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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO

SECTIONS 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934


(Mark One)


|  |  |                                                                                                                                                     
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE
    SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended September 27, 2002
    or
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the transition period
    from           to    

Commission File
Number: 33-96858-01

COMMUNICATIONS &

POWER INDUSTRIES


HOLDING CORPORATION


(Exact Name of Registrant as Specified in Its
Charter)


Delaware

(State or Other Jurisdiction of Incorporation
or Organization)


77-0407395

(IRS Employer Identification No.)


811 Hansen Way

Palo Alto, California 94303-1110


(650) 846-2900


(Address of Principal Executive Offices and
telephone number, including area code,)


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

None

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

None


Commission File
Number: 33-96858


COMMUNICATIONS &

POWER INDUSTRIES, INC.


(Exact Name of Registrant as Specified in Its
Charter)


Delaware

(State or Other Jurisdiction of Incorporation
or Organization)


77-0405693

(IRS Employer Identification No.)


811 Hansen Way

Palo Alto, California 94303-1110


(650) 846-2900


(Address of Principal Executive Offices and
telephone number, including area code)


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

None


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

None


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 þ     No o

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. þ

Indicate by checkmark whether the registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2). Yes o     No þ

The aggregate market value of voting stock of
Communications & Power Industries Holding Corporation held
by non-affiliates is $1,050,000, based upon the price at which
it was last sold. 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 6, 2002. Communications & Power
Industries, Inc.: 1 share of Common Stock, $.01 par value,
at December 6, 2002.

DOCUMENTS INCORPORATED BY REFERENCE:

(None)









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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,
expect, 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. The majority of the Companys products are
consumable and have a finite life. The Company operates five
manufacturing facilities 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 of Varian Associates, Inc.
(Varian). The principal executive offices of Holding
and CPI are located at 811 Hansen Way, Palo Alto,
California 94303 and their telephone number is
(650) 846-2900.

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

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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 $84.8 million in fiscal
    year 2002 compared to $109.9 million in fiscal year 2001
    and $87.8 million in fiscal year 2000.                                                                                
|
| |  | Radar
    Market The radar market
    utilizes 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
    $93.2 million in fiscal year 2002 compared to
    $87.9 million in fiscal year 2001 and $90.8 million in
    fiscal year 2000.                                                                                                              
|
| |  | 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
    $21.7 million, $21.8 million, and $21.9 million
    in fiscal year 2002, fiscal year 2001 and fiscal year 2000,
    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 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 $29.3 million,
    $27.4 million and $20.9 million in fiscal year 2002,
    fiscal year 2001 and fiscal year 2000, 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 $15.5 million,
    $20.0 million and $17.5 million in fiscal year 2002,
    fiscal year 2001 and fiscal year 2000, 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 $6.7 million, $5.5 million and
    $4.2 million in fiscal year 2002, fiscal year 2001 and
    fiscal year 2000, 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 into commercial or government sectors. Therefore, sales in
any one of the Companys markets may consist of sales to
commercial customers, the U.S. Government, or both. The
commercial sector contributed approximately $189.2 million
or 75.3% of Companys total sales in fiscal year 2002
compared to $214.8 million or 78.8%, of the Companys
total sales in fiscal year 2001 and $188.9 million, or
77.7% in fiscal year 2000. U.S. Government sales, both
direct and through original equipment manufacturers
(OEMs), contributed approximately $62.0 million or
24.7% of the Companys total sales in fiscal year 2002
compared to $57.7 million or 21.2%, of the Companys
total sales in fiscal year 2001 and $54.2 million, or
22.3%, in fiscal year 2000. The Company believes the fiscal year
2002 increase in U.S. Government sales reflects the
Department of Defenses recent expanded emphasis on
addressing terrorism and homeland security. Based on a stable
trend of order receipts for spares and upgrades from fiscal year
1995 to fiscal year 2002, management expects that
U.S. Government and defense-related end-users will continue
to provide a steady source of revenue. Segment data is included
in Note 12 of the Notes to Consolidated Financial
Statements.

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In fiscal year 2002, approximately 69.7% of sales
were derived from U.S. customers, while approximately 30.3% were
derived from international customers compared to fiscal year
2001 when approximately 67.0% of sales were derived from the
U.S. and approximately 33.0% were from international customers
and fiscal year 2000 when approximately 67.3% of sales were
derived from the U.S. and approximately 32.7% 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 years 2002, 2001 or 2000.

Sales, Marketing and Service

As of September 27, 2002, 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,
who 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 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 five
manufacturing operations in North America. The Company has
implemented modern manufacturing methodologies based upon
continuous improvement, including Just In Time (JIT)
materials handling, Demand Flow Technology (DFT), Statistical
Process Control and Value Managed Relationships with suppliers
and customers. The Company has achieved the ISO-9000
international certification standard.

Generally, each of the Companys
manufacturing units use similar processes consisting of product
development, purchasing, high level assembly and test. For
satcom equipment, 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 that division
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 DFT, which helps to minimize inventory. Vacuum
assemblies are processed by pumping the atmosphere from the
assemblies while heating them in a furnace and simultaneously
stimulating 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.

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Certain materials necessary for the manufacture
of the Companys products, such as molybdenum, cupernickel,
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 L3, formerly Northrop Grumman/ Litton), E2V
(formerly Marconi Applied Technologies), Xicom and Thales
(formerly 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 market position and financial condition.
Solid-state devices generally serve end-users low-power
requirements, however, only microwave vacuum electronic devices
currently serve higher-power and higher-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. The extreme operating parameters of these
applications 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.

Backlog

As of September 27, 2002, the Company had an
order backlog of $145.1 million, representing approximately
seven months of sales compared to order backlog of
$151.5 million, or approximately seven months of sales, as
of September 28, 2001 and $161.6 million, or eight
months of sales, as of September 29, 2000. Backlog was
unusually high in fiscal year 2000 primarily due to a one-time
order for $13.6 million related to the XM Radio
satellite service. 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 relate 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

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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. The Company
and Varian are parties to a Cross-License Agreement that
allocates the rights to the Key Component Technology between the
Company and Varian.

Research and Development

Company-sponsored research and development
(R&D) expense was approximately
$5.9 million, $5.8 million and $8.7 million
during fiscal year 2002, fiscal year 2001 and fiscal year 2000,
respectively. Research and development expenses decreased during
fiscal year 2001 in the Satcom equipment segment as that
segments engineering resources were predominantly focused
on production ramp up issues rather than new product
development. Customer-sponsored R&D was approximately
$5.2 million, $5.0 million and $6.5 million
during fiscal year 2002, fiscal year 2001 and fiscal year 2000,
respectively. For customer-sponsored R&D, the costs were
charged to cost of sales to match revenue earned.

Employees

As of September 27, 2002, the Company had
approximately 1,480 employees compared to 1,720 employees as of
September 28, 2001. 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 in the foreseeable future
a significant portion of the Companys sales will continue
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 93.2% of the
Companys U.S. Government sales in fiscal year 2002
and cost-plus contracts accounted for 6.8% compared to fiscal
year 2001s mix of approximately 95.4% fixed-price and
approximately 4.6% cost-plus and fiscal year 2000s mix of
approximately 91.6% fixed-price and approximately 8.4% 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

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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 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 operations of
Varians Electron Devices Business (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
Consent Order with the California

6



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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 Varians prior
operations of the Electron Devices Business.


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
1,083,188 square feet, of which approximately 29,736 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:

|                            |  |                  |         |                  |  |  |         |    
|--------------------------- |  | ---------------- | ------- | ---------------- |  |  | ------- | ---
|Property                    |  | Owned            |         | Leased/Subleased
|                            |  |                  |         |                 
|                            |  |                 
|                            |  | (square footage)
|San Carlos, California      |  |                  | 320,000 | (a)              |  |  |         |    
|Beverly, Massachusetts      |  |                  | 169,385 | (b)              |  |  |         |    
|Georgetown, Ontario, Canada |  |                  | 126,000 |                  |  |  | 21,975  | (c)
|Palo Alto, California       |  |                  |        |                  |  |  | 429,000 | (d)
|Various locations           |  |                  |        |                  |  |  | 16,828  | (e)



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|    |                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The San Carlos, California square footage
    includes approximately 20,736 square feet leased to one tenant
    who provides services to the Company and others.                                                                                         
|   
|(b) | The Beverly, Massachusetts square footage was
    adjusted upward during fiscal year 2002 due to remeasurement
    resulting from an abatement review. The square footage also
    includes approximately 2,700 square feet leased to two tenants.        
|   
|(c) | The Ontario, Canada square footage includes
    approximately 6,000 square feet leased to one tenant.                                                                                                                                                     
|   
|(d) | 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 300 square feet subleased to one tenant.         
|   
|(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.

In fiscal year 2001, the Company began relocating
its Satcom Divisions production operation from Palo Alto,
California to its facility in Ontario, Canada. The move was
completed in the fourth quarter of fiscal year 2002. Also in
fiscal year 2001, the Company relocated its administrative
offices into a single building in Palo Alto. The Company is
actively looking for tenants to sublease the approximately
48,000 square feet of office space.

CPI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

7



---



##### 



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 December 2009, 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 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. During fiscal year 2002, the loan was extended until
June 1, 2003 and $0.2 million of principal was repaid.
The loan bears interest at LIBOR plus 4.25% and is secured on a
non-recourse basis (subject to normal and customary exceptions)
by the San Carlos real property.


The Companys headquarters and one principal
complex, including one of the Companys manufacturing
facilities, located at the Palo Alto, California site 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 Electron Devices Business of Varian prior
to August 11, 1995. Accordingly, management believes that
litigation and governmental claims pending against Varian and
relating to the operation of the Electron Devices Business 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 year 2002.



PART II




|        |                                                                              
|------- | -----------------------------------------------------------------------------
|Item 5: | Market for the Registrants Common
    Equity and Related Shareholder Matters

CPI is a wholly owned subsidiary of Holding.
There is no established public trading market for the common
stock of CPI or Holding. As of December 6, 2002, there are
approximately forty-four holders of common stock of Holding and
one holder of the common stock of CPI. No cash dividends have
been declared on the common stock of the Company during the two
most recent fiscal years. Restrictive covenants under the
Companys credit facility generally restrict the
declaration or payment of dividends on the Companys common
stock. The Senior Subordinated 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.

8



---



##### 



COMMUNICATIONS & POWER INDUSTRIES HOLDING
CORPORATION AND SUBSIDIARIES

FIVE-YEAR SELECTED FINANCIAL DATA

|                                               |                                           |                        |         |        |  |      |         |        |  |      |         |        |  |  |         |        |  |  |         |        | 
|---------------------------------------------- | ----------------------------------------- | ---------------------- | ------- | ------ |  | ---- | ------- | ------ |  | ---- | ------- | ------ |  |  | ------- | ------ |  |  | ------- | ------ | 
|                                               |                                           |                       
|                                               |                                           | Fiscal Years Ended    
|                                               |                                           |                       
|                                               |                                           | 2002                   |         | 2001   |  | 2000 |         | 1999   |  | 1998
|                                               |                                           |                        |         |        |  |      |         |        |  |     
|                                               |                                           |                       
|                                               |                                           | (Dollars in thousands)
|Statement of Operations Data:                  |                                           |                        |         |        |  |      |         |        |  |      |         |        |  |  |         |        |  |  |         |       
|Sales                                          |                                           | $                      | 251,245 |        |  |      | 272,521 |        |  |      | 243,054 |        |  |  | 255,680 |        |  |  | 260,688 |       
|Gross profit                                   |                                           |                        | 59,056  |        |  |      | 49,189  |        |  |      | 54,306  |        |  |  | 56,042  |        |  |  | 66,278  |       
|Loss on sale of SSPD(a)                        |                                           |                        | 3,004   |        |  |      |        |        |  |      |        |        |  |  |        |        |  |  |        |       
|Operating income                               |                                           |                        | 14,329  |        |  |      | 4,837   |        |  |      | 8,303   |        |  |  | 8,752   |        |  |  | 26,720  |       
|Interest expense                               |                                           |                        | 16,508  |        |  |      | 20,734  |        |  |      | 18,663  |        |  |  | 17,805  |        |  |  | 17,793  |       
|Income tax expense                             |                                           |                        | 4,554   |        |  |      | 2,950   |        |  |      | 1,232   |        |  |  | 605     |        |  |  | 3,750   |       
|                                               |                                           |                        |         |        |  |      |         |        |  |      |         |        |  |  |         |        |  |  |         |       
|Net (loss) earnings before preferred dividends |                                           | $                      | (6,733  | )      |  |      | (18,847 | )      |  |      | (11,592 | )      |  |  | (9,658  | )      |  |  | 5,177   |       
|                                               |                                           |                        |         |        |  |      |         |        |  |      |         |        |  |  |         |        |  |  |         |       
|EBITDA(b)                                      |                                           | $                      | 28,666  |        |  |      | 18,183  |        |  |      | 23,619  |        |  |  | 22,527  |        |  |  | 38,017  |       
|Certain Non-Cash Charges:                      |                                           |                        |         |        |  |      |         |        |  |      |         |        |  |  |         |        |  |  |         |       
|                                               | Depreciation and amortization             |                        | $       | 11,304 |  |      |         | 13,346 |  |      |         | 15,316 |  |  |         | 13,635 |  |  |         | 11,297 | 
|                                               | Amortization of deferred debt issue costs |                        |         | 1,629  |  |      |         | 1,987  |  |      |         | 1,288  |  |  |         | 1,209  |  |  |         | 1,372  | 
|Capital expenditures(c)                        |                                           |                        | 3,378   |        |  |      | 5,788   |        |  |      | 5,325   |        |  |  | 8,588   |        |  |  | 8,204   |       
|Balance Sheet Data:                            |                                           |                        |         |        |  |      |         |        |  |      |         |        |  |  |         |        |  |  |         |       
|Working capital                                |                                           | $                      | 1,101   |        |  |      | 22,048  |        |  |      | 19,881  |        |  |  | 26,907  |        |  |  | 45,957  |       
|Total assets                                   |                                           |                        | 155,162 |        |  |      | 204,067 |        |  |      | 226,985 |        |  |  | 233,584 |        |  |  | 229,212 |       
|Long-term debt and redeemable preferred stock  |                                           |                        | 128,693 |        |  |      | 148,569 |        |  |      | 139,160 |        |  |  | 142,039 |        |  |  | 146,981 |       
|Total (deficit) equity                         |                                           |                        | (73,104 | )      |  |      | (57,608 | )      |  |      | (31,188 | )      |  |  | (12,962 | )      |  |  | 2,512   |       



