECUTIVE COMPENSATION

The following table shows certain information concerning compensation paid or
accrued by the Company during Fiscal 2000 to the Chief Executive Officers, the
next four most highly compensated executive officers of Holding and CPI, and one
additional highly compensated individual (collectively, the "Named Executive
Officers") for the three fiscal years ending September 29, 2000.

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                                                                              LONG TERM
                                                                                             ------------
                                                                    ANNUAL                   COMPENSATION
                                                                 COMPENSATION                 SECURITIES
                                                   ----------------------------------------   UNDERLYING
              NAME AND                                                         OTHER ANNUAL     OPTIONS        ALL OTHER
         PRINCIPAL POSITION            FISCAL                       BONUS      COMPENSATION  (# OF SHARES)   COMPENSATION
          WITH THE COMPANY              YEAR        SALARY           (a)            (b)           (c)             (d)
---------------------------------       ----       --------       --------     ------------  -------------   ------------
<S>                                    <C>         <C>            <C>          <C>           <C>             <C>
Bart Petrini                            2000       $221,154       $125,000       $  7,500        100,000       $114,931
  Chief Executive Officer and
  President

William P. Rutledge                     2000        161,500             --             --         12,500            398
  Interim Chief Executive Officer       1999        138,462             --             --             --            249


John R. Beighley                        2000        130,388         55,000         21,780          5,000          8,495
  Vice President                        1999        119,678         41,405         20,019             --          8,270
                                        1998        119,678         14,463         13,621             --          6,799

Don C. Coleman                          2000        125,383         40,000          9,816          5,000          7,550
 Vice President                         1999        109,540         13,296             --             --          5,203
                                        1998        102,128             --             --             --          4,648

Robert A. Fickett                       2000        174,039         10,000         19,894         16,750         11,738
  Vice President                        1999        134,828         75,930          9,679             --          6,404
                                        1998        113,938             --             --             --          5,412

Kwang Kim                               2000        144,769             --         21,401          8,000         10,668
  Vice President                        1999        134,327         15,842             --             --          7,032

Al D. Wilunowski                        2000        302,744             --         93,913             --         25,001
  Consultant(e)                         1999        302,744             --         30,367             --         46,536
                                        1998        302,744             --         35,482             --         48,866
</TABLE>

(a) Consists of awards under CPI's Management Incentive Plan for Fiscal 2000 to
    be paid in Fiscal 2001. Fiscal 1999 bonus amount also includes a special
    bonus awarded to certain management in April 1999. There were no awards in
    Fiscal 1998 under the Management Incentive Plan for that year.

(b) Consists of amounts reimbursed for the payment of taxes on certain
    perquisites and personal benefits.

(c) Consists of stock options granted under the 2000 Stock Option Plan. None of
    the options were vested as of September 29, 2000.

(d) Consists of (1) Company contributions to CPI's 401(k) plan and Non-Qualified
    Deferred Compensation Plan, (2) Company paid premiums for group life
    insurance and, in the case of Mr. Petrini, (3) relocation costs.

(e) Mr. Wilunowski was the Chief Executive Officer and President until he
    resigned on June 11, 1999 and entered into a consulting agreement with the
    Company through December 8, 2000. Fees paid under this agreement correspond
    to his prior salary.



                                      -24-
<PAGE>   26

                               OPTION GRANTS TABLE

The following table provides information relating to the grant of stock options
to the Company's "Named Executive Officers" during the fiscal year ended
September 29, 2000.

                       OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                           INDIVIDUAL
                                             GRANTS
                           ------------------------------------------
                           NUMBER OF                                         FAIR
                           SECURITIES       PERCENT OF                      MARKET
                           UNDERLYING     TOTAL GRANTED      EXERCISE        VALUE
                             OPTIONS      TO EMPLOYEES        PRICE         ON GRANT         EXPIRATION
        NAME                 GRANTED     IN FISCAL YEAR     PER SHARE         DATE              DATE
-------------------        ----------    --------------     ---------        -----          ------------
<S>                        <C>           <C>                <C>             <C>             <C>
Bart Petrini                 100,000           43.0%          $4.00          $1.00          July 1, 2010

William P. Rutledge           12,500            5.4%           4.00           1.00          July 1, 2010

John R. Beighley               5,000            2.2%           4.00           1.00          July 1, 2010

Robert A. Fickett             16,750            7.2%           4.00           1.00          July 1, 2010

Don C. Coleman                 5,000            2.2%           4.00           1.00          July 1, 2010

Kwang Kim                      8,000            3.4%           4.00           1.00          July 1, 2010
</TABLE>

The above options were granted during Fiscal 2000 and none were vested as of
September 29, 2000.


HOLDING'S 2000 STOCK OPTION PLAN

In March 2000, Holding established the Communications & Power Industries 2000
Stock Option Plan ("the Plan") and reserved 250,000 shares of Holding's common
stock for issuance under the Plan. Options granted under Holding's stock option
plan are granted at fair market value, expire ten years from the date of grant
and generally vest in four equal annual installments, commencing one year from
the date of grant. The stock options granted pursuant to this Plan are not
considered "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code, as amended and are subject to all of the terms and
restrictions contained in the Stock Option and Stockholders Agreements. During
the fiscal year ended September 29, 2000, Holding granted options to purchase
232,500 shares of its common stock to officers and employees of Holding. As of
September 29, 2000, none of the options were exercisable.


THE HOLDING EQUITY PLAN

The Named Executive Officers and certain of Holding's and CPI's other executive
officers are participants in Holding's 1995 Management Equity Plan (the "Holding
Equity Plan"). Under the Holding Equity Plan, participants may purchase shares
of Holding Common Stock ("Management Shares") at a price determined by Holding's
board of directors to be the fair market value of such Holding Common Stock on
the date the participant executes an agreement to purchase the shares. Holding
has reserved a total of 1,250,000 shares of Holding Common Stock for issuance
under the Holding Equity Plan, 1,146,750 of which were issued to the Company's
former Chief Executive Officer, certain executive officers and key employees
(collectively, any executive officers and key



                                      -25-
<PAGE>   27

employees who may acquire Management Shares are referred to as the "Management
Investors") in Fiscal 1995.


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Neither Holding nor CPI has a Compensation Committee. All decisions on the
compensation of executive officers and directors of Holding, CPI or any of their
respective subsidiaries are made by the full board of directors.

None of the directors of Holding or CPI are officers or employees or former
officers or employees of Holding, CPI or any of their respective subsidiaries,
other than Mr. Petrini. None of the directors or officers has any relationships
that would require disclosure by the Company pursuant to Item 404 of Regulation
S-K ("Certain Relationships and Related Transactions"), except as described
below.

LGP is investment adviser to, and an affiliate of the general partner of, GEI
II, which holds approximately 73.1% of the outstanding shares of Holding.
Holding, in turn, owns all of the outstanding shares of common stock of CPI.
Messrs. Green, Danhakl and Annick, who are directors of Holding and CPI, are
also stockholders of the general partner of LGP. See "Directors and Executive
Officers." In connection with the Acquisition, Holding and CPI entered into a
Management Services Agreement with LGP pursuant to which LGP will receive an
annual fee of approximately $362,000 plus reasonable expenses for providing
management, consulting and financial planning services, including assistance in
strategic planning, providing market and financial analysis, negotiating and
structuring financing, and exploring, negotiating and arranging expansion and
capital market opportunities, in the future. See "Certain Relationships and
Related Transactions--Management Agreements."


COMPENSATION OF DIRECTORS

Individuals who are officers of Holding and CPI, as well as Messrs. Green,
Danhakl and Annick, will not receive any compensation directly for their service
on Holding's and CPI's Boards of Directors. Mr. Rutledge was paid annual
compensation of $20,000 in Fiscal 2000. In addition, Holding and CPI have
entered into a management services agreement pursuant to which LGP will receive
an annual fee plus reasonable expenses for providing management, consulting and
financial planning services, including assistance in strategic planning,
providing market and financial analyses, negotiating and structuring financing
and exploring expansion opportunities, in the future. See "Certain Relationships
and Related Transactions."



                                      -26-
<PAGE>   28

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

All of CPI's common stock is owned by Holding. The following table sets forth,
as of December 1, 2000 certain information with respect to the beneficial
ownership of Holding Common Stock by (i) each person known by Holding to own
beneficially 5% or more of the outstanding shares of Holding Common Stock, (ii)
each director of Holding and CPI, (iii) each person named in the summary
compensation table, and (iv) all executive officers and directors as a group.

<TABLE>
<CAPTION>
                                                                             Percent of
                                                  Amount and Nature of         Shares
Name and Address of Beneficial Owner(a)           Beneficial Ownership       Outstanding
--------------------------------------------      --------------------       -----------
<S>                                               <C>                        <C>
Green Equity Investors II, L.P.(b) ...........          3,590,750               73.16%
11111 Santa Monica Boulevard, Suite 2000
Los Angeles, California 90025

Leonard I. Green(b) ..........................          3,590,750               73.16%
11111 Santa Monica Boulevard, Suite 2000
Los Angeles, California 90025

John G. Danhakl(b) ...........................          3,590,750               73.16%
11111 Santa Monica Boulevard, Suite 2000
Los Angeles, California 90025

Gregory J. Annick(b) .........................          3,590,750               73.16%
11111 Santa Monica Boulevard, Suite 2000
Los Angeles, California 90025

Al D. Wilunowski(c) ..........................            535,000               10.90%
607 Hansen Way
Palo Alto, California 94303

Bart F. Petrini ...............................                 0                   0%

William P. Rutledge ...........................                 0                   0%

John R. Beighley ..............................            11,250                 .23%

Don C. Coleman ................................            11,250                 .23%

Robert A. Fickett .............................            13,000                 .26%

Kwang Kim .....................................                 0                   0%

Directors and Executive Officers as a group
  (7 persons)(b) ................................       3,743,250               76.27%
</TABLE>


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

(a) Addresses are given only for persons listed as beneficial owners of 5% or
    more of Holding Common Stock.

(b) GEI II is a Delaware limited partnership managed by LGP, which is an
    affiliate of the general partner of GEI. Each of Mr. Green, Jonathan D.
    Sokoloff, Mr. Danhakl, Mr. Annick and Peter J. Nolan, either directly
    (whether through ownership interest or position) or through one or more
    intermediaries, may be deemed to control LGP and such general partner. LGP
    and such general partner may be deemed to control the voting and disposition
    of the shares of Holding Common Stock owned by GEI. Accordingly, for certain
    purposes, Messrs. Green, Sokoloff, Danhakl, Annick and Nolan may be deemed
    to be beneficial owners of the shares of Holding Common Stock held by GEI.
    All of the shares of Holding Common Stock shown in the table as being
    beneficially owned by Messrs. Green, Danhakl and Annick are owned by GEI.

(c) Includes 25,000 shares originally acquired by Mr. Wilunowski and
    subsequently transferred to his child.



                                      -27-
<PAGE>   29

Terms of Subscription and Stockholder Agreements

Holding Common Stock and Junior Preferred Stock purchased by GEI II were
purchased pursuant to a Stock Subscription Agreement among Holding, CPI and GEI
II. GEI II was also granted certain demand and "piggyback" registration rights
for any shares of Holding Common Stock it may own pursuant to the Holding Common
Stock Registration Rights Agreement dated as of August 11, 1995 among Holding,
GEI II and the initial purchaser of CPI's Series A Senior Preferred Stock. GEI
II subsequently sold its shares of CPI Junior Preferred Stock in June 1997.

Holders of Holding Common Stock issued to qualified institutional buyers and/or
institutional accredited investors are entitled to the benefit of agreements
with Holding and CPI which contain certain demand and "piggyback" registration
rights, customary "tag-along" sale rights exercisable by the investor, and
customary "drag-along" sale rights exercisable by GEI II in certain
circumstances. In addition, the Management Investors have been granted certain
registration rights and "tag-along" rights and are subject to certain
"drag-along" obligations.


ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


Management Agreements

LGP is investment adviser to, and an affiliate of the general partner of, GEI
II, which holds approximately 73.1% of the outstanding shares of Holding.
Holding, in turn, owns all of the outstanding shares of common stock of CPI.
Messrs. Green, Danhakl and Annick, who are directors of Holding and CPI, are
also stockholders of the general partner of LGP. In connection with the
Acquisition, Holding and CPI entered into a Management Services Agreement with
LGP pursuant to which LGP will receive an annual fee of approximately $362,000
plus reasonable expenses for providing management, consulting and financial
planning services, including assistance in strategic planning, providing market
and financial analysis, negotiating and structuring financing, and exploring,
negotiating and arranging expansion and capital market opportunities, in the
future. The Management Services Agreement has a term of up to twelve years.
Holding and CPI believe that the contacts and expertise provided by LGP in these
areas enhance the Company's opportunities and management's expertise in these
matters and that the fees to be paid to LGP fairly reflect the value of the
services provided by LGP. In Fiscal 2000, LGP earned $362,000 pursuant to the
terms of the Management Services Agreement.



                                      -28-
<PAGE>   30

                                     PART IV

ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8K

(a)     Financial Statement Schedule of CPI and Holding

        Schedule II - Valuation and Qualifying Accounts

(b)     Reports on Form 8-K

        None

(c)     Schedule of Exhibits


<TABLE>
<CAPTION>
Exhibit No.    Description
-----------    -----------
<S>            <C>
   2.1(1)      Stock Sale Agreement between CPI (as successor by merger to CPII
               Acquisition Corp., then known as Communications & Power
               Industries Holding Corporation) and Varian dated as of June 9,
               1995.

   2.2(1)      First Amendment to Stock Sale Agreement among Holding, CPI (as
               successor by merger to CPII Acquisition) and Varian dated as of
               August 11, 1995.

   2.3(1)      Second Amendment to Stock Sale Agreement among Holding, CPI (as
               successor by merger to CPII Acquisition) and Varian dated as of
               August 11, 1995.

   3.1(1)      Restated Certificate of Incorporation of CPI filed with the
               Delaware Secretary of State on August 11, 1995.

   3.2(1)      Bylaws of CPI.

   3.3(1)      Certificate of Incorporation of Holding.

   3.4(1)      Bylaws of Holding.

   4.1(1)      Indenture among CPII Acquisition, Holding, the other guarantors
               of the Notes (the "Guarantors") and U.S. Trust Company of
               California, N.A., relating to the Notes dated as of August 11,
               1995.

   4.2(1)      First Supplemental Indenture among CPI, Holding, the other
               Guarantors and U.S. Trust Company of California, N.A., relating
               to the Notes dated as of August 11, 1995.

   4.3(1)      Form of Notes (included in Exhibit 4.1, Exhibit A).

   4.4(1)      Form of Indenture between CPI and Shawmut Bank Connecticut,
               National Association, relating to the Exchange Notes.

   4.5(1)      Form of Exchange Note (included in Exhibit 4.5, Exhibit A).

   4.6(2)      Form of Second Supplemental Indenture among CPI, Holding, the
               other Guarantors and U.S. Trust Company of California, N.A.,
               relating to the Notes.
</TABLE>



                                      -29-
<PAGE>   31

<TABLE>
<CAPTION>
Exhibit No.    Description
-----------    -----------
<S>            <C>
   10.1(1)     Credit Agreement among CPI, Holding, CPII Acquisition, the other
               obligors named therein, the lenders named therein and Bankers
               Trust Company, as Agent, dated as of August 11, 1995 (including
               Annex A (Definitions; Rules of Construction) and Annex F
               (Financial Covenants)).

   10.1.1(4)   First Amendment to Credit Agreement among CPI, Holding, the other
               obligors named therein, the lenders named therein and Bankers
               Trust Company, as Agent, dated as of December 31, 1996.

   10.1.2(4)   Second Amendment to Credit Agreement among CPI, Holding, the
               other obligors named therein, the lenders named therein and
               Bankers Trust Company, as Agent, dated as of April 1, 1997.

   10.1.3(4)   Third Amendment to Credit Agreement among CPI, Holding, the other
               obligors named therein, the lenders named therein and Bankers
               Trust Company, as Agent, dated as of June 27, 1997.

   10.1.4(4)   Fourth Amendment to Credit Agreement among CPI, Holding, the
               other obligors named therein, the lenders named therein and
               Bankers Trust Company as Agent, dated as of October 6, 1998.

   10.1.5(4)   Fifth Amendment to Credit Agreement among CPI, Holding, the other
               obligors named therein, the lenders named therein and Bankers
               Trust Company as Agent, dated as of February 12, 1999.

   10.1.6(4)   Sixth Amendment to Credit Agreement among CPI, Holding, the other
               obligors named therein, the lenders named therein and Bankers
               Trust Company as Agent, dated as of July 26, 1999.

   10.1.7(4)   Seventh Amendment to Credit Agreement among CPI, Holding, the
               other obligors named therein, the lenders named therein and
               Bankers Trust Company as Agent, dated as of December 27, 1999.

   10.3(1)     Term B Notes in the amounts of $11,666,666.68 and $5,666,666.67
               made by CPI in favor of Bankers Trust Company and Crescent/Mach I
               Partners, respectively, dated as of August 11, 1995.

   10.4(1)     Revolving Credit Notes in the amounts of $11,666,666.68,
               $5,833,333.33, $5,833,333.33, $5,833,333.33 and $5,833,333.33
               made by CPI in favor of Bankers Trust Company, Dresdner Bank AG,
               First Bank National Association, The Nippon Credit Bank, LTD, and
               Union Bank, respectively, dated as of August 11, 1995.

   10.5(1)     Swingline Note in the amount of $5,000,000 made by CPI in favor
               of Bankers Trust Company dated as of August 11, 1995.

   10.6(1)     Security Agreement among CPI, CPII Acquisition, the other
               assignors named therein and Bankers Trust Company, as Agent,
               dated as of August 11, 1995.

   10.7(1)     Pledge Agreement made by CPI, Holding, CPII Acquisition, and CPI
               Subsidiary Holdings, Inc. in favor of Bankers Trust Company, as
               Agent, dated as of August 11, 1995.
</TABLE>



                                      -30-
<PAGE>   32

<TABLE>
<CAPTION>
Exhibit No.    Description
-----------    -----------
<S>            <C>
   10.8(1)     Continuing Guaranty made by each of the Guarantors in favor of
               the Lenders and Agent under the Senior Credit Agreement, dated as
               of August 11, 1995.

   10.11(1)    Cross License Agreement between CPI and Varian dated as of August
               10, 1995.

   10.12(1)    Trademark License Agreement between CPI and Varian dated as of
               August 10, 1995.

   10.13(1)    Assignment and Assumption of Lessee's Interest in Lease (Units
               1-4, Palo Alto) and Covenants, Conditions and Restrictions on
               Leasehold Interests (Units 1-12, Palo Alto) dated as of August
               10, 1995 between Varian Realty Inc., Varian Associates, Inc. and
               CPI.

   10.15(1)    Sublease (Unit 8, Palo Alto) dated as of August 10, 1995 between
               Varian Realty Inc. and CPI.

   10.16(1)    Sublease (Building 4, Palo Alto) dated as of August 10, 1995
               between CPI, as Sublessee, Varian Associates, Inc., as Sublessor,
               and Varian Realty Inc., as Adjacent Property Sublessor.