---

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



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | On September 26, 2002, the Company sold its
    Solid State Products Division (SSPD). The net pretax loss of
    $3.0 million included approximately $2.5 million for
    the write-off of goodwill.                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(b) | EBITDA represents earnings before provision for
    income taxes, interest expense, depreciation and amortization.
    In Fiscal 2002, EBITDA also excludes the non-cash write-off of
    goodwill associated with the sale of SSPD of $2.5 million
    and the non-cash impairment loss of $0.5 million related to
    plant and equipment used in the satcom equipment segment. In
    Fiscal 1999, EBITDA also excludes a charge of $0.1 million
    related to the purchase accounting write-up of inventory. EBITDA
    is presented because it is a widely accepted financial indicator
    of a companys ability to service indebtedness.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | However, EBITDA should not be considered as an
    alternative to income from operations or to cash flows from
    operating, investing or financing activities, as determined in
    accordance with generally accepted accounting principles. EBITDA
    also should not be construed as an indication of a
    companys operating performance or as a measure of
    liquidity. Managements discretionary use of funds depicted
    by EBITDA may be limited by working capital, debt service and
    capital expenditure requirements and by restrictions related to
    legal requirements, commitments and uncertainties.



|    |                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------
|(c) | In Fiscal 2001, capital expenditures include
    $1.4 million of costs associated with consolidation and
    relocation activities.

9



---



##### 



COMMUNICATIONS & POWER INDUSTRIES, INC.
AND SUBSIDIARIES

FIVE-YEAR SELECTED FINANCIAL DATA

|                                               |                                           |                        |         |        |  |      |         |        |  |      |         |        |  |  |         |        |  |  |         |        | 
|---------------------------------------------- | ----------------------------------------- | ---------------------- | ------- | ------ |  | ---- | ------- | ------ |  | ---- | ------- | ------ |  |  | ------- | ------ |  |  | ------- | ------ | 
|                                               |                                           |                       
|                                               |                                           | Fiscal Years Ended    
|                                               |                                           |                       
|                                               |                                           | 2002                   |         | 2001   |  | 2000 |         | 1999   |  | 1998
|                                               |                                           |                        |         |        |  |      |         |        |  |     
|                                               |                                           |                       
|                                               |                                           | (Dollars in thousands)
|Statement of Operations Data:                  |                                           |                        |         |        |  |      |         |        |  |      |         |        |  |  |         |        |  |  |         |       
|Sales                                          |                                           | $                      | 251,245 |        |  |      | 272,521 |        |  |      | 243,054 |        |  |  | 255,680 |        |  |  | 260,688 |       
|Gross profit                                   |                                           |                        | 59,056  |        |  |      | 49,189  |        |  |      | 54,306  |        |  |  | 56,042  |        |  |  | 66,278  |       
|Loss on sale of SSPD(a)                        |                                           |                        | 3,004   |        |  |      |        |        |  |      |        |        |  |  |        |        |  |  |        |       
|Operating income                               |                                           |                        | 12,961  |        |  |      | 3,813   |        |  |      | 8,303   |        |  |  | 8,752   |        |  |  | 26,720  |       
|Interest expense                               |                                           |                        | 14,463  |        |  |      | 18,646  |        |  |      | 18,663  |        |  |  | 17,805  |        |  |  | 17,793  |       
|Income tax expense                             |                                           |                        | 4,559   |        |  |      | 2,950   |        |  |      | 1,232   |        |  |  | 605     |        |  |  | 3,750   |       
|                                               |                                           |                        |         |        |  |      |         |        |  |      |         |        |  |  |         |        |  |  |         |       
|Net (loss) earnings before preferred dividends |                                           |                        | (6,061  | )      |  |      | (17,783 | )      |  |      | (11,592 | )      |  |  | (9,658  | )      |  |  | 5,177   |       
|                                               |                                           |                        |         |        |  |      |         |        |  |      |         |        |  |  |         |        |  |  |         |       
|EBITDA(b)                                      |                                           | $                      | 26,639  |        |  |      | 16,661  |        |  |      | 23,619  |        |  |  | 22,527  |        |  |  | 38,017  |       
|Certain Non-Cash Charges:                      |                                           |                        |         |        |  |      |         |        |  |      |         |        |  |  |         |        |  |  |         |       
|                                               | Depreciation and amortization             |                        | $       | 10,645 |  |      |         | 12,848 |  |      |         | 15,316 |  |  |         | 13,635 |  |  |         | 11,297 | 
|                                               | Amortization of deferred debt issue costs |                        |         | 1,557  |  |      |         | 1,655  |  |      |         | 1,288  |  |  |         | 1,209  |  |  |         | 1,372  | 
|Capital expenditures(c)                        |                                           |                        | 3,378   |        |  |      | 5,788   |        |  |      | 5,325   |        |  |  | 8,588   |        |  |  | 8,204   |       
|Balance Sheet Data:                            |                                           |                        |         |        |  |      |         |        |  |      |         |        |  |  |         |        |  |  |         |       
|Working capital                                |                                           | $                      | 17,837  |        |  |      | 39,265  |        |  |      | 19,881  |        |  |  | 26,907  |        |  |  | 45,957  |       
|Total assets                                   |                                           |                        | 147,474 |        |  |      | 195,649 |        |  |      | 226,985 |        |  |  | 233,584 |        |  |  | 229,212 |       
|Long-term debt and redeemable preferred stock  |                                           |                        | 136,004 |        |  |      | 156,304 |        |  |      | 139,160 |        |  |  | 142,039 |        |  |  | 146,981 |       
|Total (deficit) equity                         |                                           |                        | (45,918 | )      |  |      | (34,450 | )      |  |      | (12,018 | )      |  |  | 3,660   |        |  |  | 16,912  |       



---

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



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | On September 26, 2002, the Company sold its
    Solid State Products Division (SSPD). The net pretax loss of
    $3.0 million included approximately $2.5 million for
    the write-off of goodwill.                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(b) | EBITDA represents earnings before provision for
    income taxes, interest expense, depreciation and amortization.
    In Fiscal 2002, EBITDA also excludes the non-cash write-off of
    goodwill associated with the sale of SSPD of $2.5 million
    and the non-cash impairment loss of $0.5 million related to
    plant and equipment used in the satcom equipment segment. In
    Fiscal 1999, EBITDA excludes a charge of $0.1 million.
    related to the purchase accounting write-up of inventory. EBITDA
    is presented because it is a widely accepted financial indicator
    of a companys ability to service indebtedness.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | However, EBITDA should not be considered as an
    alternative to income from operations or to cash flows from
    operating, investing or financing activities, as determined in
    accordance with generally accepted accounting principles. EBITDA
    also should not be construed as an indication of a
    companys operating performance or as a measure of
    liquidity. Managements discretionary use of funds depicted
    by EBITDA may be limited by working capital, debt service and
    capital expenditure requirements and by restrictions related to
    legal requirements, commitments and uncertainties.



|    |                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------
|(c) | Fiscal 2001 capital expenditures include
    $1.4 million of costs associated with consolidation and
    relocation activities.

10



---



##### 



Item
7:     Managements Discussion
and Analysis of Financial Condition and Results of
Operations

The following discussion reflects the
consolidated results of Communications & Power
Industries Holding Corporation, which are materially consistent
with those of CPI except as identified below and 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 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
five 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. Segment data
is included in Note 12 of the Notes to Consolidated
Financial Statements.

On September 26, 2002, the Company sold the
assets used in its Solid State Products Division
(SSPD) to KMIC Technology, Inc., a company owned by
the former management of SSPD. The Company received
approximately $0.9 million in cash and a $0.3 million
unsecured promissory note. The note bears interest at 12% per
annum and is payable as follows: one-third of the principal plus
unpaid interest is due October 1, 2003 with the remaining
balance payable in eight equal, quarterly installments of
principal and interest beginning January 1, 2004 and ending
October 1, 2005. The sale resulted in a fourth quarter
charge to operations of approximately $3.0 million, which
represents the net assets sold including approximately
$2.5 million in goodwill and costs and expenses of the
transaction, net of $0.9 million of cash received from the
sale of the operations net assets. Due to the uncertainty
of ultimate collection, the proceeds from the promissory note
will be recognized when the cash payments are received. In
connection with the SSPD transaction, the Company agreed,
subject to certain limitations and exceptions, to not engage in
the manufacture of intermediate power amplifiers for satcom
amplifiers (IPAs) for a 3-year period. In
addition, the Company agreed to purchase from KMIC Technology
Inc. all of its IPAs for such 3-year period.

Orders for fiscal year 2002 were
$248.2 million, a decrease of $18.3 million from
fiscal year 2001. The decrease from fiscal year 2001 levels
primarily reflects continued weakness in the commercial
communications market. Order receipts for the Companys
communications products were $72.3 million, a decrease of
$21.6 million, or 23.1%, from the prior fiscal year as
communications companies continue to delay capital spending. The
Company anticipates that this situation will continue into
fiscal year 2003. Electronic countermeasures orders were
$15.2 million, a decrease of $6.6 million or 30.3%
from the prior year resulting from a delay into the first
quarter of 2003 of a large order from the U.S. Government.
Industrial orders were $16.6 million, down slightly from
fiscal year 2001. The decrease is primarily related to decreased
orders for power supplies to the semiconductor market. Radar
orders were $101.0 million, an increase of
$5.3 million or 5.6% from $95.7 million in fiscal year
2001. The increase reflects continued growth in the
U.S. defense budget stemming principally from the
Department of Defenses recent expanded emphasis on
addressing terrorism and homeland security. This order level is
expected to continue into fiscal year 2003. Medical orders were
$33.3 million in fiscal year 2002, an increase of
$1.8 million or 5.8% from fiscal year 2001. The increased
orders relate to medical klystrons used in medical accelerators
manufactured by Varian Medical as well as orders for x-ray
subsystems. Orders for products sold to the scientific market,
the Companys smallest market, increased by
$3.5 million or 55.9%, for a total of $9.8 million in
fiscal year 2002. The increase relates to the receipt of the
final phase of an order from a government research laboratory.
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 year 2002 were
$251.2 million compared to sales of $272.5 million in
fiscal year 2001, a decrease of $21.3 million or 7.8%. This
decrease was primarily related to lower sales in the commercial
communications market as communications companies continue to
delay capital expenditures.

11



---



##### 



Looking forward, orders are expected to be flat
with fiscal year 2002 levels. The commercial communications
market is forecasted to be consistent with 2002 levels as the
current economic outlook is not expected to change in the short
term. The medical and industrial markets are also expected to be
relatively flat from fiscal year 2002. Orders in the scientific
market are expected to be back to historical levels at $6.0 to
$7.0 million. Sales of VEDs into the radar and electronic
countermeasures markets should remain at or above the 2002
levels as stockpiling of defense spares continues.

Critical Accounting Policies

Management is required to make judgements,
assumptions and estimates in preparing its financial statements
and related disclosures in conformity with accounting principles
generally accepted in the United States. The following critical
accounting policies are those policies that management believes
affect its more significant estimates and assumptions used in
preparation of its consolidated financial statements.



| |                    
| | -------------------
| | Revenue Recognition

The estimated sales values of performance under
certain contracts to commercial customers and
U.S. Government fixed-price and fixed-price incentive
contracts are recognized under the percentage of completion
method of accounting. When applying the percentage of completion
method, the Company relies on estimates of total expected
contract revenue and costs. Recognized revenues and profit are
subject to revisions as the contract progresses towards
completion. Revisions in profit estimates are charged to income
in the period in which they 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.



| |                                    
| | -----------------------------------
| | Allowance for Doubtful
    Accounts

The Company monitors the creditworthiness of its
customers based on a variety of factors including the length of
time the receivables are past due, the financial health of the
customer, economic conditions and historical experience. If
collectibility is considered uncertain, then the Company will
record a reserve to reduce the receivable to the amount
considered collectable. If circumstances change, then further
adjustments could be required.



| |                  
| | -----------------
| | Warranty Reserves

The Companys products are generally subject
to warranties, and the Company provides for the estimated future
costs of repair, replacement or customer accommodation at the
time of sale as an additional cost of product. Managements
estimates are based on historical costs for warranty, and
adjusted when circumstances indicate that future costs are
expected to vary from historical levels. If actual product
failure rates or material usage incurred differs from the
Companys estimates, then revisions to the estimated
warranty liability would be required.



| |                    
| | -------------------
| | Inventory Valuation

Inventories are stated at the lower of average
cost or market (net realizable value). The carrying value of
inventory is reduced for estimated obsolescence or
unmarketability based upon assumptions about future demand,
market conditions, product lifecycles and product pricing. If
the Companys assumptions were to be substantially
different than estimated, further adjustments could be required.
While these estimates require management to make assumptions and
judgments, management believes its understanding of the markets
and customers the Company serves, as well as the mature nature
of many of the products the Company manufactures, provides it
with the ability to make reliable estimates. Management also
evaluates the carrying value of inventory for lower of cost or
market on an individual product or contract basis. Analyses are

12



---



##### 



performed based on the estimated costs at
completion and if necessary, a provision is recorded to properly
reflect the inventory value of the products or contracts at the
lower of cost or net realizable value (selling price less
estimated cost of disposal). If actual contract costs were to be
substantially higher than estimated, further provisions could be
required.




| |                                    
| | -----------------------------------
| | Impairment of 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. Adverse
changes in the customers and markets served by the Company could
result in future impairments of long-lived assets.



| |                                             
| | --------------------------------------------
| | Goodwill and Intangible Asset
    Impairment

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. Adverse changes in the industries served
by the Company, customer demand or other market conditions could
result in future impairments of goodwill.