   10.20(1)    Purchase Agreement among CPII Acquisition, Holding, the other
               Guarantors and the initial purchasers of the Series A Senior
               Subordinated Notes (the "Initial Notes Purchasers") dated as of
               August 11, 1995.

   10.21(1)    Purchase Agreement among CPII Acquisition, Holding and the
               initial purchaser of the Series A Senior Preferred Stock (the
               "Initial Senior Preferred Stock Purchaser") dated as of August
               11, 1995.

   10.22(1)    A/B Exchange Registration Rights agreement among CPI (as
               successor by merger to CPII Acquisition), Holding, the other
               Guarantors and the Initial Notes Purchasers dated as of August
               11, 1995.

   10.23(1)    Amendment to A/B Exchange Registration Rights Agreement among
               CPI, Holding, the other Guarantors and the Initial Notes
               Purchasers dated as of August 11,1995.

   10.24(1)    A/B Exchange Registration Rights Agreement between CPI (as
               successor by merger to CPII Acquisition) and the Initial Senior
               Preferred Stock Purchaser dated as of August 11, 1995.

   10.25(1)    Amendment to A/B Exchange Registration Rights Agreement between
               CPI and the Initial Senior Preferred Stock Purchaser dated as of
               August 11, 1995.

   10.26(1)    Holding Common Stock Registration Rights Agreement by and among
               Holding, GEI II and the Initial Senior Preferred Stock Purchaser
               dated as of August 11, 1995 relating to the Holding Common Stock
               sold with the Series A Senior Preferred Stock.

   10.27(1)    Stockholders Agreement by and among Holding, GEI II and the
               Initial Senior Preferred Stock Purchaser dated as of August 11,
               1995 relating to the Holding Common Stock sold with the Series A
               Senior Preferred Stock.

   10.28(1)    Stock Subscription Agreement among Holding, CPII Acquisition
               Corp. and GEI II dated as of August 11, 1995.
</TABLE>



                                      -31-
<PAGE>   33

<TABLE>
<CAPTION>
Exhibit No.    Description
-----------    -----------
<S>            <C>
   10.29(1)    Management Services Agreement among CPI, Holding and Leonard
               Green & Partners, L.P. dated as of August 11, 1995.

   10.30(1)    1995 Holding Management Equity Plan (including Form of Management
               Subscription and Stockholders Agreement).

   10.31(4)    Letter from Holding to Bart F. Petrini dated October 11, 1999
               relating to terms of employment.

   10.32       Communications & Power Industries 2000 Stock Option Plan.

   10.33       Form of Stock Option Agreement.

   21(1)       Subsidiaries of CPI and Holding.

   27.1        Financial Data Schedule (Communications & Power Industries, Inc.)

   27.2        Financial Data Schedule (Communications & Power Industries
               Holding Corporation)
</TABLE>

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

(1)     Incorporated by reference to CPI's Registration Statement on Form S-1
        (Registration No. 33-96858), filed on September 12, 1995.

(2)     Incorporated by reference to Amendment No. 3 to CPI's Registration
        Statement on Form S-1 (Registration No. 33-96858), filed on November 9,
        1995.

(3)     Incorporated by reference to Amendment No. 1 to CPI's Registration
        Statement on Form S-1 (Registration Statement No. 33-96858), filed on
        October 25, 1995.

(4)     Incorporated by reference to CPI's Annual Report on Form 10-K, filed on
        December 29, 1999.



                                      -32-
<PAGE>   34

                                   SIGNATURES

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

                                      COMMUNICATIONS & POWER INDUSTRIES, INC.

                                       By:         /s/ Bart F. Petrini
                                          --------------------------------------
                                                     Bart F. Petrini
                                          Chief Executive Officer and President
                                                 Date:  December 22, 2000

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

<TABLE>
<CAPTION>
        Signature                          Title                             Date
        ---------                          -----                             ----
<S>                       <C>                                       <C>
  /s/ Leonard I. Green                   Director                      December 22, 2000
-----------------------                                             ----------------------


   /s/ John G. Danhakl                   Director                      December 22, 2000
-----------------------                                             ----------------------


 /s/ Gregory J. Annick                   Director                      December 22, 2000
-----------------------                                             ----------------------

                            Chairman of the Board and Director
/s/ William P. Rutledge                                                December 22, 2000
-----------------------                                             ----------------------

                           Director, Chief Executive Officer and
  /s/ Bart F. Petrini     President (Principal Executive Officer)      December 22, 2000
-----------------------                                             ----------------------

                          Chief Financial Officer, Treasurer and
   /s/ Lynn E. Harvey       Secretary (Principle Financial and         December 22, 2000
-----------------------             Accounting Officer)             ----------------------
</TABLE>

Supplemental Information to be Furnished with Reports Filed Pursuant to Section
15(d) of the Securities Exchange Act of 1934 by Registrants which have not
Registered Securities Pursuant to Section 12 of the Securities Exchange Act of
1934:

No annual report to security holders covering either registrant's last fiscal
year has been sent to either registrant's security holders and no proxy
statement, form of proxy or other proxy soliciting material has been sent to
more than ten of either registrant's security holders with respect to any annual
or other meeting of security holders. No such report or proxy material is
expected to be furnished to security holders subsequent to the filing of the
annual report on this Form.



                                      -33-
<PAGE>   35

                                   SIGNATURES

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

                                      COMMUNICATIONS & POWER INDUSTRIES HOLDING
                                      CORPORATION

                                       By:          /s/ Bart F. Petrini
                                          --------------------------------------
                                                     Bart F. Petrini
                                           Chief Executive Officer and President
                                                 Date: December 22, 2000

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

<TABLE>
<CAPTION>
        Signature                          Title                             Date
        ---------                          -----                             ----
<S>                       <C>                                       <C>
  /s/ Leonard I. Green                   Director                      December 22, 2000
-----------------------                                             ----------------------


   /s/ John G. Danhakl                   Director                      December 22, 2000
-----------------------                                             ----------------------


 /s/ Gregory J. Annick                   Director                      December 22, 2000
-----------------------                                             ----------------------

                            Chairman of the Board and Director
/s/ William P. Rutledge                                                December 22, 2000
-----------------------
                                                                    ----------------------

   /s/ Bart F. Petrini     Director, Chief Executive Officer and
-----------------------   President (Principal Executive Officer)      December 22, 2000
                                                                    ----------------------

   /s/ Lynn E. Harvey     Chief Financial Officer, Treasurer and
-----------------------     Secretary (Principal Financial and         December 22, 2000
                                    Accounting Officer)             ----------------------
</TABLE>

Supplemental Information to be Furnished with Reports Filed Pursuant to Section
15(d) of the Securities Exchange Act of 1934 by Registrants which have not
Registered Securities Pursuant to Section 12 of the Securities Exchange Act of
1934:

No annual report to security holders covering either registrant's last fiscal
year has been sent to either registrant's security holders and no proxy
statement, form of proxy or other proxy soliciting material has been sent to
more than ten of either registrant's security holders with respect to any annual
or other meeting of security holders. No such report or proxy material is
expected to be furnished to security holders subsequent to the filing of the
annual report on this Form.


                                      -34-

<PAGE>   36

                    COMMUNICATIONS & POWER INDUSTRIES, INC.
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                         Industries Holding Corporation)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          INDEX TO FINANCIAL STATEMENTS

                     COMMUNICATIONS & POWER INDUSTRIES, INC.

<TABLE>
<CAPTION>
                                                                                          Page
                                                                                          ----
<S>                                                                                       <C>
Independent Auditors' Report..........................................................     F-2

Consolidated Balance Sheets as of September 29, 2000 and October 1, 1999 .............     F-3

Consolidated Statements of Operations for the 52-week periods ended September 29,
    2000, October 1, 1999 and October 2, 1998 ........................................     F-4

Consolidated Statements of Stockholders' Equity (Deficit) for the 52-week
    periods ended September 29, 2000, October 1, 1999 and October 2, 1998 ............     F-5

Consolidated Statements of Cash Flows for the 52-week periods ended September 29,
    2000, October 1, 1999 and October 2, 1998.........................................     F-6

Notes to the Consolidated Financial Statements........................................     F-8


              COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION

Independent Auditors' Report..........................................................    F-26

Consolidated Balance Sheets as of September 29, 2000 and October 1, 1999 .............    F-27

Consolidated Statements of Operations for the 52-week periods ended September 29,
    2000, October 1, 1999 and October 2, 1998 ........................................    F-28

Consolidated Statements of Stockholders' Equity (Deficit) for the 52-week
    periods ended September 29, 2000, October 1, 1999 and October 2, 1998.............    F-29

Consolidated Statements of Cash Flows for the 52-week periods ended September 29,
    2000, October 1, 1999 and  October 2, 1998 .......................................    F-30

Notes to the Consolidated Financial Statements........................................    F-32

                          FINANCIAL STATEMENT SCHEDULES

Communications & Power Industries, Inc................................................    F-50

Communications & Power Industries Holding Corporation.................................    F-51
</TABLE>



                                    - F-1 -
<PAGE>   37

                    COMMUNICATIONS & POWER INDUSTRIES, INC.
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                         Industries Holding Corporation)

                          INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
Communications & Power Industries, Inc.:

We have audited the accompanying consolidated balance sheets of Communications &
Power Industries, Inc. (a wholly owned subsidiary of Communications & Power
Industries Holding Corporation) and subsidiaries ("CPI") as of September 29,
2000 and October 1, 1999, and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for the 52-week periods ended
September 29, 2000, October 1, 1999 and October 2, 1998. In connection with our
audits of the consolidated financial statements, we also have audited the
related financial statement schedule. These consolidated financial statements
and financial statement schedule are the responsibility of CPI's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Communications &
Power Industries, Inc. and subsidiaries as of September 29, 2000 and October 1,
1999, and the results of their operations and their cash flows for the 52-week
periods ended September 29, 2000, October 1, 1999, and October 2, 1998, in
conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.

                                                                      s/KPMG LLP

Mountain View, California
December 1, 2000, except as to Notes 4(b)
and 17, which are as of December 22, 2000



                                    - F-2 -
<PAGE>   38

                    COMMUNICATIONS & POWER INDUSTRIES, INC.
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                         Industries Holding Corporation)

                           CONSOLIDATED BALANCE SHEETS
                 (in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                                               September 29,       October 1,
                                          ASSETS                                                   2000               1999
                                          ------                                                ---------           ---------
<S>                                                                                            <C>                 <C>
CURRENT ASSETS
     Cash and cash equivalents                                                                  $   4,766               4,247
     Accounts receivable, net                                                                      42,434              49,596
     Inventories                                                                                   63,949              52,526
     Deferred taxes                                                                                 6,972               6,899
     Other current assets                                                                           1,603               1,524
                                                                                                ---------           ---------
         Total current assets                                                                     119,724             114,792
Property, plant, and equipment, net                                                                68,656              76,225
Goodwill and other intangibles, net                                                                26,090              28,723
Debt issue costs, net                                                                               4,627               5,594
Deferred taxes                                                                                      7,888               8,250

                                                                                                =========           =========
         Total assets                                                                           $ 226,985             233,584
                                                                                                =========           =========

LIABILITIES, SENIOR REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
     Revolving credit facility                                                                  $  39,800              35,000
     Current portion of term loans                                                                  6,012               7,700
     Current portion of capital leases                                                                960                 885
     Accounts payable                                                                              18,462              13,522
     Accrued expenses                                                                              16,903              16,489
     Product warranty                                                                               2,978               3,575
     Income taxes payable                                                                           9,518               8,978
     Advance payments from customers                                                                5,210               1,736
                                                                                                ---------           ---------
         Total current liabilities                                                                 99,843              87,885
Senior term loans                                                                                  10,000              15,986
Senior subordinated notes                                                                         100,000             100,000
Obligations under capital leases                                                                      895               1,825
                                                                                                ---------           ---------
         Total liabilities                                                                        210,738             205,696
                                                                                                ---------           ---------
SENIOR REDEEMABLE PREFERRED STOCK ($.01 par value, 325,000 shares authorized;
     297,346 and 259,120 shares issued and outstanding as of
     2000 and 1999, respectively, liquidation preference $100 per share)                           28,265              24,228
                                                                                                ---------           ---------
Commitments and contingencies
STOCKHOLDERS' EQUITY
     Junior Preferred Stock ($.01 par value, 525,000 shares authorized; 198,232
         and 172,748 shares issued and outstanding as of 2000
         and 1999, respectively, liquidation preference $100 per share)                                 2                   2
     Common stock ($.01 par value, 400,000 shares authorized; 1 share
         issued and outstanding as of 2000 and 1999)                                                   --                  --
     Additional paid-in capital                                                                    38,328              35,803
     Accumulated deficit                                                                          (49,215)            (31,039)
     Stockholder loans                                                                             (1,133)             (1,106)
                                                                                                ---------           ---------
         Net stockholders' (deficit) equity                                                       (12,018)              3,660
                                                                                                ---------           ---------
         Total liabilities, senior redeemable preferred stock and stockholders' equity          $ 226,985             233,584
                                                                                                =========           =========
</TABLE>

See accompanying notes to the consolidated financial statements.



                                    - F-3 -
<PAGE>   39

                    COMMUNICATIONS & POWER INDUSTRIES, INC.
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                         Industries Holding Corporation)


                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (in thousands)


<TABLE>
<CAPTION>
                                                          52-Week             52-Week             52-Week
                                                        period ended        period ended        period ended
                                                        September 29          October 1,          October 2,
                                                            2000                1999                1998
                                                          ---------           ---------           ---------
<S>                                                     <C>                 <C>                 <C>
Sales                                                     $ 243,054             255,680             260,688
Cost of sales                                               188,748             199,638             194,410
                                                          ---------           ---------           ---------
Gross profit                                                 54,306              56,042              66,278
                                                          ---------           ---------           ---------
Operating costs and expenses:
      Research and development                                8,690               8,983               7,455
      Selling and marketing                                  18,524              19,590              19,168
      General and administrative                             18,253              18,206              13,088

                                                          ---------           ---------           ---------
Total operating costs and expenses                           45,467              46,779              39,711
                                                          ---------           ---------           ---------
Operating income                                              8,839               9,263              26,567
Foreign currency (loss) gain                                   (536)               (511)                153
Interest expense                                             18,663              17,805              17,793
                                                          ---------           ---------           ---------
(Loss) earnings before taxes                                (10,360)             (9,053)              8,927
Income tax expense                                            1,232                 605               3,750
                                                          ---------           ---------           ---------
Net (loss) earnings                                         (11,592)             (9,658)              5,177

Preferred dividends:
     Senior Redeemable Preferred Stock                        3,822               3,331               2,904
     Junior Preferred Stock                                   2,548               2,222               1,935

                                                          =========           =========           =========
Net (loss) earnings attributable to common stock          $ (17,962)            (15,211)                338
                                                          =========           =========           =========
</TABLE>

See accompanying notes to the consolidated financial statements.



                                    - F-4 -
<PAGE>   40

                    COMMUNICATIONS & POWER INDUSTRIES, INC.
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                         Industries Holding Corporation)

            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                Junior                    Additional                                 Total
                                               Preferred      Common       Paid-in    Accumulated    Stockholder  Stockholders'
                                                 Stock         Stock       Capital       Deficit        Loans    Equity (Deficit)
                                               --------      --------      --------     --------      --------      --------
<S>                                            <C>           <C>          <C>         <C>            <C>         <C>
Balances, October 3, 1997                      $      1            --        32,143      (15,738)       (1,100)       15,306
                                               ========      ========      ========     ========      ========      ========
Amortization of discount and issue costs
      on Senior Redeemable Preferred Stock                                                  (214)                       (214)
Payment of dividends on Senior
      Redeemable Preferred Stock                                                          (2,904)                     (2,904)
Payment of dividends on Junior
      Preferred Stock                                                         1,935        (1,935)                        --
Net earnings                                                                               5,177                       5,177
Repayment of stockholder loans                                                                              80            80
Interest accrued on stockholder loans                                                                      (37)          (37)
Issuance of Treasury Stock                                                      696                                      696
Purchase of Treasury Stock                                                   (1,192)                                  (1,192)
                                               --------      --------      --------     --------      --------      --------
Balances, October 2, 1998                      $      1            --        33,582      (15,614)       (1,057)       16,912
                                               ========      ========      ========     ========      ========      ========

Amortization of discount and issue costs
      on Senior Redeemable Preferred Stock                                                  (214)                       (214)
Payment of dividends on Senior
      Redeemable Preferred Stock                                                          (3,331)                     (3,331)
Payment of dividends on Junior
      Preferred Stock                                 1                       2,221       (2,222)                         --
Net loss                                                                                  (9,658)                     (9,658)
Interest accrued on stockholder loans                                                                      (49)          (49)
                                               --------      --------      --------     --------      --------      --------
Balances, October 1, 1999                      $      2            --        35,803      (31,039)       (1,106)        3,660
                                               ========      ========      ========     ========      ========      ========

Amortization of discount and issue costs
      on Senior Redeemable Preferred Stock                                                  (214)                       (214)
Payment of dividends on Senior
      Redeemable Preferred Stock                                                          (3,822)                     (3,822)
Payment of dividends on Junior
      Preferred Stock                                                         2,548       (2,548)                         --
Net loss                                                                                 (11,592)                    (11,592)
Repayment of stockholder loans                                                                              20            20
Interest accrued on stockholder loans                                                                      (47)          (47)
Purchase of Treasury Stock                                                      (23)                                     (23)
                                               --------      --------      --------     --------      --------      --------
Balances, September 29, 2000                   $      2            --        38,328      (49,215)       (1,133)      (12,018)
                                               ========      ========      ========     ========      ========      ========
</TABLE>


        See accompanying notes to the consolidated financial statements.



                                    - F-5 -
<PAGE>   41

                    COMMUNICATIONS & POWER INDUSTRIES, INC.
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                         Industries Holding Corporation)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)



<TABLE>
<CAPTION>
                                                                 52-Week         52-Week       52-Week
                                                               period ended   period ended   period ended
                                                               September 29,   October 1,     October 2,
                                                                   2000           1999          1998
                                                                 -------        -------        -------
<S>                                                            <C>            <C>            <C>
OPERATING ACTIVITIES
       Net cash provided by operating activities                 $ 9,897          6,282         23,309
                                                                 -------        -------        -------
INVESTING ACTIVITIES
       Proceeds from sale of
            property, plant and equipment                             --             54             61
       Purchase of property, plant, and equipment                 (5,325)        (8,260)        (6,565)
       Product line acquisitions                                      --             --         (2,730)
       Purchase of net current assets in connection
            with acquisitions                                         --         (1,861)            --
       Purchase of property and equipment in connection
            with acquisitions                                         --           (523)            --
       Purchase of intangible assets in connection
            with acquisitions                                         --         (6,526)            --
                                                                 -------        -------        -------
       Net cash used in investing activities                      (5,325)       (17,116)        (9,234)
                                                                 -------        -------        -------
FINANCING ACTIVITIES
       Repayments on capital leases                                 (855)          (688)           (38)
       Net Proceeds/(Repayments) from revolving credit
            facility                                               4,800         21,700         (9,500)
       Repayments on senior term loans                            (7,995)        (6,379)        (5,700)
       Issuance of treasury stock                                     --             --            696
       Purchases of treasury stock                                   (23)            --         (1,192)
       Proceeds from stockholder loans                                20             --             80
                                                                 -------        -------        -------
       Net cash (used by) provided by financing activities        (4,053)        14,633        (15,654)
                                                                 -------        -------        -------
NET INCREASE (DECREASE) IN
   CASH AND CASH EQUIVALENTS                                         519          3,799         (1,579)
       Cash and cash equivalents at beginning of period            4,247            448          2,027
                                                                 -------        -------        -------
       Cash and cash equivalents at end of period                $ 4,766          4,247            448
                                                                 =======        =======        =======
</TABLE>

See accompanying notes to the consolidated financial statements.



                                    - F-6 -
<PAGE>   42

                    COMMUNICATIONS & POWER INDUSTRIES, INC.
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                         Industries Holding Corporation)


                CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
                                 (in thousands)

<TABLE>
<CAPTION>
                                                             52-Week          52-Week           52-Week
                                                           period ended     period ended      period ended
                                                           September 29,      October 1,       October 2,
                                                              2000              1999              1998
                                                            --------          --------          --------
<S>                                                        <C>              <C>               <C>
DETAIL OF NET CASH PROVIDED
    BY OPERATING ACTIVITIES
Net (loss) earnings                                         $(11,592)           (9,658)            5,177
Adjustments to reconcile net (loss) earnings to
    net cash provided by operating activities:
       Depreciation                                           12,682            10,851             9,981
       Amortization of deferred debt issue costs               1,288             1,209             1,372
       Amortization of goodwill and intangibles                2,634             2,784             1,316
       Allowance for doubtful accounts                          (346)              507               354
       Deferred taxes                                            289                --             3,892
       Interest accrued on stockholder loans                     (47)              (49)              (37)
       Loss on the disposition of assets                         212                61                32
       Changes in operating assets and liabilities:
            Accounts receivable                                7,508               382             2,488
            Inventories                                      (11,423)            1,752            (1,863)
            Other current assets                                 (79)               17              (219)
            Accounts payable - trade                           4,940                72             2,721
            Accrued expenses                                     414               601               552
            Product warranty                                    (597)             (169)             (477)
            Income tax payable                                   540            (1,281)           (1,716)
            Advance payments from customers                    3,474              (797)             (264)
                                                            --------          --------          --------
Net cash provided by operating activities                   $  9,897             6,282            23,309
                                                            ========          ========          ========
</TABLE>


See accompanying notes to the consolidated financial statements.



                                    - F-7 -
<PAGE>   43

                    COMMUNICATIONS & POWER INDUSTRIES , INC.
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                         Industries Holding Corporation)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS

Communications & Power Industries, Inc. ("CPI" or "the Company") develops,
manufactures and distributes microwave and power grid vacuum electronic devices,
microwave amplifiers, modulators and various other power supply equipment and
devices. The Company operates six manufacturing operations in North America, and
sells and services its products and customers worldwide primarily through a
direct sales force.

In August 1995, CPI acquired substantially all of the assets of Varian
Associates, Inc.'s ("Varian") Electron Device business (the "Predecessor") and
then was merged with a wholly owned subsidiary of Communications & Power
Industries Holding Corporation ("Holding"), a corporation newly formed by a
group of investors, including management of Holding and CPI. The acquisition was
accounted for as a purchase and, accordingly, the purchase price was allocated
based upon the fair values of assets acquired and liabilities assumed as of
August 11, 1995. Financing for the acquisition was obtained through the issuance
of 12% Senior Subordinated Notes due 2005 (the "Senior Subordinated Notes") of
CPI in the aggregate principal amount of $100.0 million, the issuance of Series
A 14% Senior Redeemable Exchangeable Cumulative Preferred Stock due 2007 (the
"Senior Redeemable Preferred Stock") of CPI and the issuance of Series A 14%
Junior Cumulative Preferred Stock (the "Junior Preferred Stock") of CPI and
common stock of Holding.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Basis of Presentation

The accompanying consolidated financial statements include the accounts of CPI
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

The Company's fiscal years are the 52- or 53-week periods which end on the
Friday nearest September 30. All references to years in these notes to
consolidated financial statements represent fiscal year unless otherwise noted.

        Use of 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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates.

        Cash and Cash Equivalents

Currency on hand, demand deposits, and all highly liquid investments with an
original maturity of three months or less are considered to be cash and cash
equivalents.



                                    - F-8 -
<PAGE>   44

                    COMMUNICATIONS & POWER INDUSTRIES , INC.
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                         Industries Holding Corporation)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

        Revenue Recognition

Sales and related cost of sales are recognized primarily upon shipment of
products. Sales and related cost of sales under long-term contracts to
commercial customers and the U.S. Government are recognized primarily as units
are delivered.

The estimated sales values of performance under certain contracts to commercial
customers and U.S. Government fixed-price and fixed-price incentive contracts in
process are recognized under the percentage of completion method of accounting
where the sales value is determined on the basis of costs incurred. Provisions
for anticipated losses are made in the period in which they first become
determinable. Sales under cost-reimbursement contracts, primarily research and
development contracts, are recorded as costs are incurred and include estimated
earned fees in the proportion that costs incurred to date bear to total
estimated costs. The fees under certain U.S. Government contracts may be
increased or decreased in accordance with cost or performance incentive
provisions which measure actual performance against established targets or other
criteria. Such incentive fee awards or penalties are included in revenue at the
time the amounts can be reasonably determined.

        Property, Plant, and Equipment

Property, plant and equipment are stated at cost. Major improvements are
capitalized, while maintenance and repairs are expensed currently. Plant and
equipment are depreciated over their estimated useful lives using the
straight-line method. Leasehold improvements are amortized using the
straight-line method over their estimated useful lives, or the remaining term of
the lease, whichever is shorter. Estimated useful lives of property, plant, and
equipment are as follows: land leaseholds, the life of the lease; buildings, 20
to 40 years; machinery and equipment, 3 to 7 years.

        Accounting for Long-Lived Assets

CPI reviews long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of long-lived assets is measured by comparison of
its carrying amount to future net cash flows expected to be generated from the
operation and sale of long-lived assets. If such assets are considered to be
impaired, the Company's carrying value is reduced to its estimated fair value.

Goodwill represents the excess of the purchase price over the fair value of the
net assets acquired. The Company assesses the recoverability of the carrying
amount of goodwill by determining whether the carrying amount of goodwill can be
recovered through undiscounted net cash flows of the acquired operation over the
remaining amortization period. If determined to be impaired, the carrying amount
is reduced to its estimated fair value which is based on an estimate of
discounted future net cash flows. Goodwill is being amortized on a straight-line
basis over estimated useful lives ranging from 15 to 25 years. Accumulated
amortization was $9.0 million and $6.4 million as of September 29, 2000 and
October 1, 1999, respectively.

On October 6, 1998, CPI acquired the Microwave Components Division ("MCD") of
Aydin Corporation for approximately $8.9 million with net assets of
approximately $2.4 million. Of the $6.5 million difference between the purchase
price and the fair value of the net assets acquired, $3.4



                                    - F-9 -
<PAGE>   45

                    COMMUNICATIONS & POWER INDUSTRIES , INC.
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                         Industries Holding Corporation)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

million was allocated to goodwill and $3.1 million was allocated to other
identifiable intangibles including customer list, trade name, covenant not to
compete, software rights and debt issuance cost, whose useful lives range from 1
to 3 years. This acquisition was accounted for as a purchase.

        Product Warranty

CPI's products are generally warranted for a variety of periods, typically one
to five years or a predetermined product usage life. A provision for estimated
future costs of repair, replacement or customer accommodations are reflected in
the accompanying consolidated financial statements.

        Environmental Liabilities

Liabilities for environmental expenditures are recorded when it is probable that
obligations have been incurred and the amounts can be reasonably estimated.
There were no environmental liabilities established by CPI during Fiscal 2000,
Fiscal 1999 or Fiscal 1998. Varian retained the environmental liabilities
existing at the time CPI acquired substantially all of the assets of Varian's
Electron Device business in August 1995.

        Deferred Debt Issue Costs

Costs incurred related to the issuance of CPI's long-term debt and other credit
facilities are capitalized and amortized over the estimated time the obligations
are expected to be outstanding using the effective interest method. The
amortization period used for the deferred costs associated with the revolving
credit facility, the Senior Term Loans, and the Senior Subordinated Notes is 3
years, 7 years and 10 years, respectively.

        Senior Redeemable Preferred Stock

CPI's Senior Redeemable Preferred Stock was issued in units with an aggregate of
10,500 shares of common stock of Holding. The fair value of the shares of
Holding's common stock issued, and the issue costs associated with the issuance
of the Senior Redeemable Preferred Stock, have been reflected as a reduction of
the Senior Redeemable Preferred Stock issued and is being amortized via a charge
to accumulated deficit over the period until mandatory redemption, 12 years,
using the effective interest method.

        Income Taxes

Income taxes are accounted for under the asset and liability method. CPI's
deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax basis and the financial
reporting basis of assets and liabilities. The provision for income taxes is
based upon the differences between financial reporting and tax basis of assets
and liabilities measured using the enacted tax rates and laws in effect when the
differences are expected to reverse. The effect on deferred tax assets and
liabilities from a change in tax rates is recognized in income in the period
that includes the enactment date.



                                    - F-10 -
<PAGE>   46

                    COMMUNICATIONS & POWER INDUSTRIES , INC.
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                         Industries Holding Corporation)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


        Business Risks and Credit Concentrations

Defense-related applications such as certain radar, electronic countermeasures
and military communications constitute a significant portion of CPI's sales.
Although management believes that CPI has successfully responded to shrinking
defense budgets by refocusing its operations on commercial and other non-defense
applications, a significant further decline in U.S. or global military spending
could have a material adverse effect on CPI's sales and earnings. Additionally,
companies engaged in supplying defense-related equipment and services to
government agencies are subject to certain business risks, including the ability
of the U.S. government to suspend them from receiving new contracts or to
terminate existing contracts for the U.S. government's convenience or for the
default of the contractor. In addition, the U.S. government could terminate
contracts due to insufficient or terminated congressional appropriations. CPI's
contracts with foreign governmental defense agencies are subject to similar
limitations and risks as those encountered with U.S. government contracts.

CPI believes that both its customer and industry base is well diversified,
however, changes in the marketplace of any of the above named industries and/or
volatility in the world's industrial economies may significantly affect
management's estimates and CPI's performance.

Generally, CPI requires no collateral from its customers and CPI estimates an
allowance for doubtful accounts based on the credit worthiness of its customers
as well as general economic conditions. Consequently, an adverse change in those
factors could affect CPI's estimate of its bad debts. Historical credit losses
have been within management's expectations and most transactions to third world
economies are backed by letters of credit.

        Foreign Currency Translation

The functional currency of CPI's foreign subsidiaries is the U.S. dollar. Gains
or losses resulting from the translation into U.S. dollars of amounts
denominated in foreign currencies are included in the determination of net
income.

        Fair Value of Financial Instruments

Financial instruments consist of cash and cash equivalents, accounts receivable,
accounts payable, revolving credit facility, term loans and long-term debt. The
carrying value of CPI's cash and cash equivalents, accounts receivable, accounts
payable, revolving credit facility and term loans approximate their fair values
due to the relatively short period to maturity of the instruments. The fair
value of CPI's Senior Subordinated Notes, based on quoted market prices or
pricing models using current market rates, has been quoted at a level of 71.00
(100.00 is face value) as of October 25, 2000.

        Change in Accounting Estimate

During Fiscal 1998, CPI reviewed and revised downward its estimate of disposal
costs used in its calculation of lower of cost or market write-downs for
long-term contracts to more closely reflect its



                                    - F-11 -
<PAGE>   47

                    COMMUNICATIONS & POWER INDUSTRIES, INC.
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                         Industries Holding Corporation)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

cost structure versus the assumptions carried forward from Varian's operations
for sales related expenses. The change resulted in an increase to net income of
approximately $1 million.

        Stock-Based Compensation


The Company accounts for stock-based employee compensation arrangements under
the intrinsic value method prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations.


In March 2000, the FASB issued interpretation No. 44 (FIN 44), Accounting for
Certain Transactions Involving Stock Compensation -- an Interpretation of APB
25. This Interpretation clarifies (a) the definition of an employee for purposes
of applying APB 25, (b) the criteria for determining whether a plan qualifies as
a non-compensatory plan, (c) the accounting consequences of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. The Company adopted FIN 44 on July 1, 2000. The adoption did not
have a material effect on the Company's consolidated financial position or
results of operations.

        Comprehensive Income

The Company has no components of other comprehensive income (loss) and,
accordingly, comprehensive income (loss) is the same as reported net earnings
(loss) for all periods presented.


3. BALANCE SHEET COMPONENTS

        Accounts Receivable

Accounts receivable are stated net of allowances for doubtful accounts of
$797,000 and $1,143,000 as of September 29, 2000 and October 1, 1999,
respectively.

        Inventories

Inventories are stated at the lower of average cost or market (net realizable
value). The main components of inventories are as follows:

<TABLE>
<CAPTION>
                                      Fiscal Year
  (Dollars in thousands)          2000           1999
                                -------         -------
<S>                             <C>             <C>
Raw materials and parts         $46,859          39,953
Work in process                  14,731           9,878
Finished goods                    2,359           2,695
                                -------         -------
Total inventories               $63,949          52,526
                                =======         =======
</TABLE>



                                    - F-12 -
<PAGE>   48

                    COMMUNICATIONS & POWER INDUSTRIES, INC.
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                         Industries Holding Corporation)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


        Property, Plant, and Equipment

The main components of property, plant, and equipment are as follows:


<TABLE>
<CAPTION>
                                                  Fiscal Year
   (Dollars in thousands)                   2000               1999
                                          ---------          ---------
<S>                                       <C>                <C>
Land and land leaseholds                  $  36,655             36,567
Buildings                                    21,117             19,750
Machinery and equipment                      52,801             49,042
Leased equipment                              4,102              4,031
Construction in progress                        672              2,984
                                          ---------          ---------
Subtotal                                    115,347            112,374
Less accumulated depreciation
        and amortization                    (46,691)           (36,149)
                                          ---------          ---------
Net property, plant and equipment         $  68,656             76,225
                                          =========          =========
</TABLE>

Accumulated amortization of equipment under capital lease arrangements was
$1,994,000 and $1,254,000 as of September 29, 2000 and October 1, 1999,
respectively, and related amortization expense is included in depreciation
expense on the statement of cash flows.

        Accrued Expenses

Accrued expenses are comprised of the following:

<TABLE>
<CAPTION>
                                            Fiscal Year
   (Dollars in thousands)              2000            1999
                                      -------         -------
<S>                                   <C>             <C>
Taxes                                 $ 1,147           1,187
Payroll and employee benefits          10,149           9,994
Accrued interest                        3,216           2,528
Other                                   2,391           2,780
                                      -------         -------
Total accrued expenses                $16,903          16,489
                                      =======         =======
</TABLE>


4. SENIOR CREDIT AGREEMENT


(a) The Senior Credit Agreement provides for two term loans in the aggregate
amount of $42.0 million, comprised of a $25.0 million "Term Loan A" tranche and
a $17.0 million "Term Loan B" tranche, and a $45.0 million revolving credit
facility ("Revolver") which includes a sub-facility of $7.5 million for letters
of credit. Term Loan A was paid in full in August 2000. Term Loan B is subject
to quarterly payments in aggregate annual amounts of $6.0 million and $10.0
million in Fiscal 2001 and Fiscal 2002, respectively, and terminates on August
12, 2002.

Availability of advances under the Revolver is subject to a borrowing base test.
CPI's obligations under the Senior Credit Agreement are secured by substantially
all of its assets (including the issued



                                    - F-13 -
<PAGE>   49


                    COMMUNICATIONS & POWER INDUSTRIES , INC.
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                         Industries Holding Corporation)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

and outstanding capital stock of its direct and indirect subsidiaries) and are
guaranteed by Holding and all of CPI's subsidiaries. As of September 29, 2000,
CPI had $1.3 million available under the Revolver.

Borrowings under the Revolver bear interest at a rate equal to the Eurodollar
Rate (approximately 6.6875% as of September 29, 2000) plus 3.00% per annum or
the Base Rate (9.50% as of September 29, 2000) plus 1.50% per annum and
borrowings under Term Loan B bear interest at a rate equal to the Eurodollar
Rate plus 3.50% per annum or Base Rate plus 2.00% per annum, in each case as
selected by CPI. In addition to customary fronting and other fees, CPI pays a
fee equal to 1.5% per annum on outstanding but undrawn amounts of letters of
credit and a commitment fee of 0.5% per annum on unused facilities under the
Revolver.

(b) In December 2000, the Company terminated the Senior Credit Agreement and
replaced it with a $61.0 million secured credit facility ("Credit Facility").
This new facility consists of a $41.0 million revolving line of credit, with a
sub-facility of $10.0 million for letters of credit, which expires December 22,
2004, and a $20.0 million term loan, which expires December 22, 2002. The Credit
Facility is secured by substantially all of the assets of CPI and is guaranteed
by Holding and all of CPI's subsidiaries. Availability under the Credit Facility
is based upon eligible receivables, machinery and equipment and certain real
estate. The revolving line of credit provides for borrowings that will bear
interest at a rate equal to LIBOR plus 3.25% per annum or Prime plus 1.75% per
annum. The term loan provides for borrowings that will bear interest at rate
equal to Prime plus 5.50% per annum. Additionally, the terms of the facility
require the Company to maintain certain financial covenants and limit the
payment of cash dividends on the Senior and Junior Preferred Stock. In addition
to customary fronting and other fees, CPI will pay a fee equal to 1.25% per
annum on outstanding but undrawn amounts of letters of credit; and additionally
CPI will pay customary collateral management fees and a commitment fee of 0.375%
per annum on unused facilities under the Credit Facility.


5. SENIOR SUBORDINATED NOTES

The $100 million principal amount of Senior Subordinated Notes mature in 2005
and bear interest at 12% per annum, payable semiannually. The payment of
principal of, premium and interest on, and other obligations evidenced by the
Notes is subordinated in right of payment, as set forth in the indenture
governing the Senior Subordinated Notes (the "Indenture"), to the prior payment
in full of all senior indebtedness (as defined), including indebtedness under
the senior credit facility, whether outstanding on the date of the Indenture or
thereafter incurred. CPI's payment obligations under the Notes are jointly and
severally guaranteed by Holding and CPI's subsidiaries.

The Notes are subject to redemption at the option of CPI, in whole or in part,
at the redemption prices (expressed as percentages of principal amount) set
forth below plus accrued and unpaid interest, if any, thereon to the applicable
redemption date, if redeemed during the 12-month period beginning on August 1 of
the years indicated as follows:



                                    - F-14 -
<PAGE>   50

                    COMMUNICATIONS & POWER INDUSTRIES , INC.
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                         Industries Holding Corporation)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


<TABLE>
<CAPTION>
        Year             Percentage
-------------------      ----------
<S>                      <C>
        2001                104.5%
        2002                103.0%
        2003                101.5%
2004 and thereafter         100.0%
</TABLE>

Upon the occurrence of a change of control, each holder of Notes will have the
right to require CPI to offer to repurchase all or any part of such holder's
Notes. The senior credit facility currently prohibits CPI from making such an
offer. In addition, the Indenture covering the Notes provides for various
restrictions, including restrictions on mergers or the sales of CPI's assets,
dividend payments, purchase, redemption, acquisition or retirement of equity
interests of CPI or its affiliates, principal payment on any indebtedness of CPI
or guarantors that is subordinated to the Notes, the incurrence of certain
indebtedness, or the making of any restricted investment, as defined.