Results of Operations

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

|                              |                     |             |       |      |    |      |       |      |    |  |       |      |   
|----------------------------- | ------------------- | ----------- | ----- | ---- | -- | ---- | ----- | ---- | -- |  | ----- | ---- | --
|                              |                     |            
|                              |                     | Fiscal Year
|                              |                     |            
|                              |                     | 2002        |       | 2001 |    | 2000
|                              |                     |             |       |      |    |     
|Sales                         |                     |             | 100.0 | %    |    |      | 100.0 | %    |    |  | 100.0 | %   
|Cost of sales                 |                     |             | 76.5  |      |    |      | 82.0  |      |    |  | 77.7  |     
|                              |                     |             |       |      |    |      |       |      |    |  |       |     
|                              | Gross profit        |             |       | 23.5 |    |      |       | 18.0 |    |  |       | 22.3 |   
|Research and development      |                     |             | 2.3   |      |    |      | 2.1   |      |    |  | 3.6   |     
|Selling and Marketing         |                     |             | 6.4   |      |    |      | 6.4   |      |    |  | 7.6   |     
|General and administrative(a) |                     |             | 7.9   |      |    |      | 7.7   |      |    |  | 7.7   |     
|Loss on sale of SSPD          |                     |             | 1.2   |      |    |      |      |      |    |  |      |     
|                              |                     |             |       |      |    |      |       |      |    |  |       |     
|Operating income              |                     |             | 5.7   |      |    |      | 1.8   |      |    |  | 3.4   |     
|Interest expense              |                     |             | 6.6   |      |    |      | 7.6   |      |    |  | 7.7   |     
|                              |                     |             |       |      |    |      |       |      |    |  |       |     
|                              | Loss before taxes   |             |       | (0.9 | )  |      |       | (5.8 | )  |  |       | (4.3 | ) 
|Income tax expense            |                     |             | 1.8   |      |    |      | 1.1   |      |    |  | 0.5   |     
|                              |                     |             |       |      |    |      |       |      |    |  |       |     
|                              | Net loss            |             |       | (2.7 | )% |      |       | (6.9 | )% |  |       | (4.8 | )%
|                              |                     |             |       |      |    |      |       |      |    |  |       |     
|Other Data:                   |                     |             |       |      |    |      |       |      |    |  |       |     
|                              | EBITDA(b)           |             |       | 11.4 | %  |      |       | 6.7  | %  |  |       | 9.7  | % 
|                              | Preferred Dividends |             |       | 3.4  | %  |      |       | 2.7  | %  |  |       | 2.6  | % 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | General and administrative expense includes
    foreign currency (loss) gain.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(b) | EBITDA represents earnings before provision for
    income taxes, interest expense, depreciation and amortization.
    excludes any charge related to the purchase accounting write-up
    of inventory. In fiscal year 2002, EBITDA also excludes the
    non-cash write-off of goodwill associated with the sale of SSPD
    of $2.5 million and the non-cash impairment loss of
    $0.5 million related to plant and equipment used in the
    satcom equipment segment. In fiscal year 1999, EBITDA excludes a
    charge of $0.1 million related to the purchase accounting
    write-up of inventory.

13



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##### 





| |                                                  
| | -------------------------------------------------
| | Fiscal Year 2002 Compared to Fiscal Year
    2001

Sales.Sales for
fiscal year 2002 of $251.2 million were $21.3 million
lower than the prior year level of $272.5 million due
primarily to the continued weakness in the commercial
communications market. Communications sales were
$84.8 million, a decrease of $25.0 million, or 22.8%
from fiscal year 2001 sales of $109.8 million. Industrial
and electronic countermeasure sales were $15.5 million and
$21.7 million, respectively, which represents a decrease of
$4.5 million and $0.2 million, respectively from
fiscal year 2001. Radar, medical and scientific sales, on the
other hand, increased by $5.3 million, $1.9 million
and $1.2 million, respectively from fiscal year 2001. Sales
in the radar and scientific markets of $93.2 million and
$6.7 million, respectively have benefited from increased
military and research spending. Sales of products in the medical
market of $29.3 million have increased due to sales of VEDs
in cancer treatment applications and the Companys new line
of generators used in x-ray applications.

Gross Margin.Gross
margin as a percentage of sales increased 5.5% to 23.5% in
fiscal year 2002 from 18.0% of sales in fiscal year 2001. Gross
margins were negatively affected in fiscal year 2001 by higher
start-up and warranty costs on several new satcom products and
increased provisions for potentially excess and obsolete
inventories. In addition, margin fluctuations are expected from
period to period due to the variation in the mix of products
sold during any period.

Research and Development
Expenses.Research & Development
expenses in fiscal year 2002 increased by $0.1 million to
$5.9 million, or 2.3% of sales, compared to fiscal year
2001s level of $5.8 million, or 2.1% of sales. The
slight increase can be attributed to increased research and
development activities at the Companys satcom equipment
segment offset by increased customer funded development at the
Companys division in Beverly, Massachusetts.

Selling, Marketing, General and Administrative
Expenses.Selling, marketing, general
and administrative expenses in fiscal year 2002 were
$35.9 million or 14.3% of sales compared to
$38.6 million, or 14.1% of sales in fiscal year 2001.
Selling and marketing costs decreased approximately
$1.4 million in fiscal year 2002 due primarily to
reductions in commissions as a result of weaker sales, lower
headcount in Europe and various cost reduction programs. General
and administrative costs decreased by $1.1 million to
$19.8 million from fiscal year 2001. The decrease primarily
relates to reduced general and administrative costs associated
with the relocation of the Satcom division to Canada as well as
a reduction in overall spending due to cost reduction programs
in place. These decreases were offset in part by higher
management performance incentives. In addition, fiscal year 2001
general and administrative costs included a gain of
$0.9 million on the sale of rental property in Beverly,
Massachusetts.

Loss on Sale of SSPD.On September 26, 2002, the
Company sold its Solid State Products Division (SSPD) to KMIC
Technology, Inc., a company owned by the former management of
SSPD. The Company received approximately $0.9 million in
cash and a $0.3 million unsecured promissory note. The note
bears interest at 12% per annum and is payable as follows:
one-third of the principal plus unpaid interest is due
October 1, 2003 with the remaining balance payable in eight
quarterly installments of principal and interest beginning
January 1, 2004 and ending October 1, 2005. The sale
resulted in a fourth quarter charge to operations of
approximately $3.0 million which represents the book value
of the net assets sold including approximately $2.5 million
in goodwill and costs and expenses of the transaction, net of
$0.9 million of cash received from the sale of the
operations net assets. Due to the uncertainty of ultimate
collection, the proceeds from the promissory note will be
recognized when the cash payments are received.

EBITDA.EBITDA was
$28.7 million, or 11.4% of sales in fiscal year 2002
compared to EBITDA of $18.2 million, or 6.7% of sales, in
fiscal year 2001. The increase in 2002 can be attributed
primarily to improved margins coupled with the impact of lower
operating costs including costs incurred associated with the
Companys consolidation activities. Fiscal year 2002
includes $0.9 million of costs associated with
consolidation activities compared to $7.1 million in fiscal
year 2001. In addition, fiscal year 2002 EBITDA includes
$0.5 million of costs associated with the sale of SSPD.

Interest Expense.Interest expense in fiscal year 2002
was $16.5 million, a decrease of $4.2 million from
fiscal 2001. The decrease is due primarily to a reduction in
outstanding debt as well as lower interest rates.

14



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##### 



Net Loss.Net loss
before taxes and preferred dividends was $2.2 million for
fiscal year 2002 compared to a net loss before taxes and
preferred dividends of $15.9 million for fiscal year 2001.
Net loss after taxes but before preferred dividends was
$6.7 million, an improvement of $12.1 million compared
to losses of $18.8 million for fiscal year 2001. In spite
of a consolidated pretax loss, a provision for income tax
expense was booked in fiscal year 2002 based on the net decrease
in deferred tax assets. The fiscal year 2001 provision for
income tax expense was primarily due to the release of amounts
previously accrued for potential examinations by tax authorities
and deferred income tax expense resulting from a decrease in
deferred tax assets.

Differences Between Holding and CPI.CPIs operating results differ
slightly from Holding due to a sale-leaseback transaction
between CPI and Holding which took place in December 2000. (See
further discussion under Financial Condition of
Holding) In fiscal year 2002, CPIs net loss before
taxes was $1.5 million, which was approximately
$0.7 million lower than Holdings net loss before
taxes. As a result of this transaction, operating costs for CPI
were approximately $1.4 million higher than those of
Holding due to rental payments paid by CPI to Holding for use of
the San Carlos facility offset by amortization of the deferred
gain on the sale-leaseback and additional depreciation on the
San Carlos facility. Interest expense, net, for CPI was
approximately $2.0 million lower than that of Holding. The
decrease primarily relates to the fact that Holdings
interest expense includes interest paid on the mortgage
financing of the San Carlos facility. In addition, interest
income from Holding of $0.9 million related to an
intercompany receivable is included in CPIs results, but
is eliminated upon consolidation for Holding. All other
operations data for CPI is consistent with Holdings
operations data for fiscal year 2002.



| |                                                  
| | -------------------------------------------------
| | Fiscal Year 2001 Compared to Fiscal Year
    2000

Sales.Sales for
fiscal year 2001 of $272.5 million were $29.5 million,
or 12.1%, higher than the prior year level of
$243.1 million due primarily to increases in products sold
to the Companys communications market. Communications
sales were $109.8 million, an increase of
$22.0 million, or 25.1% from fiscal year 2000 sales of
$87.8 million. Sales of products in the medical market were
$27.4 million, up $6.5 million or 31.4% from fiscal
year 2000 sales of $20.8 million. This increase was driven
primarily by the Companys new line of generators used in
x-ray applications. Industrial and scientific sales were
$20.0 million and $5.5 million, respectively, which
represents an increase of $2.5 million and
$1.4 million, respectively, over fiscal year 2000. Radar
sales, on the other hand, decreased $2.9 million, or 3.2%,
to $87.9 million in fiscal year 2001 compared to
$90.8 million in fiscal year 2000. Sales of products to the
Companys electronic countermeasures market of
$21.9 million in fiscal year 2001 were consistent with the
fiscal year 2000 level.

Gross Margin.Gross
margin as a percentage of sales was 18.0% in fiscal year 2001, a
decrease of 4.3% from fiscal year 2000. This decrease was
attributable to higher start-up and warranty costs on several
new satcom products, increased provisions for potentially excess
and obsolete inventories and to increases in energy related
costs at the Companys California operations. The increase
in provisions for excess and obsolete inventories includes
$3.4 million which was recorded in the fourth quarter
related to products or product lines which management has
determined, in light of recent economic conditions and the
transfer of the Satcom Divisions production to Canada, are
unlikely to be saleable.

Research and Development Expenses.R&D expenses in fiscal year 2001
decreased by $2.9 million to $5.8 million, or 2.1% of
sales, compared to fiscal year 2000s level of
$8.7 million, or 3.6% of sales. The decrease was
attributable to lower research and development costs in the
satcom equipment segment as that segments engineering
resources were predominantly focused on production ramp-up
issues rather than new product development.

Selling, Marketing, General and Administrative
Expenses.Selling, marketing, general
and administrative expenses in fiscal year 2001 were
$38.6 million, or 14.1% of sales, as compared to
$37.3 million, or 15.3% of sales, in fiscal year 2000.
Selling and marketing costs decreased approximately
$1.0 million in fiscal year 2001 due primarily to
reductions at the Satcom division for Marcom advertising and
personnel. The decrease in marketing and selling costs was
partially offset by a $2.3 million increase in general and
administrative costs. The increase was associated with certain
consolidation activities including the relocation of the Satcom
Divisions production from Palo Alto, California to the
Companys facility in Ontario, Canada, and the

15



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##### 



relocation of the Companys administrative
offices into a single building in Palo Alto. General and
administrative costs-to-date attributable to these consolidation
efforts were approximately $3.7 million. Excluding the
effects of the Companys consolidation efforts, operating
costs as a percentage of sales for fiscal year 2001 were 12.8%
compared to 15.3% for the same period of fiscal year 2000,
reflecting the impact of cost-cutting measures in effect
throughout the Company.