6. SENIOR REDEEMABLE PREFERRED STOCK

CPI is authorized to issue up to 325,000 shares of nonvoting Series B 14% Senior
Redeemable Exchangeable Cumulative Preferred Stock due 2007 (the "Senior
Preferred Stock"), including shares of Senior Preferred Stock which may be used
to pay dividends on the Senior Preferred Stock if CPI so elects. Dividends on
the Senior Preferred Stock accrue at the rate of 14% per annum and are payable
quarterly, commencing on November 1, 1995. After August 1, 2000, dividends may
be paid only in cash.

During the year ended September 29, 2000, CPI paid preferred dividends through
the issuance of 38,226 shares of its Senior Redeemable Preferred Stock at a
value of $100 per share.

The Senior Preferred Stock is redeemable at the option of CPI, in whole or in
part from time to time, initially at 107% of the liquidation preference thereof
and at decreasing prices thereafter to and including August 1, 2004 and
thereafter at 100% of the liquidation preference thereof, together in each case
with accumulated and unpaid dividends thereon. The Senior Preferred Stock is
subject to mandatory redemption in whole on August 1, 2007 at a price equal to
the liquidation preference thereof, plus accumulated and unpaid dividends.

In the event of a change of control, CPI will be required to make an offer to
each holder of shares of Senior Preferred Stock to repurchase all or a portion
of such holder's Senior Preferred Stock at a price equal to 101% of the
liquidation preference thereof, plus accumulated and unpaid dividends. The
Senior Credit Agreement currently prohibits and the Indenture currently
restricts CPI from making such an offer. In addition, CPI will be required to
use the proceeds from certain asset sales to permanently reduce senior
indebtedness of CPI, to invest in certain related assets or businesses or to
offer to repurchase Senior Preferred Stock. Any such repurchases shall be
effected at an offer price equal to 100% of the liquidation preference of the
shares of Senior Preferred Stock purchased, plus accumulated and unpaid
dividends.



                                    - F-15 -
<PAGE>   51

                    COMMUNICATIONS & POWER INDUSTRIES, INC.
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                         Industries Holding Corporation)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


The Certificate of Designation covering the Senior Preferred Stock contains
certain provisions that, among other things, limit the ability of CPI to incur
indebtedness, pay dividends, incur liens, make loans or investments, transact
with affiliates and engage in mergers and consolidations.

CPI may, at its option, on any dividend payment date, exchange all, but not less
than all, of the outstanding shares of Senior Preferred Stock into 14% Junior
Subordinated Notes due 2007 (the "Exchange Notes"), so long as such exchange is
permitted by the senior credit facility and the Indenture, in an aggregate
principal amount not to exceed the aggregate liquidation preference, plus
accumulated and unpaid dividends on the date of exchange. The Exchange Notes
will be general unsecured obligations of CPI and will be subordinated to all
existing and future senior indebtedness of CPI, including indebtedness under the
Senior Credit Agreement and the Indenture. Except for terms relating to these
subordination provisions, payment of interest on a quarterly basis, optional
redemption and the date on which repayment is mandatory (all of which terms
would be similar to the terms of Senior Preferred Stock), the terms of the
Exchange Notes will be generally identical to the Notes.


7. JUNIOR PREFERRED STOCK

CPI is authorized to issue up to 525,000 shares of nonvoting Series A 14% Junior
Cumulative Preferred Stock (the "Junior Preferred Stock") including shares of
Junior Preferred Stock which may be used to pay dividends on the Junior
Preferred Stock if CPI elects to pay dividends in shares of Junior Preferred
Stock. The aggregate liquidation preference of the Junior Preferred Stock issued
in connection with the formation of CPI in 1995 was $10.0 million. Dividends on
the Junior Preferred Stock accrue at the rate of 14% per annum and are payable
quarterly, commencing on November 1, 1995. On or before the redemption of the
Senior Preferred Stock or the exchange of Senior Preferred Stock into Exchange
Notes, CPI is required to pay dividends on the Junior Preferred Stock in
additional fully paid and non-assessable shares of Junior Preferred Stock having
an aggregate liquidation preference equal to the amount of such dividends. After
such redemption or exchange, CPI may, at its option and subject to debt and
senior preferred stock covenant restrictions, pay dividends on the Junior
Preferred Stock in cash or in additional fully paid and non-assessable shares of
Junior Preferred Stock having an aggregate liquidation preference equal to the
amount of such dividends.

During the year ended September 29, 2000, CPI paid preferred dividends through
the issuance of 25,484 shares of its Junior Preferred Stock at a value of $100
per share.

The Junior Preferred Stock ranks junior in right of payment to all liabilities
of CPI and to any preferred stock, including Senior Preferred Stock, that is
senior in right of payment to the Junior Preferred Stock and ranks senior in
right of payment to any additional preferred stock which does not expressly
provide that it ranks senior to or on a parity with the Junior Preferred Stock
and CPI's common stock.



                                    - F-16 -
<PAGE>   52


                    COMMUNICATIONS & POWER INDUSTRIES, INC.
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                         Industries Holding Corporation)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


8. SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest was $16.7 million, $16.6 million and $16.4 million in
Fiscal 2000, Fiscal 1999 and Fiscal 1998, respectively. Cash (refunded) paid for
taxes was $(32,000), $1.8 million and $1.1 million in Fiscal 2000, Fiscal 1999
and Fiscal 1998, respectively.

Non-cash financing activities included the payment of preferred dividends by CPI
on its Senior Redeemable Preferred Stock and its Junior Preferred Stock through
the issuance of 38,226, 33,312 and 29,029 additional shares of its Senior
Redeemable Preferred Stock and 25,484, 22,208 and 19,354 additional shares of
its Junior Preferred Stock during Fiscal 2000, Fiscal 1999 and Fiscal 1998,
respectively. Amortization of discount and issue costs on the Senior Redeemable
Preferred Stock was $214,000 for each of the three years Fiscal 2000, Fiscal
1999 and Fiscal 1998. Equipment of $0.3 million and $1.5 million was acquired
under capital leases for Fiscal 1999 and Fiscal 1998, respectively; no equipment
was acquired under capital leases for Fiscal 2000.


9. LEASE COMMITMENTS

At September 29, 2000, CPI was committed to minimum rentals under non-cancelable
operating lease agreements primarily for land and facility space. CPI also
leases certain computer equipment under capital leases that expire in 2003. As
collateral for these capital leases, CPI has issued letters of credit totaling
$1.3 million. A summary of future minimum lease payments (in thousands) follows:


<TABLE>
<CAPTION>
                                                           Capital       Operating      Sublease
    Fiscal Year                                            Leases         Leases         Income
    -----------                                            ------         ------         ------
<S>                                                        <C>           <C>            <C>
    2001                                                   $1,087          1,365          1,081
    2002                                                      925          1,023            174
    2003                                                       33            681             75
    2004                                                       --            310             --
    2005                                                       --            258             --
                                                           ------         ------         ------
    Total future minimum lease payments                     2,045          3,637          1,330
                                                                          ======         ======
    Less amount representing interest, sales
      tax and additional obligations                          190
                                                           ------
    Present value of future minimum lease
      payments                                              1,855
    Less current portion of obligations
      under capital leases                                    960
                                                           ------
    Obligations under capital leases, less
      current portion                                      $  895
                                                           ======
</TABLE>

Real estate taxes, insurance, and maintenance are also obligations of CPI.
Rental expense under non-cancelable operating leases amounted to $997,000,
$943,000 and $721,000 for Fiscal 2000, Fiscal 1999 and Fiscal 1998,
respectively.



                                    - F-17 -
<PAGE>   53

                    COMMUNICATIONS & POWER INDUSTRIES, INC.
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                         Industries Holding Corporation)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


10. CONTINGENCIES

The amount of outstanding letters of credit provided for under CPI's Senior
Credit Agreement was approximately $3.9 million as of September 29, 2000. These
outstanding obligations are comprised of the following: $1.8 million to foreign
customers related to an advance payment guarantee, $1.3 million to two lenders
related to capital lease arrangements and $0.8 million to various other
beneficiaries related primarily to insurance needs and performance bond
guarantees.

Varian is currently a defendant in certain legal actions relating to its
operation of the assets sold to the Company and could incur an uninsured
liability in one or more of them. The Company's acquisition agreement with
Varian provides for Varian's retention of liability arising out of the above
referenced litigation. Accordingly, in the opinion of management, the outcome of
that litigation will not have a material adverse effect on the financial
condition, results of operations or cash flows of CPI.

Varian has also been named by the Environmental Protection Agency or third
parties as a potentially responsible party under the Comprehensive Environmental
Response Compensation and Liability Act of 1980, as amended, at sites to which
Varian is alleged to have shipped manufacturing waste for disposal. Varian is
also involved in various stages of environmental investigation and/or
remediation under the direction of, or in consultation with, local and/or state
agencies at certain facilities of CPI. Uncertainty as to (a) the extent to which
Varian caused, if at all, the conditions being investigated; (b) the extent of
environmental contamination and risks; (c) the applicability of changing and
complex environmental laws; (d) the number and financial viability of other
potentially responsible parties; (e) the stage of the investigation and/or
remediation; (f) the unpredictability of investigation and/or remediation costs
(including as to when they will be incurred); (g) applicable clean-up standards;
(h) the remediation (if any) which will ultimately be required; and (i)
available technology make it difficult to assess the likelihood and scope of
further investigation or remediation activities or to estimate the future costs
of such activities if undertaken.

The Company's acquisition agreement with Varian provides for Varian's retention
of liability arising out of investigative and remedial action and environmental
claims for conditions existing as of the closing date at the above-referenced
facilities. Accordingly, based on information currently available, management
believes that the costs of these matters are not likely to have a material
adverse effect on the financial condition, results of operations and cash flows
of CPI.

From time to time, CPI may be subject to other claims that arise in the ordinary
course of business. In the opinion of management, all such matters involve
amounts which would not have a material adverse effect on the Company's
consolidated financial position if unfavorably resolved.

11. SEGMENTS AND RELATED INFORMATION

The Company has two reportable segments: vacuum electronic devices ("VEDs") and
satcom equipment. Reportable segments are differentiated based on product. The
VED segment is made up of four operating units, which have been aggregated. Each
operating unit has a President that reports to the Office of the Chief Operating
Officer, held jointly by two of the Presidents, that in turn reports directly to
the Chief Executive Officer ("CEO").



                                    - F-18 -
<PAGE>   54

                    COMMUNICATIONS & POWER INDUSTRIES, INC.
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                         Industries Holding Corporation)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

The CEO evaluates performance and allocates resources to each of these operating
units based on the Company's principal performance measure, earnings before
income taxes, interest, depreciation and amortization ("EBITDA"). These four
operating units have similar economic characteristics as measured by EBITDA. The
Company's analysis of the similarity of economic characteristics was based on
both a historical and anticipated future analysis of performance. In addition,
the aggregated units are similar in (i) the nature of their products, (ii) their
manufacturing processes, (iii) their customers and, (iv) their distribution and
sales methods.

The VED segment develops, manufactures and distributes high power/high frequency
microwave and radio frequency signal components. Its products include linear
beam, cavity, power grid, crossed field and magnetron devices. These products
are used in the communication, radar, electronic countermeasures, industrial,
medical and scientific markets depending on the specific power and frequency
requirements of the end-user and the physical operating conditions of the
environment in which the vacuum electronic device will be located. Its products
are distributed through the Company's direct sales force, independent sales
representatives and distributors.

The satcom equipment segment manufactures and supplies high power amplifiers and
networks for satellite communication uplink and industrial applications. This
segment also provides spares, service and other post sales support. These
products are distributed through the Company's direct sales force and
independent sales representatives.

Sales and marketing, finance and administration expenses are allocated to the
operating units and are included in the results reported. The accounting
policies of the reportable segments are the same as those described in the
summary of significant accounting policies. Intersegment product transfers are
recorded at cost.

Summarized financial information concerning the Company's reportable segments is
shown in the following table. Included in the "Other" column is financial
information for the Company's Solid State Products Division, which did not meet
the quantitative thresholds, and certain unallocated corporate-level operating
expenses.


<TABLE>
<CAPTION>
                                                           Satcom
  (Dollars in thousands)                   VEDs           Equipment          Other             Total
                                         --------         --------          --------          --------
<S>                                      <C>              <C>               <C>               <C>
Fiscal Year 2000:
-----------------
Revenues from external customers         $188,800           48,190             6,064           243,054
Intersegment product transfers              9,524               --             1,232            10,756
EBITDA                                     29,773           (3,348)           (2,806)           23,619
Total Assets                              120,012           27,956            79,017           226,985
Capital Expenditures                        3,078              996             1,251             5,325

Fiscal Year 1999:
-----------------
Revenues from external customers         $186,852           61,901             6,927           255,680
Intersegment product transfers             14,514               --             1,740            16,254
EBITDA                                     23,862            2,939            (4,274)           22,527
Total Assets                              118,701           32,648            82,235           233,584
Capital Expenditures                        5,447              920             1,893             8,260
</TABLE>



                                    - F-19 -
<PAGE>   55

                    COMMUNICATIONS & POWER INDUSTRIES, INC.
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                         Industries Holding Corporation)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


<TABLE>
<CAPTION>
                                                          Satcom
   (Dollars in thousands)                  VEDs           Equipment          Other             Total
                                         --------         --------         --------          --------
<S>                                      <C>              <C>              <C>               <C>
Fiscal Year 1998:
Revenues from external customers         $181,479           77,069            2,140           260,688
Intersegment product transfers             16,747               --               --            16,747
EBITDA                                     30,859            8,950           (1,792)           38,017
Total Assets                              124,802           32,643           71,767           229,212
Capital Expenditures                        4,805            1,156              604             6,565
</TABLE>

A reconciliation of EBITDA from reportable segments to (Loss) Earnings before
Taxes is as follows:

<TABLE>
<CAPTION>
    (Dollars in thousands)             Fiscal            Fiscal            Fiscal
                                        2000              1999              1998
                                      --------          --------          --------
<S>                                   <C>               <C>               <C>
Segment EBITDA                        $ 23,619            22,527            38,017
Less:
Depreciation and amortization           15,316            13,635            11,297
Other                                       --               140                --
Interest expense                        18,663            17,805            17,793
                                      --------          --------          --------
(Loss) earnings before taxes          $(10,360)           (9,053)            8,927
                                      ========          ========          ========
</TABLE>

CPI's operations outside of North America consist of sales offices in certain
foreign countries. Long-lived assets outside of North America are less than 10%
of total consolidated assets. Information about CPI's sales to geographical
regions is presented in the table below. Sales to unaffiliated customers are
based on the location of the customer. There are no individual foreign countries
in which sales are considered material.


<TABLE>
<CAPTION>
                                               Net Sales
                              ------------------------------------------
  (Dollars in thousands)       Fiscal           Fiscal           Fiscal
                                2000             1999             1998
                              --------         --------         --------
<S>                           <C>              <C>              <C>
United States                 $163,484          167,508          159,322
All foreign countries           79,570           88,172          101,366
                              --------         --------         --------
Total Sales                   $243,054          255,680          260,688
                              ========         ========         ========
</TABLE>

CPI has a single customer that accounts for 10% or more of consolidated sales.
Sales to this customer were $41.3 million, $40.8 million and $35.5 million of
the Company's consolidated sales for Fiscal 2000, Fiscal 1999 and Fiscal 1998,
respectively. A substantial majority of these sales were VED segment products,
but this customer also purchased satcom equipment products.


12. RESEARCH AND DEVELOPMENT

CPI-sponsored research and development costs related to both present and future
products are expensed currently. Customer-sponsored research and developments
costs are charged to cost of sales



                                    - F-20 -
<PAGE>   56

                    COMMUNICATIONS & POWER INDUSTRIES, INC.
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                         Industries Holding Corporation)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


to match revenue received. Total expenditures incurred by CPI on research and
development are summarized as follows:

<TABLE>
<CAPTION>
                                                  CPI         Customer        Total
    (Dollars in thousands)                    Sponsored      Sponsored       Incurred
                                                ------         ------         ------
<S>                                           <C>            <C>             <C>
52-week period ended September 29, 2000         $8,690          6,476         15,166
52-week period ended October 1, 1999             8,983          8,586         17,569
52-week period ended October 2, 1998             7,455          5,973         13,428
</TABLE>


13. PROVISION FOR INCOME TAXES

Earnings (loss) before income taxes for domestic and non-U.S. operations is as
follows:

<TABLE>
<CAPTION>
                                       52-week             52-week              52-week
                                     period ended        period ended         period ended
                                     September 29,        October 1,           October 2,
  (Dollars in thousands)                 2000                1999                1998
                                       --------            --------            --------
<S>                                  <C>                 <C>                  <C>
Domestic                               $(13,985)            (12,017)              3,360
Non-U.S                                   3,625               2,964               5,567
                                       --------            --------            --------
Total                                  $(10,360)             (9,053)              8,927
                                       ========            ========            ========
</TABLE>

Income tax expense is comprised of the following:

<TABLE>
<CAPTION>
                            52-week         52-week        52-week
                          period ended   period ended    period ended
                          September 29,    October 1,     October 2,
  (Dollars in thousands)      2000           1999           1998
                             ------         ------         ------
<S>                       <C>            <C>             <C>
CURRENT
    U.S. federal             $   --             --             80
    State                        --             --           (571)
    Non-U.S                     943            605            632
                             ------         ------         ------
      Total Current             943            605            141
                             ------         ------         ------
DEFERRED
    U.S. federal                 --             --          3,677
    State                        --             --           (545)
    Non-U.S                     289             --            477
                             ------         ------         ------
      Total Deferred            289             --          3,609
                             ------         ------         ------

Income tax expense           $1,232            605          3,750
                             ======         ======         ======
</TABLE>



                                    - F-21 -
<PAGE>   57

                    COMMUNICATIONS & POWER INDUSTRIES, INC.
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                         Industries Holding Corporation)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


The significant components of the CPI's deferred tax assets and liabilities are
as follows:

<TABLE>
<CAPTION>
                                                                  Fiscal Year
                                                      ------------------------------------
  (Dollars in thousands)                                2000                        1999
                                                      --------                    --------
<S>                                                   <C>                         <C>
DEFERRED TAX ASSETS:
   Inventory                                          $  6,154                       4,751
   Product warranty                                         62                       2,234
   Accrued vacation                                      1,977                       2,009
   Deferred compensation                                   658                         607
   Excess purchase price                                 7,309                       8,326
   Foreign tax credit carryforwards                      4,750                       3,043
   Net operating loss carryforwards                      4,466                       2,148
                                                      --------                    --------
     Total deferred tax assets                          25,376                      23,118

DEFERRED TAX LIABILITIES:
   Accelerated depreciation                             (3,217)                     (3,285)
   Foreign jurisdictions, net                             (993)                       (191)
   Other                                                   128                         234
                                                      --------                    --------
     Total deferred tax liabilities                     (4,082)                     (3,242)
                                                      --------                    --------
Total deferred tax assets                               21,294                      19,876
Valuation allowance                                     (6,434)                     (4,727)
                                                      --------                    --------
Net deferred tax asset                                $ 14,860                      15,149
                                                      ========                    ========
</TABLE>

The provision for income tax expense for the fiscal years ended consists of
current income tax payable in foreign jurisdictions. Although the Company has a
consolidated pretax loss, most foreign operations have been profitable during
Fiscal 2000 and Fiscal 1999.