EBITDA.EBITDA was
$18.2 million, or 6.7% of sales in fiscal year 2001
compared to EBITDA of $23.6 million, or 9.7% of sales, in
fiscal year 2000. Fiscal year 2001 EBITDA declined by
$5.4 million primarily due to costs incurred associated
with the Companys consolidation activities.

Net Loss.Net loss
before taxes and preferred dividends was $15.9 million for
fiscal year 2001 compared to a net loss before taxes and
preferred dividends of $10.4 million for fiscal year 2000.
Net loss after taxes but before preferred dividends was
$18.8 million for fiscal year 2001, a decline of
$7.3 million compared to losses of $11.6 million for
fiscal year 2000. In spite of a consolidated pretax loss, a
provision for income tax expense was booked in fiscal year 2001
based on the net impact of federal alternative minimum tax,
profitability in most foreign operations, the release of amounts
previously accrued for potential examinations by tax
authorities, and deferred income tax expense resulting from a
decrease in deferred tax assets. The fiscal year 2000 provision
for income tax expense was primarily due to the fact that most
foreign operations were profitable.

Differences Between Holding and CPI.In fiscal year 2001, CPIs net
loss before taxes was $14.8 million, which was
approximately $1.1 million lower than Holdings net
loss before taxes. This difference is attributable to the
sale-leaseback transaction between CPI and Holding, which took
place in December 2000. As a result of this transaction,
operating costs for CPI for fiscal year 2001 were approximately
$1.0 million higher than those of Holding due to rental
payments paid by CPI to Holding for use of the San Carlos
facility offset by amortization of the deferred gain on the
sale-leaseback and additional depreciation on the San Carlos
facility. Interest expense for fiscal year 2001, net, for CPI
was approximately $2.0 million lower than that of Holding.
The decrease primarily relates to the fact that Holdings
interest expense figure includes interest paid on the mortgage
financing of the San Carlos facility. In addition, interest
income for fiscal year 2001 from Holding of $0.7 million
related to an intercompany receivable was included in CPIs
results, but was eliminated upon consolidation for Holding. All
other operations data for CPI was consistent with Holdings
operations data for fiscal year 2001.

Financial Condition of Holding

Net cash provided from operating activities was
$44.9 million in fiscal year 2002, $1.7 million in
fiscal year 2001, and $9.9 million in fiscal year 2000. The
increase in cash provided by operating activities in fiscal year
2002 is due primarily to better operating results combined with
a significant reduction in accounts receivable and inventories
from the prior year.

Investing activities were comprised principally
of investment in property, plant and equipment totaling
$3.4 million in fiscal year 2002, $5.8 million in
fiscal year 2001, and $5.3 million in fiscal year 2000. The
use of cash was offset in part by cash proceeds from the sale of
the Companys SSPD division. The Companys investment
in plant and equipment in fiscal years 2002, 2001 and 2000 were
lower than historical levels due to cost control measures
implemented by the Company during the second half of fiscal year
2000. 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 year 2003 to be approximately
$3.5 million.

Financing activities during fiscal year 2002 were
related primarily to the prepayment of the Companys
$20.0 million senior term loan and repayments of the
Companys revolving credit facility. 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.

16



---



##### 



In December 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. The promissory note matures in December 2009
and provides for 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 issuance
of additional notes. CPI and Holding entered into a lease
agreement for 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. During
fiscal year 2002, the loan was extended until June 1, 2003
and $0.2 million of principal was repaid. The loan bears
interest at LIBOR plus 4.25% 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 approved a plan in October 2000 to
relocate its Satcom Divisions production operation from
Palo Alto, California to its facility in Ontario, Canada. The
move was fully completed during the fourth quarter of fiscal
year 2002 with costs incurred during the year of approximately
$1.4 million. Also during fiscal year 2001, the Company
relocated its administrative offices into a single building in
Palo Alto and is actively looking for tenants to sublease 48,000
square feet of office space.

As of September 27, 2002, the Company had
$28.5 million available under its revolving line of credit
that expires December 22, 2004. The following is a summary
of certain obligations and commitments of the Company as of
September 27, 2002:

|                                                          |                        |                     |        |          |  |      |     |      |  |            |         |         |  |  |    |    |  |  |    |        |  |  |         |         | 
|--------------------------------------------------------- | ---------------------- | ------------------- | ------ | -------- |  | ---- | --- | ---- |  | ---------- | ------- | ------- |  |  | -- | -- |  |  | -- | ------ |  |  | ------- | ------- | 
|                                                          |                        |                    
|                                                          |                        | Due in Fiscal Years
|                                                          |                        |                    
|                                                          |                        |                     |        | 2007 and |  |     
|                                                          |                        | 2003                |        | 2004     |  | 2005 |     | 2006 |  | Thereafter |         | Total  
|                                                          |                        |                     |        |          |  |      |     |      |  |            |         |        
|                                                          |                        |                    
|                                                          |                        | (In thousands)     
|Debt obligations, including capital lease
    obligations |                        | $                   | 17,795 |          |  |      |    |      |  |            | 100,000 |         |  |  |   |    |  |  |   |        |  |  | 117,795 |        
|Noncancellable operating leases                           |                        |                     | 891    |          |  |      | 617 |      |  |            | 458     |         |  |  | 89 |    |  |  | 41 |        |  |  | 2,096   |        
|Senior Redeemable Preferred                               |                        |                     |        |          |  |      |     |      |  |            |         |         |  |  |    |    |  |  |    |        |  |  |         |        
|                                                          | Stock                  |                     |        |         |  |      |     |     |  |            |         |        |  |  |    |   |  |  |    | 28,693 |  |  |         | 28,693  | 
|                                                          |                        |                     |        |          |  |      |     |      |  |            |         |         |  |  |    |    |  |  |    |        |  |  |         |        
|                                                          | Total cash obligations |                     | $      | 18,686   |  |      |     | 617  |  |            |         | 100,458 |  |  |    | 89 |  |  |    | 28,734 |  |  |         | 148,584 | 
|                                                          |                        |                     |        |          |  |      |     |      |  |            |         |         |  |  |    |    |  |  |    |        |  |  |         |        
|Standby letters of credit                                 |                        | $                   | 4,528  |          |  |      | 8   |      |  |            | 10      |         |  |  |   |    |  |  |   |        |  |  | 4,546   |        
|                                                          |                        |                     |        |          |  |      |     |      |  |            |         |         |  |  |    |    |  |  |    |        |  |  |         |        

The Companys debt obligations include
mortgage financing of Holding in the amount of
$17.8 million in connection with the purchase by Holding of
the San Carlos real property, which was refinanced in June 2002.
Under the terms of the refinancing, the loan was extended until
June 1, 2003 and the Company paid two principal
installments of $250,000 on June 1, 2002 and
December 1, 2002. Restrictions in the Senior Subordinated
Notes Indenture and in the Companys credit facility
prohibit CPI from distributing cash to Holding to satisfy this
obligation. Management expects to either refinance this
obligation or to enter into a sale or other transaction with
respect to this property.

Generally, there can be no assurance that the
combination of cash generated by operations, borrowing
availability from the Companys credit facility and
additional collateral-based financing will be sufficient to meet
the Companys cash requirements. If the Company is unable
to satisfy such cash requirements from these sources, the
Company will adopt one or more alternatives, such as reducing or
delaying capital expenditures, reducing discretionary costs, and
negotiating an increase to the Companys borrowing capacity
under its line of credit.

17



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##### 



Financial Condition of CPI

Net cash provided from operating activities was
$44.6 million in fiscal year 2002, $2.0 million in
fiscal year 2001, and $9.9 million in fiscal year 2000. The
increase in cash provided by operating activities in fiscal year
2002 is due primarily to better operating results combined with
a significant reduction in accounts receivable and inventories
from the prior year.

Investing activities were comprised principally
of investment in property, plant and equipment totaling
$3.4 million in fiscal year 2002, $5.8 million in
fiscal year 2001, and $5.3 million in fiscal year 2000. The
use of cash was offset in part by cash proceeds from the sale of
the Companys SSPD division. The Companys investment
in plant and equipment in fiscal years 2002, 2001 and 2000 were
lower than historical levels due to cost control measures
implemented by the Company during the second half of fiscal year
2000. 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 year 2003 to be approximately
$3.5 million.

Financing activities during fiscal year 2002 were
related primarily to the prepayment of the Companys
$20.0 million senior term loan and repayments of the
Companys revolving credit facility. 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.

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 approved a plan in October 2000 to
relocate its Satcom Divisions production operation from
Palo Alto, California to its facility in Ontario, Canada. The
move was fully completed during the fourth quarter of fiscal
year 2002 with costs incurred during the year of approximately
$1.4 million. Also during fiscal year 2001, the Company
relocated its administrative offices into a single building in
Palo Alto and is actively looking for tenants to sublease 48,000
square feet of office space.

As of September 27, 2002, CPI had
$28.5 million available under its revolving line of credit
that expires December 22, 2004. The following is a summary
of certain obligations and commitments of CPI as of
September 27, 2002:

|                                                          |                        |                     |       |          |  |      |     |      |  |            |         |         |  |  |    |    |  |  |    |        |  |  |         |         | 
|--------------------------------------------------------- | ---------------------- | ------------------- | ----- | -------- |  | ---- | --- | ---- |  | ---------- | ------- | ------- |  |  | -- | -- |  |  | -- | ------ |  |  | ------- | ------- | 
|                                                          |                        |                    
|                                                          |                        | Due in Fiscal Years
|                                                          |                        |                    
|                                                          |                        |                     |       | 2007 and |  |     
|                                                          |                        | 2003                |       | 2004     |  | 2005 |     | 2006 |  | Thereafter |         | Total  
|                                                          |                        |                     |       |          |  |      |     |      |  |            |         |        
|                                                          |                        |                    
|                                                          |                        | (In thousands)     
|Debt obligations, including capital lease
    obligations |                        | $                   |      |          |  |      |    |      |  |            | 100,000 |         |  |  |   |    |  |  |   |        |  |  | 100,000 |        
|Noncancellable operating leases                           |                        |                     | 891   |          |  |      | 617 |      |  |            | 458     |         |  |  | 89 |    |  |  | 41 |        |  |  | 2,096   |        
|Senior Redeemable Preferred                               |                        |                     |       |          |  |      |     |      |  |            |         |         |  |  |    |    |  |  |    |        |  |  |         |        
|                                                          | Stock                  |                     |       |         |  |      |     |     |  |            |         |        |  |  |    |   |  |  |    | 28,693 |  |  |         | 28,693  | 
|                                                          |                        |                     |       |          |  |      |     |      |  |            |         |         |  |  |    |    |  |  |    |        |  |  |         |        
|                                                          | Total cash obligations |                     | $     | 891      |  |      |     | 617  |  |            |         | 100,458 |  |  |    | 89 |  |  |    | 28,734 |  |  |         | 130,789 | 
|                                                          |                        |                     |       |          |  |      |     |      |  |            |         |         |  |  |    |    |  |  |    |        |  |  |         |        
|Standby letters of credit                                 |                        | $                   | 4,528 |          |  |      | 8   |      |  |            | 10      |         |  |  |   |    |  |  |   |        |  |  | 4,546   |        
|                                                          |                        |                     |       |          |  |      |     |      |  |            |         |         |  |  |    |    |  |  |    |        |  |  |         |        

Generally, there can be no assurance that the
combination of cash generated by operations, borrowing
availability from the Companys Credit Facility and
additional collateral-based financing will be sufficient to meet
the Companys cash requirements. If the Company is unable
to satisfy such cash requirements from these sources, the
Company will adopt one or more alternatives, such as reducing or
delaying capital expenditures, reducing discretionary costs, and
negotiating an increase to the Companys borrowing capacity
under its line of credit.

18



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Recent
Accounting Pronouncements

In June 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS
No. 142 addresses financial accounting and reporting for
acquired goodwill and other intangible assets. SFAS No. 142
changes the accounting for goodwill from an amortization method
to an impairment-only approach. Goodwill will be tested annually
and whenever events or circumstances occur indicating that
goodwill might be impaired. Upon adoption of SFAS No. 142,
amortization of goodwill recorded for business combinations will
cease. Companies are required to adopt SFAS No. 142 for
fiscal years beginning after December 15, 2001, but early
adoption is permitted. The Company will adopt this Statement
beginning in the first quarter of fiscal year 2003 and has not
yet determined whether there will be an impairment charge. At
the beginning of fiscal year 2003, the goodwill balance, net of
amortization, is $19.1 million, which will no longer be
amortized.

The FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations, in
August 2001, and SFAS No. 144, Accounting for the
Impairment or Disposal of Long-lived Assets, in October
2001. SFAS No. 143 is effective for fiscal years beginning
after June 15, 2002 and will require that the fair value of
an asset retirement obligation be recorded as a liability in the
period in which it incurs the obligation. SFAS No. 144 is
effective for fiscal years beginning after December 15,
2001. It provides a single accounting model for long-lived
assets to be disposed of and replaces SFAS No. 121
Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of. The Company does not
expect the adoption of these statements to have a material
effect on the Companys consolidated financial position or
results of operations. The Company will adopt these Statements
beginning in the first quarter of fiscal year 2003.