The Company has unutilized U.S. Federal net operating loss carryforward of $12.9
million, and unutilized U.S. Federal foreign tax credit carryforwards of $4.75
million and $3.0 million at the end of Fiscal 2000 and Fiscal 1999,
respectively. The net operating loss carryforward expires in the years beginning
2020 for Federal purposes and 2004 for California tax purposes. The foreign tax
credit carryovers expire in the years 2002 through 2005.

A valuation allowance of $6.4 million was established at the end of Fiscal 2000
principally to account for the likely expiration of these foreign tax credit
carryovers and the California net operating loss carryovers. Management has
established a valuation allowance to reduce the net deferred tax asset to a
level it believes is realizable based upon its business forecast.



                                    - F-22 -
<PAGE>   58

                    COMMUNICATIONS & POWER INDUSTRIES, INC.
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                         Industries Holding Corporation)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

The differences between the effective income tax rate and the statutory federal
income tax rate are as follows:

<TABLE>
<CAPTION>
                                                      52-week          52-week           52-week
                                                   period ended      period ended      period ended
                                                   September 29,      October 1,        October 2,
                                                       2000              1999              1998
                                                   -------------     ------------      ------------
<S>                                                <C>               <C>               <C>
Statutory federal income tax (benefit) rate           (35.0%)           (35.0%)            35.0%
Current year losses and NOL for which
    no tax benefits recognized                         34.4%             39.4%               --
Rate differential on foreign income tax
    expense (benefit) and withholding tax              11.9%             (7.2%)             2.0%
Non-deductible expenses                                  .6%              (.8%)              --
Other                                                    --              (3.1%)             5.0%
                                                       ----              -----             ----
Effective tax rate                                     11.9%             (6.7%)            42.0%
                                                       ====              =====             ====
</TABLE>

14. RETIREMENT AND PROFIT SHARING PLANS

CPI provides a qualified 401(k) investment plan covering substantially all of
its domestic and Canadian employees. The plan provides for CPI to contribute an
amount based on a percentage of each participant's base pay. CPI also has a
Non-Qualified Deferred Compensation Plan (the "Non-Qualified Plan") that allows
eligible executives and directors to defer a portion of their compensation.
Participant contributions and CPI matching contributions to the Non-Qualified
Plan are always 100% vested. The deferred compensation liability amounted to
approximately $401,000 and $312,000 as of September 29, 2000 and October 1,
1999, respectively.

Total CPI contributions to these plans were $2.6 million for Fiscal 2000, Fiscal
1999, and Fiscal 1998, respectively.

CPI's bonus program provides incentive bonuses to senior management if certain
performance goals are achieved and to employees if these goals are exceeded.
Such performance goals are measured based upon earnings before interest, taxes,
depreciation and amortization, return on sales and asset utilization.

15. RELATED PARTY TRANSACTIONS

Holding and CPI have entered into an agreement to pay $362,000, plus
out-of-pocket expenses, annually to an advisor group, which is an affiliate of
Holding's majority shareholder. Certain individuals who are stockholders of this
general partner of the advisor group are members of Holding's and CPI's
respective Boards of Directors.

In connection with Holding's 1995 Management Equity Plan, certain executive
officers of CPI and Holding elected to pay a portion of the purchase price for
their Management Shares by delivery of a secured promissory note to Holding. The
aggregate principal amount of such Management Notes was $875,376 as of September
29, 2000. Of this amount, $700,000 is secured by a pledge of a portion (from 50%
to 75%) of the Management Shares issued to each executive officer and is
guaranteed by



                                    - F-23 -
<PAGE>   59


                    COMMUNICATIONS & POWER INDUSTRIES, INC.
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                         Industries Holding Corporation)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


Varian. The balance of $175,376 is secured by a pledge of approximately 91% of
the Management Shares issued, but is not guaranteed by Varian. Outstanding
principal under each type of Management Note bears interest at an annually
adjustable rate equal to the "Applicable Federal Rate" in effect under Internal
Revenue Code Section 1274(d) for obligations of a term equal to the
then-remaining term of such note. Recourse by Holding under both types of
Management Notes is limited to the Management Shares pledged to secure the
applicable note. During Fiscal 2000, the initial payments on these promissory
notes, originally scheduled to begin August 11, 2000, were extended into Fiscal
2001 pending review by the Board of Directors.

16. PARENT COMPANY DATA

Holding has guaranteed CPI's senior debt obligations. Holding has no operations
other than its ownership of CPI. The consolidated balance sheets of Holding as
of September 29, 2000 and October 1, 1999 are substantially identical to that of
CPI and its subsidiaries, other than the presentation of CPI's preferred stock
as minority interest and the components of stockholders' equity of Holding and
is summarized as follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                               September 29,          October 1,
                        ASSETS                                                     2000                  1999
                        ------                                                 ------------           ----------
<S>                                                                            <C>                    <C>
Current assets                                                                   $ 119,724               114,792
Long-term assets                                                                   107,261               118,792
                                                                                 ---------             ---------
     Total assets                                                                $ 226,985               233,584
                                                                                 =========             =========
               LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities                                                              $  99,843                87,885
Long-term  debt and deferred taxes                                                 110,895               117,811
                                                                                 ---------             ---------
     Total liabilities                                                             210,738               205,696
Senior Redeemable Preferred Stock of subsidiary                                     28,265                24,228
Junior Preferred Stock of subsidiary                                                19,170                16,622
Stockholders' Equity:
     Common stock ($.01 par value, 6,500,000 shares authorized;
        4,908,172 shares issued and outstanding as of 2000 and 1999.)                   49                    49
     Additional paid-in capital                                                     19,111                19,134
     Accumulated deficit                                                           (49,215)              (31,039)
     Less stockholder loans                                                         (1,133)               (1,106)
                                                                                 ---------             ---------
          Total liabilities and stockholders' equity                             $ 226,985               233,584
                                                                                 =========             =========
</TABLE>

Separate financial statements of CPI's direct and indirect subsidiaries, all of
which guarantee the Notes, are not included because (i) these subsidiaries are
jointly and severally liable and (ii) the separate financial statements and
other disclosures concerning these subsidiaries are not deemed by CPI to be
material to investors.



                                    - F-24 -
<PAGE>   60
                    COMMUNICATIONS & POWER INDUSTRIES, INC.
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                        Industries Holding Corporation)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


17. SUBSEQUENT EVENTS

On December 22, 2000, a sale-leaseback transaction related to CPI's facilities
in San Carlos, California was accomplished between CPI and Holding. Holding paid
CPI aggregate consideration of $23.0 million for the San Carlos real estate,
consisting of $17.25 million in cash and an unsecured promissory note in the
principal amount of $5.75 million maturing in nine years, with interest-only
payments on a quarterly basis at the rate of 15.5% per annum, with up to 35.25%
of each interest payment payable in kind, at a Holding's option, by its issuance
of additional notes. CPI and Holding entered into a lease of the San Carlos real
property for a term of twenty (20) years on a net basis with a fixed annual rent
(payable in equal monthly installments) of $2.45 million. Holding financed the
cash portion of the San Carlos purchase price and its fees and expenses with
respect to the transaction by borrowing $18.0 million from Wells Fargo Bank,
which loan matures June 1, 2002, bears interest at LIBOR plus 3.25% and is
secured on a non-recourse basis (subject to normal and customary exceptions) by
the San Carlos real property. CPI realized a gain of approximately $8.4 million
on the transaction that will be amortized over the term of the lease.



                                    - F-25 -

<PAGE>   61

                        COMMUNICATIONS & POWER INDUSTRIES
                              HOLDING CORPORATION
                                and subsidiaries

                          INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
Communications & Power Industries Holding Corporation:

We have audited the accompanying consolidated balance sheets of Communications &
Power Industries Holding Corporation and subsidiaries ("Holding") as of
September 29, 2000 and October 1, 1999, and the related consolidated statements
of operations, stockholders' equity (deficit), and cash flows for the 52-week
periods ended September 29, 2000, October 1, 1999 and October 2, 1998. In
connection with our audits of the consolidated financial statements, we also
have audited the related financial statement schedule. These consolidated
financial statements and financial statement schedule are the responsibility of
Holding's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Communications &
Power Industries Holding Corporation and subsidiaries as of September 29, 2000
and October 1, 1999, and the results of their operations and their cash flows
for the 52-week periods ended September 29, 2000, October 1, 1999, and October
2, 1998, in conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

                                                                    /s/ KPMG LLP

Mountain View, California
December 1, 2000, except as to Notes 4(b)
and 19, which are as of December 22, 2000


                                     -F-26-
<PAGE>   62

                        COMMUNICATIONS & POWER INDUSTRIES
                              HOLDING CORPORATION
                                and subsidiaries


                           CONSOLIDATED BALANCE SHEETS
                 (in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                                           September 29,    October 1,
                                                                                               2000            1999
                                                                                           -------------    ----------
<S>                                                                                        <C>              <C>
                                     ASSETS

CURRENT ASSETS
      Cash and cash equivalents                                                              $   4,766           4,247
      Accounts receivable, net                                                                  42,434          49,596
      Inventories                                                                               63,949          52,526
      Deferred taxes                                                                             6,972           6,899
      Other current assets                                                                       1,603           1,524
                                                                                             ---------       ---------
          Total current assets                                                                 119,724         114,792
Property, plant, and equipment, net                                                             68,656          76,225
Goodwill and other intangibles, net                                                             26,090          28,723
Debt issue costs, net                                                                            4,627           5,594
Deferred taxes                                                                                   7,888           8,250

                                                                                             ---------       ---------
          Total assets                                                                       $ 226,985         233,584
                                                                                             =========       =========

LIABILITIES, SENIOR REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
      Revolving credit facility                                                              $  39,800          35,000
      Current portion of term loans                                                              6,012           7,700
      Current portion of capital leases                                                            960             885
      Accounts payable - trade                                                                  18,462          13,522
      Accrued expenses                                                                          16,903          16,489
      Product warranty                                                                           2,978           3,575
      Income taxes payable                                                                       9,518           8,978
      Advance payments from customers                                                            5,210           1,736
                                                                                             ---------       ---------
          Total current liabilities                                                             99,843          87,885
Senior term loans                                                                               10,000          15,986
Senior subordinated notes                                                                      100,000         100,000
Obligations under capital leases                                                                   895           1,825
                                                                                             ---------       ---------
          Total liabilities                                                                    210,738         205,696
                                                                                             ---------       ---------
SENIOR REDEEMABLE PREFERRED STOCK ($.01 par value,
      325,000 shares authorized; 297,346 and 259,120 shares issued and outstanding
      as of 2000 and 1999, respectively, liquidation preference $100 per share)                 28,265          24,228
                                                                                             ---------       ---------
JUNIOR PREFERRED STOCK OF CPI ($.01 par value, 525,000 shares
      authorized:  198,232 and 172,748 shares issued and outstanding as of 2000
      and 1999, respectively, liquidation preference $100 per share)                            19,170          16,622
                                                                                             ---------       ---------
Commitments and contingencies

STOCKHOLDERS' EQUITY
      Common stock ($.01 par value, 6,500,000 shares authorized; 4,908,172 shares
          issued and outstanding as of 2000 and 1999.)                                              49              49
      Additional paid-in capital                                                                19,111          19,134
      Accumulated deficit                                                                      (49,215)        (31,039)
      Stockholder loans                                                                         (1,133)         (1,106)
                                                                                             ---------       ---------
          Net stockholders' (deficit)                                                          (31,188)        (12,962)
                                                                                             ---------       ---------
          Total liabilities, senior redeemable preferred stock and stockholders' equity      $ 226,985         233,584
                                                                                             =========       =========
</TABLE>


See accompanying notes to the consolidated financial statements.


                                     -F-27-
<PAGE>   63

                        COMMUNICATIONS & POWER INDUSTRIES
                              HOLDING CORPORATION
                                and subsidiaries


                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                      52-Week          52-Week         52-Week
                                                    period ended    period ended    period ended
                                                    September 29,     October 1,      October 2,
                                                         2000            1999            1998
                                                    -------------   ------------    ------------
<S>                                                 <C>             <C>             <C>
Sales                                                 $ 243,054         255,680         260,688
Cost of sales                                           188,748         199,638         194,410
                                                      ---------       ---------       ---------
Gross profit                                             54,306          56,042          66,278
                                                      ---------       ---------       ---------
Operating costs and expenses:
     Research and development                             8,690           8,983           7,455
     Selling and marketing                               18,524          19,590          19,168
     General and administrative                          18,253          18,206          13,088

                                                      ---------       ---------       ---------
Total operating costs and expenses                       45,467          46,779          39,711
                                                      ---------       ---------       ---------
Operating income                                          8,839           9,263          26,567
Foreign currency (loss) gain                               (536)           (511)            153
Interest expense                                         18,663          17,805          17,793
                                                      ---------       ---------       ---------
(Loss) earnings before taxes                            (10,360)         (9,053)          8,927
Income tax expense                                        1,232             605           3,750
                                                      ---------       ---------       ---------
Net (loss) earnings                                     (11,592)         (9,658)          5,177

Preferred dividends:
    Senior Redeemable Preferred Stock                     3,822           3,331           2,904
    Junior Preferred Stock                                2,548           2,222           1,935

                                                      ---------       ---------       ---------
Net (loss) earnings attributable to common stock      $ (17,962)        (15,211)            338
                                                      =========       =========       =========
</TABLE>


See accompanying notes to the consolidated financial statements.


                                     -F-28-
<PAGE>   64

                        COMMUNICATIONS & POWER INDUSTRIES
                              HOLDING CORPORATION
                                and subsidiaries


            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                        (in thousands, except share data)


<TABLE>
<CAPTION>
                                                                                                      Total
                                                         Additional                               Stockholders'
                                              Common       Paid-in     Accumulated   Stockholder     Equity
                                               Stock       Capital       Deficit        Loans       (Deficit)
                                              -------    ----------    -----------   -----------  -------------
<S>                                           <C>        <C>           <C>           <C>          <C>
Balances, October 3, 1997                     $    49       19,630       (15,738)       (1,100)        2,841
                                              =======      =======       =======       =======       =======

Amortization of discount and issue costs
   on Senior Redeemable Preferred Stock                                     (214)                       (214)
Payment of dividends on Senior
   Redeemable Preferred Stock                                             (2,904)                     (2,904)
Payment of dividends on Junior
   Preferred Stock                                                        (1,935)                     (1,935)
Net earnings                                                               5,177                       5,177
Repayment of stockholder loans                                                              80            80
Interest accrued on stockholder loans                                                      (37)          (37)
Issuance of Treasury Stock                                     696                                       696
Purchase of Treasury Stock                                  (1,192)                                   (1,192)
                                              -------      -------       -------       -------       -------
Balances, October 2, 1998                     $    49       19,134       (15,614)       (1,057)        2,512
                                              =======      =======       =======       =======       =======

Amortization of discount and issue costs
   on Senior Redeemable Preferred Stock                                     (214)                       (214)
Payment of dividends on Senior
   Redeemable Preferred Stock                                             (3,331)                     (3,331)
Payment of dividends on Junior
   Preferred Stock                                                        (2,222)                     (2,222)
Net loss                                                                  (9,658)                     (9,658)
Interest accrued on stockholder loans                                                      (49)          (49)
                                              -------      -------       -------       -------       -------
Balances, October 1, 1999                     $    49       19,134       (31,039)       (1,106)      (12,962)
                                              =======      =======       =======       =======       =======

Amortization of discount and issue costs
   on Senior Redeemable Preferred Stock                                     (214)                       (214)
Payment of dividends on Senior
   Redeemable Preferred Stock                                             (3,822)                     (3,822)
Payment of dividends on Junior
   Preferred Stock                                                        (2,548)                     (2,548)
Net loss                                                                 (11,592)                    (11,592)
Repayment of stockholder loans                                                              20            20
Interest accrued on stockholder loans                                                      (47)          (47)
Purchase of Treasury Stock                                     (23)                                      (23)
                                              -------      -------       -------       -------       -------
Balances, September 29, 2000                  $    49       19,111       (49,215)       (1,133)      (31,188)
                                              =======      =======       =======       =======       =======
</TABLE>



See accompanying notes to the consolidated financial statements.


                                     -F-29-
<PAGE>   65

                        COMMUNICATIONS & POWER INDUSTRIES
                              HOLDING CORPORATION
                                and subsidiaries


                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)


<TABLE>
<CAPTION>
                                                              52-Week       52-Week       52-Week
                                                            period ended  period ended  period ended
                                                            September 29,   October 1,    October 2,
                                                                2000          1999          1998
                                                            ------------- ------------  ------------
<S>                                                         <C>           <C>           <C>
OPERATING ACTIVITIES
      Net cash provided by operating activities                $ 9,897         6,282        23,309
                                                               -------       -------       -------
INVESTING ACTIVITIES
      Proceeds from sale of
           property, plant and equipment                            --            54            61
      Purchase of property, plant, and equipment                (5,325)       (8,260)       (6,565)
      Product line acquisitions                                     --            --        (2,730)
      Purchase of net current assets in connection
           with acquisitions                                        --        (1,861)           --
      Purchase of property and equipment in connection
           with acquisitions                                        --          (523)           --
      Purchase of intangible assets in connection
           with acquisitions                                        --        (6,526)           --
                                                               -------       -------       -------
      Net cash used in investing activities                     (5,325)      (17,116)       (9,234)
                                                               -------       -------       -------
FINANCING ACTIVITIES
      Repayments on capital leases                                (855)         (688)          (38)
      Net Proceeds/(Repayments) from revolving credit
           facility                                              4,800        21,700        (9,500)
      Repayments on senior term loans                           (7,995)       (6,379)       (5,700)
      Issuance of treasury stock                                    --            --           696
      Purchases of treasury stock                                  (23)           --        (1,192)
      Proceeds from stockholder loans                               20            --            80
                                                               -------       -------       -------
      Net cash (used by) provided by financing activities       (4,053)       14,633       (15,654)
                                                               -------       -------       -------
NET INCREASE (DECREASE) IN
   CASH AND CASH EQUIVALENTS                                       519         3,799        (1,579)
      Cash and cash equivalents at beginning of period           4,247           448         2,027
                                                               -------       -------       -------
      Cash and cash equivalents at end of period               $ 4,766         4,247           448
                                                               =======       =======       =======
</TABLE>



See accompanying notes to the consolidated financial statements.


                                     -F-30-
<PAGE>   66

                        COMMUNICATIONS & POWER INDUSTRIES
                              HOLDING CORPORATION
                                and subsidiaries


                CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
                                 (in thousands)


<TABLE>
<CAPTION>
                                                        52-Week        52-Week        52-Week
                                                      period ended  period ended    period ended
                                                      September 29,   October 1,     October 2,
                                                          2000           1999           1998
                                                      ------------  ------------    ------------
<S>                                                   <C>           <C>             <C>
DETAIL OF NET CASH PROVIDED
    BY OPERATING ACTIVITIES
Net (loss) earnings                                     $(11,592)        (9,658)         5,177
Adjustments to reconcile net (loss) earnings to
    net cash provided by operating activities:
      Depreciation                                        12,682         10,851          9,981
      Amortization of deferred debt issue costs            1,288          1,209          1,372
      Amortization of goodwill and intangibles             2,634          2,784          1,316
      Allowance for doubtful accounts                       (346)           507            354
      Deferred taxes                                         289             --          3,892
      Interest accrued on stockholder loans                  (47)           (49)           (37)
      Loss on the disposition of assets                      212             61             32
      Changes in operating assets and liabilities:
           Accounts receivable                             7,508            382          2,488
           Inventories                                   (11,423)         1,752         (1,863)
           Other current assets                              (79)            17           (219)
           Accounts payable - trade                        4,940             72          2,721
           Accrued expenses                                  414            601            552
           Product warranty                                 (597)          (169)          (477)
           Income tax payable                                540         (1,281)        (1,716)
           Advance payments from customers                 3,474           (797)          (264)
                                                        --------       --------       --------
Net cash provided by operating activities               $  9,897          6,282         23,309
                                                        ========       ========       ========
</TABLE>


See accompanying notes to the consolidated financial statements.


                                     -F-31-
<PAGE>   67

                        COMMUNICATIONS & POWER INDUSTRIES
                              HOLDING CORPORATION
                                and subsidiaries


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


1.  NATURE OF OPERATIONS

Communications & Power Industries Holding Corporation ("Holding"), through its
wholly owned subsidiary, Communications & Power Industries, Inc. ("CPI", both
companies together referred to as "the Company") develops, manufactures and
distributes microwave and power grid vacuum electronic devices, microwave
amplifiers, modulators and various other power supply equipment and devices. The
Company operates six manufacturing operations in North America, and sells and
services its products and customers worldwide primarily through a direct sales
force.

In August 1995, CPI acquired substantially all of the assets of Varian
Associates, Inc.'s ("Varian") Electron Device business (the "Predecessor") and
then was merged with a wholly owned subsidiary of Communications & Power
Industries Holding Corporation, a corporation newly formed by a group of
investors, including management of Holding and CPI. The acquisition was
accounted for as a purchase and, accordingly, the purchase price was allocated
based upon the fair values of assets acquired and liabilities assumed as of
August 11, 1995. Financing for the acquisition was obtained through the issuance
of 12% Senior Subordinated Notes due 2005 (the "Senior Subordinated Notes") of
CPI in the aggregate principal amount of $100.0 million, the issuance of Series
A 14% Senior Redeemable Exchangeable Cumulative Preferred Stock due 2007 (the
"Senior Redeemable Preferred Stock") of CPI and the issuance of Series A 14%
Junior Cumulative Preferred Stock (the "Junior Preferred Stock") of CPI and
common stock of Holding.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

               Basis of Presentation

The accompanying consolidated financial statements include the accounts of
Holding and its direct and indirect wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.

The Company's fiscal years are the 52- or 53-week periods which end on the
Friday nearest September 30. All references to years in these notes to
consolidated financial statements represent fiscal year unless otherwise noted.

               Use of 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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates.

               Cash and Cash Equivalents

Currency on hand, demand deposits, and all highly liquid investments with an
original maturity of three months or less are considered to be cash and cash
equivalents.


                                     -F-32-
<PAGE>   68

                        COMMUNICATIONS & POWER INDUSTRIES
                              HOLDING CORPORATION
                                and subsidiaries


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

               Revenue Recognition

Sales and related cost of sales are recognized primarily upon shipment of
products. Sales and related cost of sales under long-term contracts to
commercial customers and the U.S. government are recognized primarily as units
are delivered.

The estimated sales values of performance under certain contracts to commercial
customers and U.S. Government fixed-price and fixed-price incentive contracts
in process are recognized under the percentage of completion method of
accounting where the sales value is determined on the basis of costs incurred.
Provisions for anticipated losses are made in the period in which they first
become determinable. Sales under cost-reimbursement contracts, primarily
research and development contracts, are recorded as costs are incurred and
include estimated earned fees in the proportion that costs incurred to date bear
to total estimated costs. The fees under certain U.S. Government contracts may
be increased or decreased in accordance with cost or performance incentive
provisions which measure actual performance against established targets or other
criteria. Such incentive fee awards or penalties are included in revenue at the
time the amounts can be reasonably determined.

               Property, Plant, and Equipment

Property, plant and equipment are stated at cost. Major improvements are
capitalized, while maintenance and repairs are expensed currently. Plant and
equipment are depreciated over their estimated useful lives using the
straight-line method. Leasehold improvements are amortized using the
straight-line method over their estimated useful lives, or the remaining term of
the lease, whichever is shorter. Estimated useful lives of property, plant, and
equipment are as follows: land leaseholds, the life of the lease; buildings, 20
to 40 years; machinery and equipment, 3 to 7 years.

               Accounting for Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of long-lived assets is measured by comparison of
its carrying amount to future net cash flows expected to be generated from the
operation and sale of long-lived assets. If such assets are considered to be
impaired, the Company's carrying value is reduced to its estimated fair value.

Goodwill represents the excess of the purchase price over the fair value of the
net assets acquired. The Company assesses the recoverability of the carrying
amount of goodwill by determining whether the carrying amount of goodwill can be
recovered through undiscounted net cash flows of the acquired operation over the
remaining amortization period. If determined to be impaired, the carrying amount
is reduced to its estimated fair value which is based on an estimate of
discounted future net cash flows. Goodwill is being amortized on a straight-line
basis over estimated useful lives ranging from 15 to 25 years. Accumulated
amortization was $9.0 million and $6.4 million as of September 29, 2000 and
October 1, 1999, respectively.

On October 6, 1998, CPI acquired Microwave Components Division ("MCD") of Aydin
Corporation for approximately $8.9 million with net assets of approximately $2.4
million. Of the $6.5 million difference between the purchase price and the fair
value of the net assets acquired, $3.4 million was allocated to goodwill and
$3.1 million was allocated to other identifiable intangibles including


                                     -F-33-
<PAGE>   69

                        COMMUNICATIONS & POWER INDUSTRIES
                              HOLDING CORPORATION
                                and subsidiaries


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


customer list, trade name, covenant not to compete, software tights and debt
issuance cost, whose useful lives range from 1 to 3 years. This acquisition was
accounted for as a purchase.

               Product Warranty

The Company's products are generally warranted for a variety of periods,
typically one to five years or a predetermined product usage life. A provision
for estimated future costs of repair, replacement or customer accommodations are
reflected in the accompanying consolidated financial statements.

               Environmental Liabilities

Liabilities for environmental expenditures are recorded when it is probable that
obligations have been incurred and the amounts can be reasonably estimated.
There were no environmental liabilities established by the Company during Fiscal
2000, Fiscal 1999 or Fiscal 1998. Varian retained the environmental liabilities
existing at the time the Company acquired substantially all of the assets of
Varian's Electron Device business in August 1995.

               Deferred Debt Issue Costs

Costs incurred related to the issuance of CPI's long-term debt and other credit
facilities are capitalized and amortized over the estimated time the obligations
are expected to be outstanding using the effective interest method. The
amortization period used for the deferred costs associated with the revolving
credit facility, the Senior Term Loans, and the Senior Subordinated Notes is 3
years, 7 years and 10 years, respectively.

               Senior Redeemable Preferred Stock

CPI's Senior Redeemable Preferred Stock was issued in units with an aggregate of
10,500 shares of common stock of Holding. The fair value of the shares of
Holding's common stock issued, and the issue costs associated with the issuance
of the Senior Redeemable Preferred Stock, have been reflected as a reduction of
the Senior Redeemable Preferred Stock issued and is being amortized via a charge
to accumulated deficit over the period until mandatory redemption, 12 years,
using the effective interest method.

               Income Taxes

Income taxes are accounted for under the asset and liability method. Holding's
deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax basis and the financial
reporting basis of assets and liabilities. The provision for income taxes is
based upon the differences between financial reporting and tax basis of assets
and liabilities measured using the enacted tax rates and laws in effect when the
differences are expected to reverse. The effect on deferred tax assets and
liabilities from a change in tax rates is recognized in income in the period
that includes the enactment date.


                                     -F-34-
<PAGE>   70

                        COMMUNICATIONS & POWER INDUSTRIES
                              HOLDING CORPORATION
                                and subsidiaries


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


               Business Risks and Credit Concentrations

Defense-related applications such as certain radar, electronic countermeasures
and military communications constitute a significant portion of the Company's
sales. Although management believes that the Company has successfully responded
to shrinking defense budgets by refocusing its operations on commercial and
other non-defense applications, a significant further decline in U.S. or global
military spending could have a material adverse effect on the Company's sales
and earnings. Additionally, companies engaged in supplying defense-related
equipment and services to government agencies are subject to certain business
risks, including the ability of the U.S. Government to suspend them from
receiving new contracts or to terminate existing contracts for the U.S.
Government's convenience or for the default of the contractor. In addition, the
U.S. Government could terminate contracts due to insufficient or terminated
congressional appropriations. The Company's contracts with foreign governmental
defense agencies are subject to similar limitations and risks as those
encountered with U.S. Government contracts.

The Company believes that both its customer and industry base is well
diversified, however, changes in the marketplace of any of the above named
industries and/or volatility in the world's industrial economies may
significantly affect management's estimates and the Company's performance.

Generally, the Company requires no collateral from its customers and the Company
estimates an allowance for doubtful accounts based on the credit worthiness of
its customers as well as general economic conditions. Consequently, an adverse
change in those factors could affect the Company's estimate of its bad debts.
Historical credit losses have been within management's expectations and most
transactions to third world economies are backed by letters of credit.

               Foreign Currency Translation

The functional currency of the Company's foreign subsidiaries is the U.S.
dollar. Gains or losses resulting from the translation into U.S. dollars of
amounts denominated in foreign currencies are included in the determination of
net income.

               Fair Value of Financial Instruments

Financial instruments consist of cash and cash equivalents, accounts receivable,
accounts payable, revolving credit facility, term loans and long-term debt. The
carrying value of the Company's cash and cash equivalents, accounts receivable,
accounts payable, revolving credit facility and term loans approximate their
fair values due to the relatively short period to maturity of the instruments.
The fair value of CPI's Senior Subordinated Notes, based on quoted market prices
or pricing models using current market rates, has been quoted at a level of
71.00 (100.00 is face value) as of October 25, 2000.

               Change in Accounting Estimate

During Fiscal 1998, CPI reviewed and revised downward its estimate of disposal
costs used in its calculation of lower of cost or market write-downs for
long-term contracts to more closely reflect its cost structure versus the
assumptions carried forward from Varian's operations for sales related expenses.
The change resulted in an increase to net income of approximately $1 million.


                                     -F-35-
<PAGE>   71

                        COMMUNICATIONS & POWER INDUSTRIES
                              HOLDING CORPORATION
                                and subsidiaries


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


               Stock-Based Compensation

The Company accounts for stock-based employee compensation arrangements under
the intrinsic value method prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations.

In March 2000, the FASB issued interpretation No. 44 (FIN 44), Accounting for
Certain Transactions Involving Stock Compensation -- an Interpretation of APB
25. This Interpretation clarifies (a) the definition of an employee for purposes
of applying APB 25, (b) the criteria for determining whether a plan qualifies as
a non-compensatory plan, (c) the accounting consequences of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. The Company adopted FIN 44 on July 1, 2000. The adoption did not
have a material effect on the Company's consolidated financial position or
results of operations.

               Comprehensive Income

The Company has no components of other comprehensive income (loss) and,
accordingly, comprehensive income (loss) is the same as reported net earnings
(loss) for all periods presented.


3.  BALANCE SHEET COMPONENTS

               Accounts Receivable

Accounts receivable are stated net of allowances for doubtful accounts of
$797,000 and $1,143,000 as of September 29, 2000 and October 1, 1999,
respectively.

               Inventories

Inventories are stated at the lower of average cost or market (net realizable
value). The main components of inventories are as follows:

<TABLE>
<CAPTION>
                                  Fiscal Year
                            ----------------------
                               2000         1999
                            ---------    ---------
                            (Dollars in thousands)
<S>                         <C>           <C>
Raw materials and parts      $46,859       39,953
Work in process               14,731        9,878
Finished goods                 2,359        2,695
                             -------      -------
Total inventories            $63,949       52,526
                             =======      =======
</TABLE>


                                     -F-36-
<PAGE>   72

                        COMMUNICATIONS & POWER INDUSTRIES
                              HOLDING CORPORATION
                                and subsidiaries


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


               Property, Plant, and Equipment

The main components of property, plant, and equipment are as follows:


<TABLE>
<CAPTION>
                                              Fiscal Year
                                       -------------------------
                                         2000            1999
                                       ---------       ---------
                                        (Dollars in thousands)
<S>                                    <C>             <C>
Land and land leaseholds               $  36,655          36,567
Buildings                                 21,117          19,750
Machinery and equipment                   52,801          49,042
Leased equipment                           4,102           4,031
Construction in progress                     672           2,984
                                       ---------       ---------
Subtotal                                 115,347         112,374
Less accumulated depreciation
        and amortization                 (46,691)
                                                         (36,149)
                                       ---------       ---------
Net property, plant and equipment      $  68,656          76,225
                                       =========       =========
</TABLE>

Accumulated amortization of equipment under capital lease arrangements was
$1,994,000 and $1,254,000 as of September 29, 2000 and October 1, 1999,
respectively, and related amortization expense is included in depreciation
expense on the statement of cash flows.

               Accrued Expenses

Accrued expenses are comprised of the following:

<TABLE>
<CAPTION>
                                        Fiscal Year
                                  ----------------------
                                     2000         1999
                                  ---------    ---------
                                  (Dollars in thousands)
<S>                               <C>          <C>
Taxes                              $ 1,147        1,187
Payroll and employee benefits       10,149        9,994
Accrued interest                     3,216        2,528
Other                                2,391        2,780
                                   -------      -------
Total accrued expenses             $16,903       16,489
                                   =======      =======
</TABLE>


4.  SENIOR CREDIT AGREEMENT

(a) The Senior Credit Agreement provides for two term loans in the aggregate
amount of $42.0 million, comprised of a $25.0 million "Term Loan A" tranche and
a $17.0 million "Term Loan B" tranche, and a $45.0 million revolving credit
facility ("Revolver"), which includes a sub-facility of $7.5 million for letters
of credit. Term Loan A was paid in full in August 2000. Term Loan B is subject
to quarterly payments in aggregate annual amounts of $6.0 million and $10.0
million in Fiscal 2001 and Fiscal 2002, respectively, and terminates on August
12, 2002.

Availability of advances under the Revolver is subject to a borrowing base test.
CPI's obligations under the Senior Credit Agreement are secured by substantially
all of its assets (including the issued and outstanding capital stock of its
direct and indirect subsidiaries) and are guaranteed by Holding


                                     -F-37-
<PAGE>   73

                        COMMUNICATIONS & POWER INDUSTRIES
                              HOLDING CORPORATION
                                and subsidiaries


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


and all of CPI's subsidiaries. As of September 29, 2000, CPI had $1.3 million
available under the Revolving Credit Facility.

Borrowings under the Revolver and Term Loan A bear interest at a rate equal to
the Eurodollar Rate (approximately 6.6875% as of September 29, 2000) plus 3.00%
per annum or the Base Rate (9.50% as of September 29, 2000) plus 1.50% per annum
and borrowings under Term Loan B bear interest at a rate equal to the Eurodollar
Rate plus 3.50% per annum or Base Rate plus 2.00% per annum, in each case as
selected by CPI. In addition to customary fronting and other fees, CPI pays a
fee equal to 1.5% per annum on outstanding but undrawn amounts of letters of
credit and a commitment fee of 0.5% per annum on unused facilities under the
Revolver.

(b) In December 2000, the Company terminated the Senior Credit Agreement and
replaced it with a $61.0 million secured credit facility ("Credit Facility").
This new facility consists of a $41.0 million revolving line of credit, with a
sub-facility of $10.0 million for letters of credit, which expires December 22,
2004, and a $20.0 million term loan, which expires December 22, 2002. The Credit
Facility is secured by substantially all of the assets of CPI and is guaranteed
by Holding and all of CPI's subsidiaries. Availability under the Credit Facility
is based upon eligible receivables, machinery and equipment and certain real
estate. The revolving line of credit provides for borrowings that will bear
interest at a rate equal to LIBOR plus 3.25% per annum or Prime plus 1.75% per
annum. The term loan provides for borrowings that will bear interest at rate
equal to Prime plus 5.50% per annum. Additionally, the terms of the facility
require the Company to maintain certain financial covenants and limit the
payment of cash dividends on the Senior and Junior Preferred Stock. In addition
to customary fronting and other fees, CPI will pay a fee equal to 1.25% per
annum on outstanding but undrawn amounts of letters of credit; and additionally
CPI will pay customary collateral management fees and a commitment fee of 0.375%
per annum on unused facilities under the Credit Facility.


5.  SENIOR SUBORDINATED NOTES OF CPI

The $100 million principal amount of Senior Subordinated Notes mature in 2005
and bear interest at 12% per annum, payable semiannually. The payment of
principal of, premium and interest on, and other obligations evidenced by the
Notes is subordinated in right of payment, as set forth in the indenture
governing the Senior Subordinated Notes (the "Indenture"), to the prior payment
in full of all senior indebtedness (as defined), including indebtedness under
the senior credit facility, whether outstanding on the date of the Indenture or
thereafter incurred. CPI's payment obligations under the Notes are jointly and
severally guaranteed by Holding and CPI's subsidiaries.

The Notes are subject to redemption at the option of CPI, in whole or in part,
at the redemption prices (expressed as percentages of principal amount) set
forth below plus accrued and unpaid interest, if any, thereon to the applicable
redemption date, if redeemed during the 12-month period beginning on August 1 of
the years indicated as follows:


                                     -F-38-
<PAGE>   74

                        COMMUNICATIONS & POWER INDUSTRIES
                              HOLDING CORPORATION
                                and subsidiaries


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


<TABLE>
<CAPTION>
           Year            Percentage
           ----            ----------
<S>                        <C>
           2001              104.5%
           2002              103.0%
           2003              101.5%
    2004 and thereafter      100.0%
</TABLE>

Upon the occurrence of a change of control, each holder of Notes will have the
right to require CPI to offer to repurchase all or any part of such holder's
Notes. The senior credit facility currently prohibits CPI from making such an
offer. In addition, the Indenture covering the Notes provides for various
restrictions, including restrictions on mergers or the sales of CPI's assets,
dividend payments, purchase, redemption, acquisition or retirement of equity
interests of CPI or its affiliates, principal payment on any indebtedness of CPI
or guarantors that is subordinated to the Notes, the incurrence of certain
indebtedness, or the making of any restricted investment, as defined.