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections. This Statement rescinds SFAS Statement
No. 4, Reporting Gains and Losses from Extinguishment
of Debt, and an amendment of that Statement, SFAS
Statement No. 64, Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements. This Statement amends
SFAS Statement No. 13, Accounting for Leases,
to eliminate an inconsistency between the required accounting
for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. This Statement also
amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe
their applicability under changed conditions. The provisions of
SFAS No. 145 are effective in fiscal years beginning after
May 15, 2002, with early adoption permitted and, in
general, are to be applied prospectively. The Company does not
expect the adoption of these statements to have a material
effect on the Companys consolidated financial position or
results of operations. The Company will adopt these Statements
beginning in the first quarter of fiscal year 2003.

In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit and Disposal
Activities. SFAS 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized and
measured initially at fair value only when the liability is
incurred. The provisions of SFAS No. 146 are effective
prospectively for exit or disposal activities initiated after
December 31, 2002. The Company does not expect the adoption
of this statement to have a material effect on the
Companys consolidated financial position or results of
operations.

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 and senior subordinated notes 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 three fiscal years, and has an accumulated
    deficit, as of September 27, 2002, of $91.0 million.
    The

19



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##### 



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 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 have important
    consequences, including, but not limited to the following: it
    could make it more difficult for the Company to satisfy its
    obligations under its credit facilities and to its noteholders;
    it could 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; 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; it could place the Company at a
    disadvantage compared to its competitors that have
    proportionately less debt; and it could limit the Companys
    ability to borrow additional funds in the future, if needed, due
    to applicable financial and restrictive covenants in the debt.
|
| |  | 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 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 may 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                                                                                                                                                                                                                                                                                                                                                                                                                                              

20



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 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 6, 2002, 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 transactions.



|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A: | Quantitative and Qualitative Disclosures
    About Market Risk

The Company is exposed to interest rate risk on a
portion of 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 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 August 2005, and bear a fixed interest
rate of 12% per annum. The remaining debt, with a carrying value
of approximately $17.8 million at September 27, 2002,
is subject to changes in the Prime or LIBOR Rates.

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 Canadian dollar, the British pound, the Australian
dollar and the 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% 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% 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 $0.1 million. In terms of foreign currency
exchange rate risk, a 10% adverse movement in the levels of
foreign currency exchange rates against the U.S. dollar with all
other variables held constant would have virtually no effect on
future earnings as foreign payable and receivable balances have
similar values, minimizing the foreign exchange exposure. Actual
results, however, could differ materially.

21



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##### 





|        |                                                
|------- | -----------------------------------------------
|Item 8: | Financial Statements and Supplementary
    Data

Information called for by this item is set forth
in the consolidated financial statements of Holding and CPI
contained in this report. Specific financial statements and
schedules can be found at the pages listed in the Index to
Financial Statements on page F-1.

|                                                                                                                                                                   |  |      |      | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ---- | 
|                                                                                                                                                                   |  | Page
|                                                                                                                                                                   |  |     
|COMMUNICATIONS & POWER INDUSTRIES HOLDING
    CORPORATION                                                                                                          |  |      |      | 
|Independent Auditors Report                                                                                                                                       |  |      | F-2  | 
|Consolidated Balance Sheets as of
    September 27, 2002 and September 28, 2001                                                                                    |  |      | F-3  | 
|Consolidated Statements of Operations for the
    52-week periods ended September 27, 2002,
    September 28, 2001, and September 29, 2000                         |  |      | F-4  | 
|Consolidated Statements of Stockholders
    Deficit for the 52-week periods ended September 27, 2002,
    September 28, 2001, and September 29, 2000              |  |      | F-5  | 
|Consolidated Statements of Cash Flows for the
    52-week periods ended September 27, 2002,
    September 28, 2001, and September 29, 2000                         |  |      | F-6  | 
|Notes to the Consolidated Financial Statements                                                                                                                     |  |      | F-8  | 
|Financial Statement Schedule                                                                                                                                       |  |      | F-49 | 
|COMMUNICATIONS & POWER INDUSTRIES,
    INC.                                                                                                                        |  |      |      | 
|Independent Auditors Report                                                                                                                                       |  |      | F-26 | 
|Consolidated Balance Sheets as of
    September 27, 2002 and September 28, 2001                                                                                    |  |      | F-27 | 
|Consolidated Statements of Operations for the
    52-week periods ended September 27, 2002,
    September 28, 2001, and September 29, 2000                         |  |      | F-28 | 
|Consolidated Statements of Stockholders
    Equity (Deficit) for the 52-week periods ended
    September 27, 2002, September 28, 2001, and
    September 29, 2000 |  |      | F-29 | 
|Consolidated Statements of Cash Flows for the
    52-week periods ended September 27, 2002,
    September 28, 2001, and September 29, 2000                         |  |      | F-30 | 
|Notes to the Consolidated Financial Statements                                                                                                                     |  |      | F-32 | 
|Financial Statement Schedule                                                                                                                                       |  |      | F-50 | 

22



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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9: | Changes In and Disagreements With Accountants
    on Accounting and Financial Disclosure

Not applicable.

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.

|                    |  |     |    |          |  |                                                 
|------------------- |  | --- | -- | -------- |  | ------------------------------------------------
|Name                |  | Age |    | Position
|                    |  |     |    |         
|William P. Rutledge |  |     | 60 |          |  | Chairman of the Board and Director              
|O. Joe Caldarelli   |  |     | 52 |          |  | Chief Executive Officer and Director            
|Robert A. Fickett   |  |     | 42 |          |  | President, Chief Operating Officer and Director 
|Joel A. Littman     |  |     | 50 |          |  | Chief Financial Officer, Treasurer and Secretary
|John R. Beighley    |  |     | 50 |          |  | Vice President and Assistant Secretary          
|John G. Danhakl     |  |     | 46 |          |  | Director                                        
|John M. Baumer      |  |     | 35 |          |  | Director                                        

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.

|                    |  |     |    |          |  |                                                 
|------------------- |  | --- | -- | -------- |  | ------------------------------------------------
|Name                |  | Age |    | Position
|                    |  |     |    |         
|William P. Rutledge |  |     | 60 |          |  | Chairman of the Board and Director              
|O. Joe Caldarelli   |  |     | 52 |          |  | Chief Executive Officer, and Director           
|Robert A. Fickett   |  |     | 42 |          |  | President, Chief Operating Officer, and Director
|Joel A. Littman     |  |     | 50 |          |  | Chief Financial Officer, Treasurer and Secretary
|John R. Beighley    |  |     | 50 |          |  | Vice President and Assistant Secretary          
|Don C. Coleman      |  |     | 48 |          |  | Vice President                                  
|Mike Cheng          |  |     | 47 |          |  | Vice President                                  
|John G. Danhakl     |  |     | 46 |          |  | Director                                        
|John M. Baumer      |  |     | 35 |          |  | Director                                        

William P. Rutledgebecame Chairman of the Board of
Holding and CPI in June 1999. He was also interim Chief
Executive Officer 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
(Teledyne, Inc) 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 Vice President 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.

O. Joe Caldarellibecame Chief Executive Officer and a
director of Holding and CPI in March 2002. Prior to this,
Mr. Caldarelli was a Co-Chief Operating Officer since
October 2000 and Vice President of CPI since August 1995. Mr.
Caldarelli is also the Division President of the Communications
and Medical Products (CMP) and Satcom Divisions.
Mr. Caldarelli was Vice President and General Manager for
CMP under the

23



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##### 



Electron Device Business of Varian, 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. Fickettbecame President, Chief Operating
Officer and a director of Holding and CPI in March 2002. Prior
to this, Mr. Fickett was a Co-Chief Operating Officer since
October 2000 and Vice President of CPI since April 1998.
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.

Joel A. Littmanbecame Chief Financial Officer of
Holding and CPI in September 2001. Mr. Littman was
Corporate Controller for CPI from November 1996 to September
2001. From September 1989 to November 1996 Mr. Littman
served as Controller of the Microwave Power Products Division of
Varian Associates and CPI. Prior to that Mr. Littman held
various finance positions with Varian Associates and TRW.
Mr. Littman received a B.A. degree in economics and a MBA,
both from the University of California at Los Angeles.

John R. Beighleybecame 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 a MBA from Santa Clara University.

Don C. Colemanbecame 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.

Mike Chengbecame 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.

John G. Danhaklbecame a director of the Company in
August 1995. He has been a partner of Leonard Green &
Partners, L.P. (LGP), a merchant-banking firm that
manages GEI, since 1995. Prior to becoming a partner at LGP,
Mr. Danhakl was a Managing Director at Donaldson, Lufkin
& Jenrette Securities Corporation (DLJ) since
1990. Prior to joining DLJ, Mr. Danhakl was a Vice
President at Drexel Burnham Lambert from 1985 to 1990.
Mr. Danhakl currently serves on the Boards of Directors of
the Arden Group, Inc., Big 5 Sporting Goods, Diamond
Triumph, Auto Glass, Inc., Leslies Poolmart, Inc., VCA
Antech, Inc., Petco Animal Supplies, Inc., MEMC Electronic
Materials, Inc., and Phoenix Scientific, Inc. Mr. Danhakl
is a 1980 graduate of the University of California at Berkeley.
He received his MBA in 1985 from the Harvard Business School.

24



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##### 



John M. Baumerbecame a director of the Company in
October 2001. He has been a partner of LGP, a merchant-banking
firm that manages GEI, since 2001. Mr. Baumer had previously
been a Vice President at LGP since 1999. Prior to joining LGP,
he had been a Vice President at DLJ, and had been with DLJ since
1995. Prior to joining DLJ, Mr. Baumer worked at Fidelity
Investments and Arthur Andersen. Mr. Baumer currently
serves on the Boards of Directors of Intercontinental Art, Inc.,
VCA Antech, Inc., Petco Animal Supplies, Inc., Leslies
Poolmart, Inc., and Phoenix Scientific, Inc. Mr. Baumer is
a 1990 graduate of the University of Notre Dame. He also
received his MBA in 1995 from the Wharton School at the
University of Pennsylvania.

25



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##### 



Item 11:     Executive
Compensation

The following table shows certain information
concerning compensation paid or accrued by the Company during
fiscal year 2002 to the Chief Executive Officer, and the next
four most highly compensated executive officers of Holding and
CPI, (collectively, the Named Executive Officers)
for the three fiscal years ending September 27, 2002.

Summary Compensation Table

|                   |                          |               |      |                     |      |                        |         |                    |         |               |         |              |         |   |        |        |        |  |       |       |         |   |         |         |         | 
|------------------ | ------------------------ | ------------- | ---- | ------------------- | ---- | ---------------------- | ------- | ------------------ | ------- | ------------- | ------- | ------------ | ------- | - | ------ | ------ | ------ |  | ----- | ----- | ------- | - | ------- | ------- | ------- | 
|                   |                          |               |      |                     |      |                       
|                   |                          |               |      | Annual Compensation |      | Long Term Compensation
|                   |                          |               |      |                     |      |                       
|                   |                          |               |      |                     |      | Securities             |         |                   
|                   |                          |               |      |                     |      | Other Annual           |         | Underlying Options |         | All Other    
|Name and           |                          | Fiscal        |      |                     |      | Bonus                  |         | Compensation       |         | (# of shares) |         | Compensation
|Principal Position |                          | Year          |      | Salary              |      | (a)                    |         | (b)                |         | (c)           |         | (d)         
|                   |                          |               |      |                     |      |                        |         |                    |         |               |         |             
|O. Joe Caldarelli  |                          |               | 2002 |                     |      | $                      | 252,833 |                    |         | $             | 665,972 |              |         | $ | 19,762 |        |        |  |      |       |         | $ | 153,425 |        
|                   | Chief Executive Officer  |               |      | 2001                |      |                        |         | 184,033            |         |               |         |             |         |   |        | 6,864  |        |  |       |      |         |   |         | 14,147  |        
|                   |                          |               | 2000 |                     |      |                        | 101,002 |                    |         |               | 35,500  |              |         |   | 7,072  |        |        |  | 8,000 |       |         |   | 8,332   |        
|Bart F. Petrini(e) |                          |               | 2002 |                     |      |                        | 274,519 |                    |         |               |        |              |         |   | 14,224 |        |        |  |      |       |         |   | 24,476  |        
|                   | Chief Executive Officer  |               |      | 2001                |      |                        |         | 262,019            |         |               |         |             |         |   |        | 17,387 |        |  |       |      |         |   |         | 153,994 |        
|                   |                          | and President |      |                     | 2000 |                        |         |                    | 221,154 |               |         |              | 125,000 |   |        |        | 7,500  |  |       |       | 100,000 |   |         |         | 114,931 | 
|Robert A. Fickett  |                          |               | 2002 |                     |      |                        | 237,500 |                    |         |               | 600,000 |              |         |   | 29,421 |        |        |  |      |       |         |   | 17,901  |        
|                   | Chief Operating Officer  |               |      | 2001                |      |                        |         | 211,462            |         |               |         |             |         |   |        | 24,090 |        |  |       |      |         |   |         | 14,982  |        
|                   |                          | and President |      |                     | 2000 |                        |         |                    | 174,039 |               |         |              | 10,000  |   |        |        | 19,894 |  |       |       | 16,750  |   |         |         | 11,738  | 
|Don C. Coleman     |                          |               | 2002 |                     |      |                        | 142,077 |                    |         |               | 137,523 |              |         |   | 30,703 |        |        |  |      |       |         |   | 9,652   |        
|                   | Vice President           |               |      | 2001                |      |                        |         | 139,462            |         |               |         | 52,208       |         |   |        | 17,230 |        |  |       |      |         |   |         | 9,011   |        
|                   |                          |               | 2000 |                     |      |                        | 125,383 |                    |         |               | 40,000  |              |         |   | 9,816  |        |        |  | 5,000 |       |         |   | 7,550   |        
|Joel A. Littman    |                          |               | 2002 |                     |      |                        | 143,780 |                    |         |               | 156,000 |              |         |   | 19,966 |        |        |  |      |       |         |   | 10,059  |        
|                   | Chief Financial Officer, |               |      | 2001                |      |                        |         | 133,462            |         |               |         | 24,507       |         |   |        | 6,832  |        |  |       | 6,000 |         |   |         | 8,649   |        
|                   |                          | Treasurer and |      |                     | 2000 |                        |         |                    | 115,394 |               |         |              | 13,000  |   |        |        | 2,115  |  |       |       | 2,000   |   |         |         | 8,983   | 
|                   |                          | Secretary     |      |                     |      |                        |         |                    |         |               |         |              |         |   |        |        |        |  |       |       |         |   |         |         |         | 
|Mike Cheng         |                          |               | 2002 |                     |      |                        | 135,536 |                    |         |               | 102,239 |              |         |   | 17,543 |        |        |  |      |       |         |   | 9,146   |        
|                   | Vice President           |               |      | 2001                |      |                        |         | 131,746            |         |               |         | 30,968       |         |   |        | 2,862  |        |  |       |      |         |   |         | 6,504   |        
|                   |                          |               | 2000 |                     |      |                        | 111,367 |                    |         |               |        |              |         |   |       |        |        |  | 5,500 |       |         |   | 5,437   |        



---



|    |                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Consists of awards under CPIs Management
    Incentive Plan for fiscal year 2002 to be paid in fiscal year
    2003. The amount for fiscal year 2002 also includes a sign-on
    bonus for Messrs. Caldarelli and Fickett, who became the
    CEO and COO respectively during the year.
|   
|(b) | Consists of amounts paid for personal benefits
    and amounts reimbursed for the payment of taxes on certain
    perquisites.                                                                                                                                                          
|   
|(c) | Consists of stock options granted under the 2000
    Stock Option Plan. Each option granted vests at the rate of 25%
    per year except 4,250 of Mr. Ficketts options which
    vest at 50% per year over a two year period.                                                          
|   
|(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, (3) in the case of Mr. Petrini, relocation costs.                                                          
|   
|(e) | Mr. Petrini was Chief Executive Officer and
    President until he retired on March 19, 2002 and entered
    into a consulting agreement with the Company through November
    2002.                                                                                                    

Stock Options in Fiscal Year 2002

There were no stock options issued to the
Companys Named Executive Officers during the
fiscal year ended September 27, 2002.

26



---



##### 



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

|                  |  |                 |   |          |  |                            |   |               |  |  |        |  |  |  |        | 
|----------------- |  | --------------- | - | -------- |  | -------------------------- | - | ------------- |  |  | ------ |  |  |  | ------ | 
|                  |  |                 |   |          |  |                           
|                  |  |                 |   |          |  | Number of Securities      
|                  |  |                 |   |          |  | Underlying Unexercised    
|                  |  |                 |   |          |  | Options at Fiscal Year-end
|                  |  | Shares Acquired |   | Value    |  |                           
|Name              |  | on Exercise     |   | Realized |  | Exercisable                |   | Unexercisable
|                  |  |                 |   |          |  |                            |   |              
|O. Joe Caldarelli |  |                 |  |          |  |                            |  |               |  |  | 4,000  |  |  |  | 4,000  | 
|Bart F. Petrini   |  |                 |  |          |  |                            |  |               |  |  | 50,000 |  |  |  | 50,000 | 
|Robert A. Fickett |  |                 |  |          |  |                            |  |               |  |  | 10,500 |  |  |  | 6,250  | 
|Don C. Coleman    |  |                 |  |          |  |                            |  |               |  |  | 2,500  |  |  |  | 2,500  | 
|Joel A. Littman   |  |                 |  |          |  |                            |  |               |  |  | 2,500  |  |  |  | 5,500  | 
|Mike Cheng        |  |                 |  |          |  |                            |  |               |  |  | 2,750  |  |  |  | 2,750  | 

The value of unexercised options at the end of
fiscal year 2002 is not considered significant as the value of
the Companys common stock at the end of fiscal year 2002,
as determined by the Board of Directors, has not changed
significantly from the value at the grant date (July 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. As of the fiscal year ended
September 27, 2002, options granted under the Plan totaled
215,300 shares of common stock. As of September 27,
2002, 107,650 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 employees who may acquire Management
Shares are referred to as the Management Investors)
in fiscal year 1995.

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 $0.9 million as of September 27, 2002. Of this
amount, $0.7 million 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
$0.2 million 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. The
Board of Directors has extended the due dates of all past and
future scheduled interest and principal payments on these
Management Notes until the Management Notes are due in 2004 or
upon Board request, whichever comes first.

27



---



##### 



Employment Agreements

Mr. Caldarelli, Mr. Fickett and
Mr. Littman are parties to employment agreements with the
Company, providing for annual base salaries of $300,000,
$250,000 and $144,000, respectively, subject to annual review
and adjustment. Mr. Caldarelli, Mr. Fickett and
Mr. Littman received bonuses of $665,972, $600,000 and
$156,000, respectively, for the 2002 fiscal year.
Mr. Caldarellis and Mr. Ficketts bonuses
for the 2002 fiscal year included a signing bonus.

Under these agreements, each of these executives
is eligible for participation in the Companys Management
Incentive Plan. The Board of Directors of the Company will
review the Management Incentive Plan at the beginning of each
fiscal year and will establish the details for participation for
such fiscal year. Mr. Caldarellis target bonus under
the Management Incentive Plan is set at 1 times salary.
Mr. Fickett and Mr. Littmans targets are set
annually by the Board of Directors.

Upon termination of his employment by the
Company, Mr. Caldarelli will be entitled to receive
severance payments and medical benefits for at least
18 months and no more than 24 months. Mr. Fickett
and Mr. Littman will each be entitled to receive severance
payments and medical benefits for 18 months upon
termination of his employment by the Company. Each executive
will be entitled to receive his bonus under the Management
Incentive Plan for the entire year in which his employment is
terminated.

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. Caldarelli and Mr. Fickett. 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. Danhakl and Baumer, 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 by GEI II of its interest in Holding
in 1995, 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. Danhakl and Baumer, 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 $25,000 in fiscal year 2002. In addition,
Holding and CPI have entered into a management services
agreement with LGP 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.

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 6,
2002 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.

|                                                               |                                          |                      |           |                   |  |  |       |   | 
|-------------------------------------------------------------- | ---------------------------------------- | -------------------- | --------- | ----------------- |  |  | ----- | - | 
|                                                               |                                          | Amount and Nature of |           | Percent of Shares
|Name and Address of Beneficial Owner(a)                        |                                          | Beneficial Ownership |           | Outstanding      
|                                                               |                                          |                      |           |                  
|Green Equity Investors II, L.P.(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            |                      |           |                   |  |  |       |   | 
|John M. Baumer(b)                                              |                                          |                      | 3,590,750 |                   |  |  | 73.16 | %
|                                                               | 11111 Santa Monica Boulevard, Suite 2000 |                      |           |                   |  |  |       |   | 
|                                                               | Los Angeles, California 90025            |                      |           |                   |  |  |       |   | 
|Al D. Wilunowski(c)                                            |                                          |                      | 535,000   |                   |  |  | 10.90 | %
|                                                               | 811 Hansen Way                           |                      |           |                   |  |  |       |   | 
|                                                               | Palo Alto, California 94303              |                      |           |                   |  |  |       |   | 
|Bart F. Petrini                                                |                                          |                      | 0         |                   |  |  | 0     | %
|William P. Rutledge                                            |                                          |                      | 0         |                   |  |  | 0     | %
|O. Joe Caldarelli                                              |                                          |                      | 75,000    |                   |  |  | 1.53  | %
|Robert A. Fickett                                              |                                          |                      | 13,000    |                   |  |  | .26   | %
|Don C. Coleman                                                 |                                          |                      | 11,250    |                   |  |  | .23   | %
|Joel A. Littman                                                |                                          |                      | 3,750     |                   |  |  | .08   | %
|Mike Cheng                                                     |                                          |                      | 4,500     |                   |  |  | .09   | %
|Directors and Executive Officers as a group
    (7 persons)(b) |                                          |                      | 3,709,500 |                   |  |  | 75.58 | %



---



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 Jonathan D. Sokoloff, Mr. Danhakl,
    Mr. Baumer 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. Sokoloff, Danhakl, Baumer 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. Danhakl
    and Baumer are owned by GEI.
|   
|(c) |  | Includes 25,000 shares originally acquired
    by Mr. Wilunowski and subsequently transferred to his child.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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

29



---



##### 



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.


Securities Authorized for Issuance Under
Equity Compensation Plans

The following table contains information as of
September 27, 2002 for compensation plans previously
approved by security holders. There are no compensation plans
for which approval has not been obtained by security holders.

Equity Compensation Plan Information

|                                                           |  |                  |         |                |  |                         |      |  |  |  |        | 
|---------------------------------------------------------- |  | ---------------- | ------- | -------------- |  | ----------------------- | ---- |  |  |  | ------ | 
|                                                           |  | Number of        |         |                |  |                        
|                                                           |  | Securities to be |         | Weighted-      |  | Number of Securities   
|                                                           |  | Issued Upon      |         | average        |  | Remaining Available for
|                                                           |  | Exercise of      |         | Exercise Price |  | Future Issuance Under  
|                                                           |  | Outstanding      |         | of Outstanding |  | Equity Compensation    
|Plan Category                                              |  | Options          |         | Options        |  | Plans                  
|                                                           |  |                  |         |                |  |                        
|Equity compensation plans approved by security
    holders |  |                  | 215,300 |                |  | $                       | 4.00 |  |  |  | 34,700 | 

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. Danhakl and Baumer, who are directors of Holding
and CPI, are also stockholders of the general partner of LGP. In
connection with the acquisition by GEI II of its interest
in Holding in 1995, 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 year 2002, LGP earned $362,000
pursuant to the terms of the Management Services Agreement.

Item
14:     Controls and
Procedures

(a) Evaluation of Disclosure Controls and
Procedures. Based on their evaluation as of a date within
90 days of the filing date of this Annual Report on
Form 10-K, the Companys principal executive officer
and principal financial officer have concluded that the
Companys disclosure controls and procedures (as defined in
Rules 13a-14 (c) and 15d-14 (c) under the
Securities Exchange Act of 1934, as amended (the Exchange
Act)) are effective to ensure that information required to
be disclosed by the Company in reports that it files or submits
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and
Exchange Commission rules and forms.

(b) Changes in Internal Controls.
There were no significant changes in the Companys internal
controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation. There
were no significant deficiencies or material weaknesses, and
therefore there were no corrective actions taken.

30



---



##### 



PART IV

Item
15:     Exhibits, Financial
Statement Schedules, and Reports on Form 8-K

(a) Financial Statement Schedule of Holding
and CPI



| |                                                    
| | ---------------------------------------------------
| | Schedule II  Valuation and
    Qualifying Accounts

(b) Reports on Form 8-K



| |     
| | ----
| | None

(c) Schedule of Exhibits

|        |         |             |  |                                                                                                                                                                                                                                                                              
|------- | ------- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |            
|No.     |         | Description
|        |         |            
|        | 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(7)  |             |  | Amended and Restated Bylaws of CPI dated
    March 19, 2002.                                                                                                                                                                                                                 
|        | 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.                                                                                                                    
|        | 10.1(6) |             |  | Loan and Security Agreement by and among CPI as
    borrower, the other obligors named therein, the lenders that are
    signatories hereto as the senders, and Foothill Capital
    Corporation as the arranger and administrative agent, dated as
    of December 15, 2000.
|        | 10.2(6) |             |  | Intellectual Property Security Agreement between
    CPI and Foothill Capital Corporation as Agent for the Lenders
    dated December 15, 2000.                                                                                                                              
|        | 10.3(6) |             |  | Stock Pledge and Security Agreement by CPI to and
    in favor of Foothill Capital Corporation, as agent for itself
    and the other lenders dated December 15, 2000.                                                                                                       
|        | 10.4(6) |             |  | Stock Pledge and Security Agreement by Holding
    and various CPI subsidiaries to and in favor of Foothill Capital
    Corporation, as agent for itself and the other lenders, dated
    December 15, 2000.                                                                 
|        | 10.5(6) |             |  | Environmental Indemnity Agreement for the benefit
    of Foothill Capital Corporation, as agent for itself and the
    other lenders and the lenders, dated December 15, 2000.                                                                                               