6.  SENIOR REDEEMABLE PREFERRED STOCK OF CPI

CPI is authorized to issue up to 325,000 shares of nonvoting Series B 14% Senior
Redeemable Exchangeable Cumulative Preferred Stock due 2007 (the "Senior
Preferred Stock"), including shares of Senior Preferred Stock which may be used
to pay dividends on the Senior Preferred Stock if the Company so elects.
Dividends on the Senior Preferred Stock accrue at the rate of 14% per annum and
are payable quarterly, commencing on November 1, 1995. After August 1, 2000,
dividends may be paid only in cash.

During the year ended September 29, 2000, CPI paid preferred dividends through
the issuance of 38,226 shares of its Senior Redeemable Preferred Stock at a
value of $100 per share.

The Senior Preferred Stock is redeemable at the option of CPI, in whole or in
part from time to time, initially at 107% of the liquidation preference thereof
and at decreasing prices thereafter to and including August 1, 2004 and
thereafter at 100% of the liquidation preference thereof, together in each case
with accumulated and unpaid dividends thereon. The Senior Preferred Stock is
subject to mandatory redemption in whole on August 1, 2007 at a price equal to
the liquidation preference thereof, plus accumulated and unpaid dividends.

In the event of a change of control, CPI will be required to make an offer to
each holder of shares of Senior Preferred Stock to repurchase all or a portion
of such holder's Senior Preferred Stock at a price equal to 101% of the
liquidation preference thereof, plus accumulated and unpaid dividends. The
Senior Credit Agreement currently prohibits and the Indenture currently
restricts CPI from making such an offer. In addition, CPI will be required to
use the proceeds from certain asset sales to permanently reduce senior
indebtedness of CPI, to invest in certain related assets or businesses or to
offer to repurchase Senior Preferred Stock. Any such repurchases shall be
effected at an offer price equal to 100% of the liquidation preference of the
shares of Senior Preferred Stock purchased, plus accumulated and unpaid
dividends.

The Certificate of Designation covering the Senior Preferred Stock contains
certain provisions that, among other things, limit the ability of CPI to incur
indebtedness, pay dividends, incur liens, make loans or investments, transact
with affiliates and engage in mergers and consolidations.


                                     -F-39-
<PAGE>   75

                        COMMUNICATIONS & POWER INDUSTRIES
                              HOLDING CORPORATION
                                and subsidiaries


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


CPI may, at its option, on any dividend payment date, exchange all, but not less
than all, of the outstanding shares of Senior Preferred Stock into 14% Junior
Subordinated Notes due 2007 (the "Exchange Notes"), so long as such exchange is
permitted by the senior credit facility and the Indenture, in an aggregate
principal amount not to exceed the aggregate liquidation preference, plus
accumulated and unpaid dividends on the date of exchange. The Exchange Notes
will be general unsecured obligations of CPI and will be subordinated to all
existing and future senior indebtedness of CPI, including indebtedness under the
Senior Credit Agreement and the Indenture. Except for terms relating to these
subordination provisions, payment of interest on a quarterly basis, optional
redemption and the date on which repayment is mandatory (all of which terms
would be similar to the terms of Senior Preferred Stock), the terms of the
Exchange Notes will be generally identical to the Notes.


7.  JUNIOR PREFERRED STOCK OF CPI

CPI is authorized to issue up to 525,000 shares of nonvoting Series A 14% Junior
Cumulative Preferred Stock (the "Junior Preferred Stock") including shares of
Junior Preferred Stock which may be used to pay dividends on the Junior
Preferred Stock if CPI elects to pay dividends in shares of Junior Preferred
Stock. The aggregate liquidation preference of the Junior Preferred Stock issued
in connection with the formation of CPI in 1995 was $10.0 million. Dividends on
the Junior Preferred Stock accrue at the rate of 14% per annum and are payable
quarterly, commencing on November 1, 1995. On or before the redemption of the
Senior Preferred Stock or the exchange of Senior Preferred Stock into Exchange
Notes, CPI is required to pay dividends on the Junior Preferred Stock in
additional fully paid and non-assessable shares of Junior Preferred Stock having
an aggregate liquidation preference equal to the amount of such dividends. After
such redemption or exchange, CPI may, at its option and subject to debt and
senior preferred stock covenant restrictions, pay dividends on the Junior
Preferred Stock in cash or in additional fully paid and non-assessable shares of
Junior Preferred Stock having an aggregate liquidation preference equal to the
amount of such dividends.

During the year ended September 29, 2000, CPI paid preferred dividends through
the issuance of 25,484 shares of its Junior Preferred Stock at a value of $100
per share.

The Junior Preferred Stock ranks junior in right of payment to all liabilities
of CPI and to any preferred stock, including Senior Preferred Stock, that is
senior in right of payment to the Junior Preferred Stock and ranks senior in
right of payment to any additional preferred stock which does not expressly
provide that it ranks senior to or on a parity with the Junior Preferred Stock
and CPI's common stock.


8.  SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest was $16.7 million, $16.6 million and $16.4 million, in
Fiscal 2000, Fiscal 1999 and Fiscal 1998, respectively. Cash (refunded) paid for
taxes was $(32,000), $1.8 million and $1.1 million in Fiscal 2000, Fiscal 1999
and Fiscal 1998, respectively.

Non-cash financing activities included the payment of preferred dividends by CPI
on its Senior Redeemable Preferred Stock and its Junior Preferred Stock through
the issuance of 38,226, 33,312 and 29,029 additional shares of its Senior
Redeemable Preferred Stock and 25,484, 22,208 and


                                     -F-40-
<PAGE>   76

                        COMMUNICATIONS & POWER INDUSTRIES
                              HOLDING CORPORATION
                                and subsidiaries


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


19,354 additional shares of its Junior Preferred Stock during Fiscal 2000,
Fiscal 1999 and Fiscal 1998, respectively. Amortization of discount and issue
costs on the Senior Redeemable Preferred Stock was $214,000 for each of the
three years Fiscal 2000, Fiscal 1999 and Fiscal 1998. Equipment of $0.3 million
and $1.5 million was acquired under capital leases for Fiscal 1999 and Fiscal
1998, respectively; no equipment was acquired under capital leases for Fiscal
2000.


9.  LEASE COMMITMENTS
At September 29, 2000, the Company was committed to minimum rentals under
non-cancelable operating lease agreements primarily for land and facility space.
The Company also leases certain computer equipment under capital leases that
expire in 2003. As collateral for these capital leases, the Company has issued
letters of credit totaling $1.3 million. A summary of future minimum lease
payments (in thousands) follows:
<TABLE>
<CAPTION>
                                                   Capital    Operating    Sublease
Fiscal Year                                         Leases      Leases      Income
-----------                                        -------    ---------    --------
<S>                                                <C>        <C>          <C>
2001                                                $1,087       1,365       1,081
2002                                                   925       1,023         174
2003                                                    33         681          75
2004                                                    --         310          --
2005                                                    --         258          --
                                                    ------      ------      ------
Total future minimum lease payments                  2,045       3,637       1,330
                                                                ======      ======
Less amount representing interest, sales
   tax and additional obligations                      190
                                                    ------
Present value of future minimum lease payments       1,855
Less current portion of obligations under
   capital leases                                      960
                                                    ------
Obligations under capital leases, less
   current portion                                  $  895
                                                    ======
</TABLE>

Real estate taxes, insurance, and maintenance are also obligations of the
Company. Rental expense under non-cancelable operating leases amounted to
$997,000, $943,000 and $721,000 for Fiscal 2000, Fiscal 1999 and Fiscal 1998,
respectively.


10.  CONTINGENCIES

The amount of outstanding letters of credit provided for under CPI's Senior
Credit Agreement was approximately $3.9 million as of September 29, 2000. These
outstanding obligations are comprised of the following: $1.8 million to foreign
customers related to an advance payment guarantee, $1.3 million to two lenders
related to capital lease arrangements and $0.8 million to various other
beneficiaries related primarily to insurance needs and performance bond
guarantees.

Varian is currently a defendant in certain legal actions relating to its
operation of the assets sold to the Company and could incur an uninsured
liability in one or more of them. The Company's acquisition agreement with
Varian provides for Varian's retention of liability arising out of the above
referenced litigation. Accordingly, in the opinion of management, the outcome of
that litigation will not have a material adverse effect on the financial
condition, results of operations or cash flows of the Company.


                                     -F-41-
<PAGE>   77

                        COMMUNICATIONS & POWER INDUSTRIES
                              HOLDING CORPORATION
                                and subsidiaries


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


Varian has also been named by the Environmental Protection Agency or third
parties as a potentially responsible party under the Comprehensive Environmental
Response Compensation and Liability Act of 1980, as amended, at sites to which
Varian is alleged to have shipped manufacturing waste for disposal. Varian is
also involved in various stages of environmental investigation and/or
remediation under the direction of, or in consultation with, local and/or state
agencies at certain facilities of the Company. Uncertainty as to (a) the extent
to which Varian caused, if at all, the conditions being investigated; (b) the
extent of environmental contamination and risks; (c) the applicability of
changing and complex environmental laws; (d) the number and financial viability
of other potentially responsible parties; (e) the stage of the investigation
and/or remediation; (f) the unpredictability of investigation and/or remediation
costs (including as to when they will be incurred); (g) applicable clean-up
standards; (h) the remediation (if any) which will ultimately be required; and
(i) available technology make it difficult to assess the likelihood and scope of
further investigation or remediation activities or to estimate the future costs
of such activities if undertaken.

The Company's acquisition agreement with Varian provides for Varian's retention
of liability arising out of investigative and remedial action and environmental
claims for conditions existing as of the closing date at the above-referenced
facilities. Accordingly, based on information currently available, management
believes that the costs of these matters are not likely to have a material
adverse effect on the financial condition, results of operations and cash flows
of CPI.

From time to time, the Company may be subject to other claims that arise in the
ordinary course of business. In the opinion of management, all such matters
involve amounts which would not have a material adverse effect on the Company's
consolidated financial position if unfavorably resolved.


11.  SEGMENTS AND RELATED INFORMATION


The Company has two reportable segments: vacuum electronic devices ("VEDs") and
satcom equipment. Reportable segments are differentiated based on product. The
VED segment is made up of four operating units, which have been aggregated. Each
operating unit has a President that reports to the Office of the Chief Operating
Officer, held jointly by two of the Presidents, that in turn reports directly to
the Chief Executive Officer ("CEO").


The CEO evaluates performance and allocates resources to each of these operating
units based on the Company's principal performance measure, earnings before
income taxes, interest, depreciation and amortization ("EBITDA"). These four
operating units have similar economic characteristics as measured by EBITDA. The
Company's analysis of the similarity of economic characteristics was based on
both a historical and anticipated future analysis of performance. In addition,
the aggregated units are similar in (i) the nature of their products, (ii) their
manufacturing processes, (iii) their customers and, (iv) their distribution and
sales methods.

The VED segment develops, manufactures and distributes high power/high frequency
microwave and radio frequency signal components. Its products include linear
beam, cavity, power grid, crossed field and magnetron devices. These products
are used in the communication, radar, electronic countermeasures, industrial,
medical and scientific markets depending on the specific power and frequency
requirements of the end-user and the physical operating conditions of the


                                     -F-42-
<PAGE>   78

                        COMMUNICATIONS & POWER INDUSTRIES
                              HOLDING CORPORATION
                                and subsidiaries


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


environment in which the vacuum electronic device will be located. These
products are distributed through the Company's direct sales force, independent
sales representatives and distributors.

The satcom equipment segment manufactures and supplies high power amplifiers and
networks for satellite communication uplink and industrial applications. This
segment also provides spares, service and other post sales support. Its products
are distributed through the Company's direct sales force and independent sales
representatives.

Sales and marketing, finance and administration expenses are allocated to the
operating units and are included in the results reported. The accounting
policies of the reportable segments are the same as those described in the
summary of significant accounting policies. Intersegment product transfers are
recorded at cost.

Summarized financial information concerning the Company's reportable segments is
shown in the following table. Included in the "Other" column is financial
information for the Company's Solid State Products Division, which did not meet
the quantitative thresholds, and certain unallocated corporate-level operating
expenses.

<TABLE>
<CAPTION>
                                                    Satcom
                                        VEDs       Equipment        Other           Total
                                      --------     ---------       --------       --------
                                                     (Dollars in thousands)
<S>                                   <C>          <C>             <C>            <C>
Fiscal Year 2000:
Revenues from external customers      $188,800        48,190          6,064        243,054
Intersegment product transfers           9,524            --          1,232         10,756
EBITDA                                  29,773        (3,348)        (2,806)        23,619
Total Assets                           120,012        27,956         79,017        226,985
Capital Expenditures                     3,078           996          1,251          5,325

Fiscal Year 1999:
Revenues from external customers      $186,852        61,901          6,927        255,680
Intersegment product transfers          14,514            --          1,740         16,254
EBITDA                                  23,862         2,939         (4,274)        22,527
Total Assets                           118,701        32,648         82,235        233,584
Capital Expenditures                     5,447           920          1,893          8,260

Fiscal Year 1998:
Revenues from external customers      $181,479        77,069          2,140        260,688
Intersegment product transfers          16,747            --             --         16,747
EBITDA                                  30,859         8,950         (1,792)        38,017
Total Assets                           124,802        32,643         71,767        229,212
Capital Expenditures                     4,805         1,156            604          6,565
</TABLE>


                                     -F-43-
<PAGE>   79

                        COMMUNICATIONS & POWER INDUSTRIES
                              HOLDING CORPORATION
                                and subsidiaries


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


A reconciliation of EBITDA from reportable segments to (Loss) Earnings before
Taxes is as follows:

<TABLE>
<CAPTION>
                                    Fiscal         Fiscal         Fiscal
                                     2000           1999           1998
                                   --------       --------       --------
                                           (Dollars in thousands)
<S>                                <C>            <C>            <C>
Segment EBITDA                     $ 23,619         22,527         38,017
Less:
Depreciation and amortization        15,316         13,635         11,297
Other                                    --            140             --
Interest expense                     18,663         17,805         17,793
                                   --------       --------       --------
(Loss) earnings before taxes       $(10,360)        (9,053)         8,927
                                   ========       ========       ========
</TABLE>

CPI's operations outside of North America consist of sales offices in certain
foreign countries. Long-lived assets outside of North America are less than 10%
of total consolidated assets. Information about CPI's sales to geographical
regions is presented in the table below. Sales to unaffiliated customers are
based on the location of the customer. There are no individual foreign countries
in which sales are considered material.

<TABLE>
<CAPTION>
                                        Net Sales
                            ------------------------------------
                             Fiscal        Fiscal        Fiscal
                              2000          1999          1998
                            --------      --------      --------
                                    (Dollars in thousands)
<S>                         <C>           <C>           <C>
United States               $163,484       167,508       159,322
All foreign countries         79,570        88,172       101,366
                            --------      --------      --------
Total Sales                 $243,054       255,680       260,688
                            ========      ========      ========
</TABLE>

CPI has a single customer that accounts for 10% or more of consolidated sales.
Sales to this customer were $41.3 million, $40.8 million and $35.5 million of
the Company's consolidated sales for Fiscal 2000, Fiscal 1999 and Fiscal 1998,
respectively. A substantial majority of these sales were VED segment products,
but this customer also purchased satcom equipment products.


12.  RESEARCH AND DEVELOPMENT

Company-sponsored research and development costs related to both present and
future products are expensed currently. Customer-sponsored research and
development costs are charged to cost of sales to match revenue received. Total
expenditures incurred by the Company on research and development are summarized
as follows:

<TABLE>
<CAPTION>
                                              CPI       Customer      Total
                                           Sponsored   Sponsored    Incurred
                                           ---------   ---------    --------
                                                 (Dollars in thousands)
<S>                                        <C>         <C>          <C>
52-week period ended September 29, 2000      $8,690       6,476      15,166
52-week period ended October 1, 1999         $8,983       8,586      17,569
52-week period ended October 2, 1998         $7,455       5,973      13,428
</TABLE>


                                     -F-44-
<PAGE>   80

                        COMMUNICATIONS & POWER INDUSTRIES
                              HOLDING CORPORATION
                                and subsidiaries


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


13.  PROVISION FOR INCOME TAXES

Earnings (loss) before income taxes for domestic and non-U.S. operations is as
follows:

<TABLE>
<CAPTION>
                   52-week       52-week        52-week
                period ended   period ended   period ended
                September 29,   October 1,     October 2,
                    2000           1999           1998
                ------------   ------------   ------------
                           (Dollars in thousands)
<S>             <C>            <C>            <C>
 Domestic         $(13,985)                        3,360
                                  (12,017)            00
 Non-U.S             3,625          2,964          5,567
                  --------       --------       --------
 Total            $(10,360)        (9,053)         8,927
                  ========       ========       ========
</TABLE>

Income tax expense is comprised of the following:

<TABLE>
<CAPTION>
                                 52-week         52-week        52-week
                              period ended    period ended     period ended
                              September 29,    October 1,      October 2,
                                  2000            1999            1998
                              ------------    ------------     ------------
                                         (Dollars in thousands)
<S>                           <C>             <C>              <C>
CURRENT
    U.S. federal                 $   --              --              80
    State                            --              --            (571)
    Non-U.S                         943             605             632
                                 ------          ------          ------
        Total Current               943             605             141
DEFERRED
    U.S. federal                     --              --           3,677
    State                            --              --            (545)
    Non-U.S                         289              --             477
                                 ------          ------          ------
        Total Deferred              289              --           3,609
                                 ------          ------          ------
Income tax expense               $1,232             605           3,750
                                 ======          ======          ======
</TABLE>


The significant components of the CPI's deferred tax assets and liabilities are
as follows:


                                     -F-45-
<PAGE>   81

                        COMMUNICATIONS & POWER INDUSTRIES
                              HOLDING CORPORATION
                                and subsidiaries


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


<TABLE>
<CAPTION>
                                                             Fiscal Year
                                                     ---------------------------
                                                       2000               1999
                                                     --------           --------
                                                       (Dollars in thousands)
<S>                                                  <C>                <C>
DEFERRED TAX ASSETS:
    Inventory                                        $  6,154              4,751
    Product warranty                                       62              2,234
    Accrued vacation                                    1,977              2,009
    Deferred compensation                                 658                607
    Excess purchase price                               7,309              8,326
    Foreign tax credit carryforwards                    4,750              3,043
    Net operating loss carryforwards                    4,466              2,148
                                                     --------           --------
      Total deferred tax assets                        25,376             23,118
DEFERRED TAX LIABILITIES:
    Accelerated depreciation                           (3,217)            (3,285)
    Foreign jurisdictions, net                           (993)              (191)
    Other                                                 128                234
                                                     --------           --------
      Total deferred tax liabilities                   (4,082)            (3,242)
                                                     --------           --------
Total deferred tax assets                              21,294             19,876
Valuation allowance                                    (6,434)            (4,727)
                                                     --------           --------
Net deferred tax asset                               $ 14,860             15,149
                                                     ========           ========
</TABLE>


The provision for income tax expense for the fiscal years ended
consists of current income tax payable in foreign jurisdictions. Although the
Company has a consolidated pretax loss, most foreign operations have been
profitable during Fiscal 2000 and Fiscal 1999.

The Company has unutilized U.S. Federal net operating loss carryforward of $12.9
million, and unutilized U.S. Federal foreign tax credit carryforwards of $4.75
million and $3.0 million at the end of Fiscal 2000 and Fiscal 1999,
respectively. The net operating loss carryforward expires in the years beginning
2020 for Federal purposes and 2004 for California tax purposes. The foreign tax
credit carryovers expire in the years 2002 through 2005.