31



---



##### 



|        |           |             |  |                                                                                                                                                                                                                                                                                                                       
|------- | --------- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |           |            
|No.     |           | Description
|        |           |            
|        | 10.6(6)   |             |  | Deed of Trust with Absolute Assignment of Leases
    and Rents, Security Agreement and Fixture Filing by and among
    CPI, First American Title Company and Foothill Capital
    Corporation, as agent for itself and the other lenders, dated
    December 15, 2000.                                                
|        | 10.7(6)   |             |  | Guaranty and Security Agreement in favor of
    Foothill Capital Corporation as Agent for itself and the lenders
    and the other lenders pursuant to that certain Loan and Security
    Agreement by and among CPI, the other obligors, Foothill and the
    other lenders named herein, dated December 15, 2000.   
|        | 10.8(6)   |             |  | Continuing Guaranty in favor of Foothill Capital
    Corporation, as agent for itself and the lenders and the other
    lenders pursuant to that certain Loan and Security Agreement by
    and among CPI, the other obligors named therein, Foothill and
    the other lenders named herein, dated December 15, 2000.
|        | 10.9(6)   |             |  | Intercreditor Agreement among the CPI Parties and
    Foothill Capital Corporation, as agent for itself and other
    lenders, dated December 15, 2000.                                                                                                                                                               
|        | 10.10(6)  |             |  | Fourth Amendment of Lease by and between The
    Board of Trustees of the Leland Stanford Junior University and
    CPI, dated December 15, 2000.                                                                                                                                                                     
|        | 10.11(6)  |             |  | Loan Agreement between Holding and Wells Fargo
    Bank, National Association, executed as of December 15,
    2000.                                                                                                                                                                                                  
|        | 10.11.1(8 | )           |  | Modification Agreement of Secured Loan between
    Holding and Wells Fargo Bank, National Association, dated
    June 1, 2002.                                                                                                                                                                                        
|        | 10.12(6)  |             |  | Promissory Note Secured by Deed of Trust by
    Holding in favor of Wells Fargo Bank, National Association,
    dated December 15, 2000.                                                                                                                                                                              
|        | 10.12.1(8 | )           |  | Amended and Restated Promissory Note Secured by
    Deed of Trust by Holding in favor of Wells Fargo Bank, National
    Association, dated June 1, 2002.                                                                                                                                                              
|        | 10.13(6)  |             |  | Deed of Trust with Absolute Assignment of Leases
    and Rents, Security Agreement and Fixture Filing by and among
    Holding, American Securities Company and Wells Fargo Bank,
    National Association, dated December 15, 2000.                                                                                  
|        | 10.13.1(8 | )           |  | Memorandum of Modification Agreement Amending
    Deed of Trust by Holding in favor of Wells Fargo Bank, National
    Association, dated June 1, 2002.                                                                                                                                                                
|        | 10.14(6)  |             |  | Subordination Agreement by CPI and Holding in
    favor of Wells Fargo Bank, National Association, dated
    December 15, 2000.                                                                                                                                                                                       
|        | 10.14.1(8 | )           |  | Junior Lienors Consent and Subordination
    Agreement by CPI in favor of Wells Fargo Bank, National
    Association, dated June 1, 2002.                                                                                                                                                                            
|        | 10.15(6)  |             |  | Hazardous Materials Indemnity Agreement by
    Holding in favor of Wells Fargo Bank, National Association,
    dated December 15, 2000.                                                                                                                                                                               
|        | 10.16(6)  |             |  | Unsecured Promissory Note by Holding in favor of
    CPI, dated December 15, 2000.                                                                                                                                                                                                                                    
|        | 10.17(6)  |             |  | Lease dated as of December 1, 2000 by and
    between Holding, as lessor, and CPI, as lessee.                                                                                                                                                                                                                         
|        | 10.18(1)  |             |  | Cross License Agreement between CPI and Varian
    dated as of August 10, 1995.                                                                                                                                                                                                                                       
|        | 10.19(1)  |             |  | Trademark License Agreement between CPI and
    Varian dated as of August 10, 1995.                                                                                                                                                                                                                                   
|        | 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.                                                                                                         

32



---



##### 



|        |          |             |  |                                                                                                                                                                                                                                                                                  
|------- | -------- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |          |            
|No.     |          | Description
|        |          |            
|        | 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.                                                                                                                                                               
|        | 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).                                                                                                                                                                  
|        | 10.32(5) |             |  | Communications & Power Industries 2000 Stock
    Option Plan.                                                                                                                                                                                                                    
|        | 10.33(5) |             |  | Form of Stock Option Agreement.                                                                                                                                                                                                                                                  
|        | 10.34(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.
|        | 10.35(1) |             |  | Sublease (Unit 8, Palo Alto) dated as of
    August 10, 1995 between Varian Realty Inc. and CPI.                                                                                                                                                                                 
|        | 10.36(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.                                                                               
|        | 10.37    |             |  | Employment Agreement for O. Joe Caldarelli dated
    March 19, 2002.                                                                                                                                                                                                             
|        | 10.38    |             |  | Employment Agreement for Robert A. Fickett dated
    September 30, 2002.                                                                                                                                                                                                         
|        | 10.39    |             |  | Employment Agreement for Joel A. Littman dated
    September 30, 2002.                                                                                                                                                                                                           
|        | 21(1)    |             |  | Subsidiaries of CPI and Holding.                                                                                                                                                                                                                                                 
|        | 99.1     |             |  | Certification of the Chief Executive Officer of
    Holding pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                        
|        | 99.2     |             |  | Certification of the Chief Financial Officer of
    Holding pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                        
|        | 99.3     |             |  | Certification of the Chief Executive Officer of
    CPI pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                            
|        | 99.4     |             |  | Certification of the Chief Financial Officer of
    CPI pursuant to 18 U.S.C. Section 1350, as adopted pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                            



---



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

33



---



##### 





|    |                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.                                                                        
|   
|(5) | Incorporated by reference to CPIs Annual
    Report on Form 10-K, filed on December 28, 2000.                                                                        
|   
|(6) | Incorporated by reference to CPIs Quarterly
    Report on Form 10-Q, filed on February 12, 2001.                                                                     
|   
|(7) | Incorporated by reference to CPIs Quarterly
    Report on Form 10-Q, filed on May 13, 2002.                                                                          
|   
|(8) | Incorporated by reference to CPIs Quarterly
    Report on Form 10-Q, filed on August 9, 2002.                                                                        

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 HOLDING
    CORPORATION



| |     |                      
| | --- | ---------------------
| | By: | /s/ O. JOE CALDARELLI

| |                        
| | -----------------------
| |                        
| | O. Joe Caldarelli      
| | Chief Executive Officer

Date: December 12, 2002

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:

|                                           |  |                                                                                                   |  |                   |  |     
|------------------------------------------ |  | ------------------------------------------------------------------------------------------------- |  | ----------------- |  | ----
|                                           |  | Signature                                                                                         |  | Title             |  | Date
|                                           |  |                                                                                                   |  |                   |  |     
|/s/ JOHN G. DANHAKLJohn G. Danhakl         |  | Director                                                                                          |  | December 12, 2002
|                                          
|/s/ JOHN M. BAUMERJohn M. Baumer           |  | Director                                                                                          |  | December 12, 2002
|                                          
|/s/ ROBERT A. FICKETTRobert A. Fickett     |  | Director                                                                                          |  | December 12, 2002
|                                          
|/s/ WILLIAM P. RUTLEDGEWilliam P. Rutledge |  | Chairman of the Board and Director                                                                |  | December 12, 2002
|                                          
|/s/ O. JOE CALDARELLIO. Joe Caldarelli     |  | Director, Chief Executive Officer (Principal
    Executive Officer)                               |  | December 12, 2002
|                                          
|/s/ JOEL A. LITTMANJoel A. Littman         |  | Chief Financial Officer, Treasurer and Secretary
    (Principle Financial and Accounting Officer) |  | December 12, 2002

35



---



##### 



CERTIFICATION

I, O. Joe Caldarelli, certify that:



| |                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed
    this annual report on Form 10-K of Communications &
    Power Industries Holding Corporation;                                                                                                                                                                                                                               
|
| | 2.     Based on my
    knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact
    necessary to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual
    report;
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in
    all material respects the financial condition, results of
    operations and cash flows of the registrant as of, and for, the
    periods presented in this annual report;                       
|
| | 4.     The
    registrants other certifying officers and I are
    responsible for establishing and maintaining disclosure controls
    and procedures (as defined in Exchange Act Rules 13a-14 and
    15d-14) for the registrant and we have:                                                                                                       



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5.     The
    registrants other certifying officers and I have
    disclosed, based on our most recent evaluation, to the
    registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6.     The
    registrants other certifying officers and I have indicated
    in this annual report whether or not there were significant
    changes in internal controls or in other factors that could
    significantly affect internal controls subsequent to the date of
    our most recent evaluation, including any corrective actions
    with regard to significant deficiencies and material weaknesses.

|      |  |                   |  |            |  |                                                                                                                            
|----- |  | ----------------- |  | ---------- |  | ---------------------------------------------------------------------------------------------------------------------------
|Date: |  | December 12, 2002 |  | Signature: |  | /s/ O. JOE CALDARELLI
    --------------------------------------------------
    O. Joe Caldarelli, Chief Executive Officer

36



---



##### 



CERTIFICATION

I, Joel A. Littman, certify that:



| |                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed
    this annual report on Form 10-K of Communications &
    Power Industries Holding Corporation;                                                                                                                                                                                                                               
|
| | 2.     Based on my
    knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact
    necessary to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual
    report;
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in
    all material respects the financial condition, results of
    operations and cash flows of the registrant as of, and for, the
    periods presented in this annual report;                       
|
| | 4.     The
    registrants other certifying officers and I are
    responsible for establishing and maintaining disclosure controls
    and procedures (as defined in Exchange Act Rules 13a-14 and
    15d-14) for the registrant and we have:                                                                                                       



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5.     The
    registrants other certifying officers and I have
    disclosed, based on our most recent evaluation, to the
    registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6.     The
    registrants other certifying officers and I have indicated
    in this annual report whether or not there were significant
    changes in internal controls or in other factors that could
    significantly affect internal controls subsequent to the date of
    our most recent evaluation, including any corrective actions
    with regard to significant deficiencies and material weaknesses.

|      |  |                   |  |            |  |                                                                                                                        
|----- |  | ----------------- |  | ---------- |  | -----------------------------------------------------------------------------------------------------------------------
|Date: |  | December 12, 2002 |  | Signature: |  | /s/ JOEL A. LITTMAN
    --------------------------------------------------
    Joel A. Littman, Chief Financial Officer

37



---



##### 



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.

38



---



##### 



COMMUNICATIONS & POWER INDUSTRIES HOLDING
CORPORATION

AND SUBSIDIARIES


COMMUNICATIONS & POWER INDUSTRIES, INC.,
AND SUBSIDIARIES

(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)


INDEX TO FINANCIAL STATEMENTS

|                                                                                                                                                                  |  |      |      | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | 
|                                                                                                                                                                  |  | Page
|                                                                                                                                                                  |  |     
|COMMUNICATIONS & POWER INDUSTRIES HOLDING
    CORPORATION                                                                                                         |  |      |      | 
|Independent Auditors Report                                                                                                                                      |  |      | F-2  | 
|Consolidated Balance Sheets as of
    September 27, 2002 and September 28, 2001                                                                                   |  |      | F-3  | 
|Consolidated Statements of Operations for the
    52-week periods ended September 27, 2002,
    September 28, 2001 and September 29, 2000                         |  |      | F-4  | 
|Consolidated Statements of Stockholders
    Deficit for the 52-week periods ended September 27, 2002,
    September 28, 2001 and September 29, 2000              |  |      | F-5  | 
|Consolidated Statements of Cash Flows for the
    52-week periods ended September 27, 2002,
    September 28, 2001 and September 29, 2000                         |  |      | F-6  | 
|Notes to the Consolidated Financial Statements                                                                                                                    |  |      | F-8  | 
|COMMUNICATIONS & POWER INDUSTRIES,
    INC.                                                                                                                       |  |      |      | 
|Independent Auditors Report                                                                                                                                      |  |      | F-26 | 
|Consolidated Balance Sheets as of
    September 27, 2002 and September 28, 2001                                                                                   |  |      | F-27 | 
|Consolidated Statements of Operations for the
    52-week periods ended September 27, 2002,
    September 28, 2001 and September 29, 2000                         |  |      | F-28 | 
|Consolidated Statements of Stockholders
    Equity (Deficit) for the 52-week periods ended
    September 27, 2002, September 28, 2001 and
    September 29, 2000 |  |      | F-29 | 
|Consolidated Statements of Cash Flows for the
    52-week periods ended September 27, 2002,
    September 28, 2001 and September 29, 2000                         |  |      | F-30 | 
|Notes to the Consolidated Financial Statements                                                                                                                    |  |      | F-32 | 
|FINANCIAL STATEMENT SCHEDULES                                                                                                                                     |  |      |      | 
|Communications & Power Industries Holding
    Corporation                                                                                                         |  |      | F-49 | 
|Communications & Power Industries,
    Inc.                                                                                                                       |  |      | F-50 | 

F-1



---



##### 



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 27,
2002 and September 28, 2001, and the related consolidated
statements of operations, stockholders deficit, and cash
flows for the 52-week periods ended September 27, 2002,
September 28, 2001 and September 29, 2000. 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 27, 2002 and September 28, 2001, and the
results of their operations and their cash flows for the 52-week
periods ended September 27, 2002, September 28, 2001
and September 29, 2000, 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