A valuation allowance of $6.4 million was established at the end of Fiscal 2000
principally to account for the likely expiration of these foreign tax credit
carryovers and the California net operating loss carryovers. Management has
established a valuation allowance to reduce the net deferred tax asset to a
level it believes is realizable based upon its business forecast.


                                     -F-46-
<PAGE>   82

                        COMMUNICATIONS & POWER INDUSTRIES
                              HOLDING CORPORATION
                                and subsidiaries


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


The differences between the effective income tax rate and the statutory federal
income tax rate are as follows:

<TABLE>
<CAPTION>
                                                    52-week        52-week         52-week
                                                 period ended    period ended    period ended
                                                 September 29,     October 1,     October 2,
                                                     2000            1999            1998
                                                 ------------    ------------    ------------
<S>                                              <C>             <C>             <C>
Statutory federal income tax (benefit) rate         (35.0%)         (35.0%)          35.0%
Current year losses and NOL for which
    no tax benefits recognized                       34.4%           39.4%             --
Rate differential on foreign income tax
    expense (benefit) and withholding tax            11.9%           (7.2%)           2.0%
Non-deductible expenses                                .6%            (.8%)            --
Other                                                  --            (3.1%)           5.0%
                                                     ----            ----            ----
Effective tax rate                                   11.9%           (6.7%)          42.0%
                                                     ====            ====            ====
</TABLE>



14.     COMMON STOCK SPLIT

In March 2000, Holding's Board of Directors approved an increase in the number
of common shares authorized to 6,500,000 and a twenty-five (25) for one (1)
stock split on all of its issued and outstanding shares of Common Stock. All
share amounts have been retroactively adjusted to reflect the stock split.


15.  STOCK-BASED BENEFIT PLANS

               2000 Stock Option Plan

In March 2000, Holding established the Communications & Power Industries 2000
Stock Option Plan ("the Plan") and reserved 250,000 shares of common stock for
issuance under the Plan. Options granted under Holding's stock option plan are
granted at fair market value, expire ten years from the date of grant and
generally vest in four equal annual installments, commencing one year from the
date of grant. The stock options granted pursuant to the Plan are not considered
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code, as amended and are subject to all of the terms and restrictions
obtained in the Stock Option and Stockholders Agreements. A summary of the
status of Holding's fixed stock option plan is as follows:

<TABLE>
<CAPTION>
                                                              Options Outstanding
                                                       ---------------------------------
                                   Options Available   No. of Shares    Weighted-average
                                      for Grant         Under Option     Exercise Price
                                   -----------------   -------------    ----------------
<S>                                <C>                 <C>              <C>
Authorized                              250,000                 --                --
Granted                                (232,500)           232,500          $   4.00
                                       --------           --------          --------
Balance at September 29, 2000            17,500            232,500          $   4.00
                                       ========           ========          ========
</TABLE>


                                     -F-47-
<PAGE>   83

                        COMMUNICATIONS & POWER INDUSTRIES
                              HOLDING CORPORATION
                                and subsidiaries


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


The per share weighted-average fair value of stock options granted during Fiscal
2000 was $1.00 on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions: risk-free interest rate of
5.85%; expected life of 5 years; no expected stock price volatility as the
shares are not publicly traded; and no dividends.

No options were exercisable as of September 29, 2000. Outstanding options as of
September 29, 2000, had a weighted-average remaining contractual life of 9.75
years.

SFAS No. 123, "Accounting for Stock Based Compensation" requires a company to
determine the fair market value of all stock-based compensation awards using an
option pricing model and to disclose pro forma net income as if the resulting
stock based compensation amounts were recorded in the Consolidated Statements of
Operations. Had compensation cost for Holding's stock-based compensation plan
been determined based on the fair value at the grant dates, consistent with the
method prescribed under SFAS No. 123, Holding's Fiscal 2000 net loss would not
have been materially different from the net loss reported in the accompanying
Statements of Operations.

               Holding Equity Plan

In August 1995, Holding established the Holding 1995 Management Equity Plan (the
"Holding Equity Plan"). Under the Holding Equity Plan participants may purchase
shares of Holding Common Stock ("Management Shares") at a price determined by
Holding's board of directors to be the fair market value of such Holding Common
Stock on the date the participant executes an agreement to purchase the shares.
Holding has reserved a total of 1,250,000 shares of Holding Common Stock for
issuance under the Holding Equity Plan, 1,146,750 of which were issued to the
Company's Chief Executive Officer, certain officers and key employees in Fiscal
1995. As of September 29, 2000, based on retirements and management changes,
164,828 of these Management Shares have been repurchased, and 73,000 have been
resold.


16.  RETIREMENT AND PROFIT SHARING PLANS

CPI provides a qualified 401(k) investment plan covering substantially all of
its domestic and Canadian employees. The plan provides for CPI to contribute an
amount based on a percentage of each participant's base pay. CPI also has a
Non-Qualified Deferred Compensation Plan (the "Non-Qualified Plan") that allows
eligible executives and directors to defer a portion of their compensation.
Participant contributions and Company matching contributions are always 100%
vested. The deferred compensation liability amounted to approximately $401,000
and $312,000 as of September 29, 2000 and October 1, 1999, respectively.

Total CPI contributions to these plans were $2.6 million for Fiscal 2000, Fiscal
1999, and Fiscal 1998, respectively.

CPI's bonus program provides incentive bonuses to senior management if certain
performance goals are achieved and to employees if these goals are exceeded.
Such performance goals are measured based upon earnings before interest, taxes,
depreciation and amortization, return on sales and asset utilization.


                                     -F-48-
<PAGE>   84

                        COMMUNICATIONS & POWER INDUSTRIES
                              HOLDING CORPORATION
                                and subsidiaries


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


17.  RELATED PARTY TRANSACTIONS

Holding and CPI have entered into an agreement to pay $362,000, plus
out-of-pocket expenses, annually to an advisor group, which is an affiliate of
Holding's majority shareholder. Certain individuals who are stockholders of the
general partner of this advisor group are members of Holding's and the Company's
respective Boards of Directors.

In connection with Holding's 1995 Management Equity Plan, certain executive
officers of the Company and Holding elected to pay a portion of the purchase
price for their Management Shares by Delivery of a secured promissory note to
Holding. The aggregate principal amount of such Management Notes was $875,376 as
of September 29, 2000. Of this amount, $700,000 is secured by a pledge of a
portion (from 50% to 75%) of the Management Shares issued to each executive
officer and is guaranteed by Varian. The balance of $175,376 is secured by a
pledge of approximately 91% of the Management Shares issued, but is not
guaranteed by Varian. Outstanding principal under each type of Management Note
bears interest at an annually adjustable rate equal to the "Applicable Federal
Rate" in effect under Internal Revenue Code Section 1274(d) for obligations of a
term equal to the then-remaining term of such note. Recourse by Holding under
both type of Management Notes is limited to the Management Shares pledged to
secure the applicable note. During Fiscal 2000, the initial payments on these
promissory notes, originally scheduled to begin August 11, 2000, were extended
into Fiscal 2001 pending review by the Board of Directors.

18.  GUARANTEES

Holding has guaranteed CPI's senior debt obligations. Holding has no operations
other than its ownership of CPI. The consolidated balance sheets of CPI as of
September 29, 2000 and October 1, 1999 are substantially identical to that of
Holding and its subsidiaries.

19. SUBSEQUENT EVENTS

On December 22, 2000, a sale-leaseback transaction related to CPI's facilities
in San Carlos, California was accomplished between CPI and Holding. Holding paid
CPI aggregate consideration of $23.0 million for the San Carlos real estate,
consisting of $17.25 million in cash and an unsecured promissory note in the
principal amount of $5.75 million maturing in nine years, with interest-only
payments on a quarterly basis at the rate of 15.5% per annum, with up to 35.25%
of each interest payment payable in kind, at a Holding's option, by its issuance
of additional notes. CPI and Holding entered into a lease of the San Carlos real
property for a term of twenty (20) years on a net basis with a fixed annual rent
(payable in equal monthly installments) of $2.45 million. Holding financed the
cash portion of the San Carlos purchase price and its fees and expenses with
respect to the transaction by borrowing $18.0 million from Wells Fargo Bank,
which loan matures June 1, 2002, bears interest at LIBOR plus 3.25% and is
secured on a non-recourse basis (subject to normal and customary exceptions) by
the San Carlos real property.


                                     -F-49-
<PAGE>   85

                                                                     SCHEDULE II

                        COMMUNICATIONS & POWER INDUSTRIES
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                        Industries Holding Corporation)

                        VALUATION AND QUALIFYING ACCOUNTS
                                 (in thousands)


<TABLE>
<CAPTION>
                                                     Balance at       Charged to                       Balance at
                                                    Beginning of      Costs and                          End of
Description                                            Period          Expenses      Deductions          Period
-----------                                         ------------      ----------     ----------        ----------
<S>                                                 <C>               <C>            <C>               <C>
52-week period ended October 2, 1998:
   Allowance for doubtful accounts receivable          $  282             383             (29)             636

52-week period ended October 1, 1999:
   Allowance for doubtful accounts receivable             636             543             (36)           1,143

52-week period ended September 29, 2000:
   Allowance for doubtful accounts receivable           1,143             523            (869)             797
</TABLE>


                                     -F-50-
<PAGE>   86

                                                                     SCHEDULE II

                        COMMUNICATIONS & POWER INDUSTRIES
                              HOLDING CORPORATION
                                and subsidiaries

                        VALUATION AND QUALIFYING ACCOUNTS
                                 (in thousands)


<TABLE>
<CAPTION>
                                                     Balance at       Charged to                       Balance at
                                                    Beginning of      Costs and                          End of
Description                                            Period          Expenses      Deductions          Period
-----------                                         ------------      ----------     ----------        ----------
<S>                                                 <C>               <C>            <C>               <C>
52-week period ended October 2, 1998:
   Allowance for doubtful accounts receivable          $  282             383             (29)             636

52-week period ended October 1, 1999:
   Allowance for doubtful accounts receivable             636             543             (36)           1,143

52-week period ended September 29, 2000:
   Allowance for doubtful accounts receivable           1,143             523            (869)             797
</TABLE>


                                     -F-51-

<PAGE>   87

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
  No.         Description
-------       -----------
<S>           <C>
2.1(1)        Stock Sale Agreement between CPI (as successor by merger to CPII Acquisition Corp., then known
              as Communications & Power Industries Holding Corporation) and Varian dated as of June 9, 1995.

2.2(1)        First Amendment to Stock Sale Agreement among Holding, CPI (as successor by merger to CPII
              Acquisition) and Varian dated as of August 11, 1995.

2.3(1)        Second Amendment to Stock Sale Agreement among Holding, CPI (as successor by merger to CPII
              Acquisition) and Varian dated as of August 11, 1995.

3.1(1)        Restated Certificate of Incorporation of CPI filed with the Delaware Secretary of State on
              August 11, 1995.

3.2(1)        Bylaws of CPI.

3.3(1)        Certificate of Incorporation of Holding.

3.4(1)        Bylaws of Holding.

4.1(1)        Indenture among CPII Acquisition, Holding, the other guarantors of the Notes (the
              "Guarantors") and U.S. Trust Company of California, N.A., relating to the Notes dated as of
              August 11, 1995.

4.2(1)        First Supplemental Indenture among CPI, Holding, the other Guarantors and U.S. Trust Company
              of California, N.A., relating to the Notes dated as of August 11, 1995.

4.3(1)        Form of Notes (included in Exhibit 4.1, Exhibit A).

4.4(1)        Form of Indenture between CPI and Shawmut Bank Connecticut, National Association, relating to
              the Exchange Notes.

4.5(1)        Form of Exchange Note (included in Exhibit 4.5, Exhibit A).

4.6(2)        Form of Second Supplemental Indenture among CPI, Holding, the other Guarantors and U.S. Trust
              Company of California, N.A., relating to the Notes.
</TABLE>


<PAGE>   88

<TABLE>
<CAPTION>
Exhibit
  No.         Description
-------       -----------
<S>           <C>
10.1(1)       Credit Agreement among CPI, Holding, CPII Acquisition, the
              other obligors named therein, the lenders named therein and
              Bankers Trust Company, as Agent, dated as of August 11, 1995
              (including Annex A (Definitions; Rules of Construction) and Annex
              F (Financial Covenants)).

10.1.1(4)     First Amendment to Credit Agreement among CPI, Holding, the
              other obligors named therein, the lenders named therein and
              Bankers Trust Company, as Agent, dated as of December 31, 1996.

10.1.2(4)     Second Amendment to Credit Agreement among CPI, Holding, the
              other obligors named therein, the lenders named therein and
              Bankers Trust Company, as Agent, dated as of April 1, 1997.

10.1.3(4)     Third Amendment to Credit Agreement among CPI, Holding, the
              other obligors named therein, the lenders named therein and
              Bankers Trust Company, as Agent, dated as of June 27, 1997.

10.1.4(4)     Fourth Amendment to Credit Agreement among CPI, Holding, the
              other obligors named therein, the lenders named therein and
              Bankers Trust Company as Agent, dated as of October 6, 1998.

10.1.5(4)     Fifth Amendment to Credit Agreement among CPI, Holding, the
              other obligors named therein, the lenders named therein and
              Bankers Trust Company as Agent, dated as of February 12, 1999.

10.1.6(4)     Sixth Amendment to Credit Agreement among CPI, Holding, the
              other obligors named therein, the lenders named therein and
              Bankers Trust Company as Agent, dated as of July 26, 1999.

10.1.7(4)     Seventh Amendment to Credit Agreement among CPI, Holding, the
              other obligors named therein, the lenders named therein and
              Bankers Trust Company as Agent, dated as of December 27, 1999.

10.3(1)       Term B Notes in the amounts of $11,666,666.68 and
              $5,666,666.67 made by CPI in favor of Bankers Trust Company and
              Crescent/Mach I Partners, respectively, dated as of August 11,
              1995.

10.4(1)       Revolving Credit Notes in the amounts of $11,666,666.68, $5,833,333.33, $5,833,333.33,
              $5,833,333.33 and $5,833,333.33 made by CPI in favor of Bankers Trust Company, Dresdner Bank
              AG, First Bank National Association, The Nippon Credit Bank, LTD, and Union Bank,
              respectively, dated as of August 11, 1995.

10.5(1)       Swingline Note in the amount of $5,000,000 made by CPI in favor of Bankers Trust Company dated
              as of August 11, 1995.

10.6(1)       Security Agreement among CPI, CPII Acquisition, the other assignors named therein and Bankers
              Trust Company, as Agent, dated as of August 11, 1995.

10.7(1)       Pledge Agreement made by CPI, Holding, CPII Acquisition, and CPI Subsidiary Holdings, Inc. in
              favor of Bankers Trust Company, as Agent, dated as of August 11, 1995.
</TABLE>


<PAGE>   89

<TABLE>
<CAPTION>
Exhibit
  No.         Description
-------       -----------
<S>           <C>
10.8(1)       Continuing Guaranty made by each of the Guarantors in favor of the Lenders and Agent under the
              Senior Credit Agreement, dated as of August 11, 1995.

10.11(1)      Cross License Agreement between CPI and Varian dated as of August 10, 1995.

10.12(1)      Trademark License Agreement between CPI and Varian dated as of August 10, 1995.

10.13(1)      Assignment and Assumption of Lessee's Interest in Lease (Units 1-4, Palo Alto) and Covenants,
              Conditions and Restrictions on Leasehold Interests (Units 1-12, Palo Alto) dated as of August
              10, 1995 between Varian Realty Inc., Varian Associates, Inc. and CPI.

10.15(1)      Sublease (Unit 8, Palo Alto) dated as of August 10, 1995 between Varian Realty Inc. and CPI.

10.16(1)      Sublease (Building 4, Palo Alto) dated as of August 10, 1995 between CPI, as Sublessee, Varian
              Associates, Inc., as Sublessor, and Varian Realty Inc., as Adjacent Property Sublessor.

10.20(1)      Purchase Agreement among CPII Acquisition, Holding, the other Guarantors and the initial
              purchasers of the Series A Senior Subordinated Notes (the "Initial Notes Purchasers") dated as
              of August 11, 1995.

10.21(1)      Purchase Agreement among CPII Acquisition, Holding and the initial purchaser of the Series A
              Senior Preferred Stock (the "Initial Senior Preferred Stock Purchaser") dated as of August 11,
              1995.

10.22(1)      A/B Exchange Registration Rights agreement among CPI (as successor by merger to CPII
              Acquisition), Holding, the other Guarantors and the Initial Notes Purchasers dated as of
              August 11, 1995.

10.23(1)      Amendment to A/B Exchange Registration Rights Agreement among
              CPI, Holding, the other Guarantors and the Initial Notes
              Purchasers dated as of August 11,1995.

10.24(1)      A/B Exchange Registration Rights Agreement between CPI (as
              successor by merger to CPII Acquisition) and the Initial Senior
              Preferred Stock Purchaser dated as of August 11, 1995.

10.25(1)      Amendment to A/B Exchange Registration Rights Agreement between CPI and the Initial Senior
              Preferred Stock Purchaser dated as of August 11, 1995.

10.26(1)      Holding Common Stock Registration Rights Agreement by and
              among Holding, GEI II and the Initial Senior Preferred Stock
              Purchaser dated as of August 11, 1995 relating to the Holding
              Common Stock sold with the Series A Senior Preferred Stock.

10.27(1)      Stockholders Agreement by and among Holding, GEI II and the Initial Senior Preferred Stock
              Purchaser dated as of August 11, 1995 relating to the Holding Common Stock sold with the
              Series A Senior Preferred Stock.

10.28(1)      Stock Subscription Agreement among Holding, CPII Acquisition Corp. and GEI II dated as of
              August 11, 1995.
</TABLE>


<PAGE>   90


<TABLE>
<CAPTION>
Exhibit No.                                         Description
-----------                                         -----------
<S>           <C>
10.29(1)      Management Services Agreement among CPI, Holding and Leonard Green & Partners, L.P. dated as
              of August 11, 1995.

10.30(1)      1995 Holding Management Equity Plan (including Form of Management Subscription and
              Stockholders Agreement).

10.31(4)      Letter from Holding to Bart F. Petrini dated October 11, 1999 relating to terms of employment.
10.32         Communications & Power Industries 2000 Stock Option Plan.

10.33         For of Stock Option Agreement.


21(1)         Subsidiaries of CPI and Holding.


27.1          Financial Data Schedule (Communications & Power Industries, Inc.)

27.2          Financial Data Schedule (Communications & Power Industries Holding Corporation)
</TABLE>

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

(1)     Incorporated by reference to CPI's Registration Statement on Form S-1
        (Registration No. 33-96858), filed on September 12, 1995.

(2)     Incorporated by reference to Amendment No. 3 to CPI's Registration
        Statement on Form S-1 (Registration No. 33-96858), filed on November 9,
        1995.

(3)     Incorporated by reference to Amendment No. 1 to CPI's Registration
        Statement on Form S-1 (Registration Statement No. 33-96858), filed on
        October 25, 1995.


(4)     Incorporated by reference to CPI's Annual Report on Form 10-K, filed on
        December 29, 1999.