November 27, 2002


F-2



---



##### 



COMMUNICATIONS & POWER INDUSTRIES HOLDING
CORPORATION

AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                                                                 |                                                                                                                                  |                                                                  |         |         |         |   |         |         |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|                                                                                                                                                                                                                 |                                                                                                                                  |                                                                 
|                                                                                                                                                                                                                 |                                                                                                                                  | Fiscal Year-End                                                 
|                                                                                                                                                                                                                 |                                                                                                                                  |                                                                 
|                                                                                                                                                                                                                 |                                                                                                                                  | 2002                                                             |         | 2001   
|                                                                                                                                                                                                                 |                                                                                                                                  |                                                                  |         |        
|                                                                                                                                                                                                                 |                                                                                                                                  |                                                                 
|                                                                                                                                                                                                                 |                                                                                                                                  | (In thousands, except                                           
|                                                                                                                                                                                                                 |                                                                                                                                  | share and per share                                             
|                                                                                                                                                                                                                 |                                                                                                                                  | data)                                                           
|ASSETS                                                                                                                                                                                                           |                                                                                                                                  |                                                                  |         |        
|Current Assets                                                                                                                                                                                                   |                                                                                                                                  |                                                                  |         |         |         |   |         |        
|                                                                                                                                                                                                                 | Cash and cash equivalents                                                                                                        |                                                                  | $       | 2,724   |         |   |         | 2,903   |        
|                                                                                                                                                                                                                 | Accounts receivable, net                                                                                                         |                                                                  |         | 29,937  |         |   |         | 46,738  |        
|                                                                                                                                                                                                                 | Inventories                                                                                                                      |                                                                  |         | 39,927  |         |   |         | 57,678  |        
|                                                                                                                                                                                                                 | Deferred taxes                                                                                                                   |                                                                  |         |        |         |   |         | 3,500   |        
|                                                                                                                                                                                                                 | Other current assets                                                                                                             |                                                                  |         | 2,637   |         |   |         | 2,241   |        
|                                                                                                                                                                                                                 |                                                                                                                                  |                                                                  |         |         |         |   |         |        
|                                                                                                                                                                                                                 |                                                                                                                                  | Total current assets                                             |         |         | 75,225  |   |         |         | 113,060 |  
|Property, plant, and equipment, net                                                                                                                                                                              |                                                                                                                                  |                                                                  | 55,846  |         |         |   | 62,698  |        
|Goodwill and other intangibles, net                                                                                                                                                                              |                                                                                                                                  |                                                                  | 20,762  |         |         |   | 23,452  |        
|Debt issue costs, net                                                                                                                                                                                            |                                                                                                                                  |                                                                  | 3,329   |         |         |   | 4,857   |        
|                                                                                                                                                                                                                 |                                                                                                                                  |                                                                  |         |         |         |   |         |        
|                                                                                                                                                                                                                 |                                                                                                                                  | Total assets                                                     |         | $       | 155,162 |   |         |         | 204,067 |  
|                                                                                                                                                                                                                 |                                                                                                                                  |                                                                  |         |         |         |   |         |        
|LIABILITIES, SENIOR REDEEMABLE PREFERRED STOCK
    AND STOCKHOLDERS DEFICIT                                                                                                                                    
|Current Liabilities                                                                                                                                                                                              |                                                                                                                                  |                                                                  |         |         |         |   |         |        
|                                                                                                                                                                                                                 | Revolving credit facility                                                                                                        |                                                                  | $       |        |         |   |         | 21,293  |        
|                                                                                                                                                                                                                 | Current portion of capital leases                                                                                                |                                                                  |         | 45      |         |   |         | 919     |        
|                                                                                                                                                                                                                 | Mortgage financing                                                                                                               |                                                                  |         | 17,750  |         |   |         | 18,000  |        
|                                                                                                                                                                                                                 | Accounts payable                                                                                                                 |                                                                  |         | 14,111  |         |   |         | 14,729  |        
|                                                                                                                                                                                                                 | Accrued expenses                                                                                                                 |                                                                  |         | 17,304  |         |   |         | 17,859  |        
|                                                                                                                                                                                                                 | Product warranty                                                                                                                 |                                                                  |         | 4,823   |         |   |         | 4,225   |        
|                                                                                                                                                                                                                 | Income taxes payable                                                                                                             |                                                                  |         | 2,959   |         |   |         | 407     |        
|                                                                                                                                                                                                                 | Accrued dividends payable                                                                                                        |                                                                  |         | 9,538   |         |   |         | 4,387   |        
|                                                                                                                                                                                                                 | Advance payments from customers                                                                                                  |                                                                  |         | 7,594   |         |   |         | 9,193   |        
|                                                                                                                                                                                                                 |                                                                                                                                  |                                                                  |         |         |         |   |         |        
|                                                                                                                                                                                                                 |                                                                                                                                  | Total current liabilities                                        |         |         | 74,124  |   |         |         | 91,012  |  
|Senior term loans                                                                                                                                                                                                |                                                                                                                                  |                                                                  |        |         |         |   | 20,000  |        
|Senior subordinated notes                                                                                                                                                                                        |                                                                                                                                  |                                                                  | 100,000 |         |         |   | 100,000 |        
|Obligations under capital leases                                                                                                                                                                                 |                                                                                                                                  |                                                                  |        |         |         |   | 90      |        
|                                                                                                                                                                                                                 |                                                                                                                                  |                                                                  |         |         |         |   |         |        
|                                                                                                                                                                                                                 |                                                                                                                                  | Total liabilities                                                |         |         | 174,124 |   |         |         | 211,102 |  
|                                                                                                                                                                                                                 |                                                                                                                                  |                                                                  |         |         |         |   |         |        
|Senior Redeemable Preferred Stock of CPI($.01 par value, 325,000 shares
    authorized; 297,346 shares issued and outstanding as of 2002 and
    2001; liquidation preference $100 per share)                    |                                                                                                                                  |                                                                  | 28,693  |         |         |   | 28,479  |        
|                                                                                                                                                                                                                 |                                                                                                                                  |                                                                  |         |         |         |   |         |        
|Junior Preferred Stock of CPI($.01 par value, 525,000 shares
    authorized: 261,032 and 227,475 shares issued and outstanding as
    of 2002 and 2001, respectively; liquidation preference $100 per
    share) |                                                                                                                                  |                                                                  | 25,449  |         |         |   | 22,094  |        
|                                                                                                                                                                                                                 |                                                                                                                                  |                                                                  |         |         |         |   |         |        
|Commitments and contingencies                                                                                                                                                                                    |                                                                                                                                  |                                                                  |         |         |         |   |         |        
|Stockholders Deficit                                                                                                                                                                                            |                                                                                                                                  |                                                                  |         |         |         |   |         |        
|                                                                                                                                                                                                                 | Common stock ($.01 par value, 6,500,000 shares
    authorized; 4,908,172 shares issued and outstanding as of 2002
    and 2001.) |                                                                  |         | 49      |         |   |         | 49      |        
|                                                                                                                                                                                                                 | Additional paid-in capital                                                                                                       |                                                                  |         | 19,111  |         |   |         | 19,111  |        
|                                                                                                                                                                                                                 | Accumulated deficit                                                                                                              |                                                                  |         | (91,041 | )       |   |         | (75,587 | )      
|                                                                                                                                                                                                                 | Stockholder loans                                                                                                                |                                                                  |         | (1,223  | )       |   |         | (1,181  | )      
|                                                                                                                                                                                                                 |                                                                                                                                  |                                                                  |         |         |         |   |         |        
|                                                                                                                                                                                                                 |                                                                                                                                  | Net stockholders deficit                                        |         |         | (73,104 | ) |         |         | (57,608 | )
|                                                                                                                                                                                                                 |                                                                                                                                  |                                                                  |         |         |         |   |         |        
|                                                                                                                                                                                                                 |                                                                                                                                  | Total liabilities, preferred stock and
    stockholders deficit |         | $       | 155,162 |   |         |         | 204,067 |  
|                                                                                                                                                                                                                 |                                                                                                                                  |                                                                  |         |         |         |   |         |        

See accompanying notes to the consolidated
financial statements.


F-3



---



##### 



COMMUNICATIONS & POWER INDUSTRIES HOLDING
CORPORATION

AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                      |                                                          |                |         |        |  |      |         |        |  |  |         |        | 
|------------------------------------- | -------------------------------------------------------- | -------------- | ------- | ------ |  | ---- | ------- | ------ |  |  | ------- | ------ | 
|                                      |                                                          |               
|                                      |                                                          | Fiscal Years  
|                                      |                                                          |               
|                                      |                                                          | 2002           |         | 2001   |  | 2000
|                                      |                                                          |                |         |        |  |     
|                                      |                                                          |               
|                                      |                                                          | (In thousands)
|Sales                                 |                                                          | $              | 251,245 |        |  |      | 272,521 |        |  |  | 243,054 |       
|Cost of sales                         |                                                          |                | 192,189 |        |  |      | 223,332 |        |  |  | 188,748 |       
|                                      |                                                          |                |         |        |  |      |         |        |  |  |         |       
|Gross profit                          |                                                          |                | 59,056  |        |  |      | 49,189  |        |  |  | 54,306  |       
|                                      |                                                          |                |         |        |  |      |         |        |  |  |         |       
|Operating costs and expenses:         |                                                          |                |         |        |  |      |         |        |  |  |         |       
|                                      | Research and development                                 |                |         | 5,873  |  |      |         | 5,767  |  |  |         | 8,690  | 
|                                      | Selling and marketing                                    |                |         | 16,073 |  |      |         | 17,544 |  |  |         | 18,524 | 
|                                      | General and administrative                               |                |         | 19,811 |  |      |         | 20,911 |  |  |         | 18,253 | 
|                                      | Loss on sale of Solid State Products Division
    (SSPD) |                |         | 3,004  |  |      |         |       |  |  |         |       | 
|                                      |                                                          |                |         |        |  |      |         |        |  |  |         |       
|Total operating costs and expenses    |                                                          |                | 44,761  |        |  |      | 44,222  |        |  |  | 45,467  |       
|                                      |                                                          |                |         |        |  |      |         |        |  |  |         |       
|Operating income                      |                                                          |                | 14,295  |        |  |      | 4,967   |        |  |  | 8,839   |       
|Foreign currency gain (loss)          |                                                          |                | 34      |        |  |      | (130    | )      |  |  | (536    | )     
|Interest expense                      |                                                          |                | 16,508  |        |  |      | 20,734  |        |  |  | 18,663  |       
|                                      |                                                          |                |         |        |  |      |         |        |  |  |         |       
|Loss before taxes                     |                                                          |                | (2,179  | )      |  |      | (15,897 | )      |  |  | (10,360 | )     
|Income tax expense                    |                                                          |                | 4,554   |        |  |      | 2,950   |        |  |  | 1,232   |       
|                                      |                                                          |                |         |        |  |      |         |        |  |  |         |       
|Net loss                              |                                                          |                | (6,733  | )      |  |      | (18,847 | )      |  |  | (11,592 | )     
|Preferred dividends:                  |                                                          |                |         |        |  |      |         |        |  |  |         |       
|                                      | Senior Redeemable Preferred Stock                        |                |         | 5,151  |  |      |         | 4,387  |  |  |         | 3,822  | 
|                                      | Junior Preferred Stock                                   |                |         | 3,356  |  |      |         | 2,924  |  |  |         | 2,548  | 
|                                      |                                                          |                |         |        |  |      |         |        |  |  |         |       
|Net loss attributable to common stock |                                                          | $              | (15,240 | )      |  |      | (26,158 | )      |  |  | (17,962 | )     
|                                      |                                                          |                |         |        |  |      |         |        |  |  |         |       

See accompanying notes to the consolidated
financial statements.

F-4



---



##### 



COMMUNICATIONS & POWER INDUSTRIES HOLDING
CORPORATION

AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF STOCKHOLDERS
DEFICIT

|                                                                                  |  |                                   |    |            |  |             |        |             |  |               |         |   |  |  |        |   |  |  |         |  
|--------------------------------------------------------------------------------- |  | --------------------------------- | -- | ---------- |  | ----------- | ------ | ----------- |  | ------------- | ------- | - |  |  | ------ | - |  |  | ------- | -
|                                                                                  |  |                                   |    | Additional |  |             |        |             |  | Total        
|                                                                                  |  | Common                            |    | Paid-in    |  | Accumulated |        | Stockholder |  | Stockholders
|                                                                                  |  | Stock                             |    | Capital    |  | Deficit     |        | Loans       |  | Deficit      
|                                                                                  |  |                                   |    |            |  |             |        |             |  |              
|                                                                                  |  |                                  
|                                                                                  |  | (In thousands, except share data)
|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 | )
|                                                                                  |  |                                   |    |            |  |             |        |             |  |               |         |   |  |  |        |   |  |  |         |  
|Amortization of discount and issue costs on
    senior redeemable preferred stock |  |                                   |   |            |  |             |       |             |  |               | (214    | ) |  |  |       |   |  |  | (214    | )
|Dividends on senior redeemable preferred stock                                    |  |                                   |   |            |  |             |       |             |  |               | (4,387  | ) |  |  |       |   |  |  | (4,387  | )
|Payment of dividends on junior preferred stock                                    |  |                                   |   |            |  |             |       |             |  |               | (2,924  | ) |  |  |       |   |  |  | (2,924  | )
|Net loss                                                                          |  |                                   |   |            |  |             |       |             |  |               | (18,847 | ) |  |  |       |   |  |  | (18,847 | )
|Interest accrued on stockholder loans                                             |  |                                   |   |            |  |             |       |             |  |               |        |   |  |  | (48    | ) |  |  | (48     | )
|                                                                                  |  |                                   |    |            |  |             |        |             |  |               |         |   |  |  |        |   |  |  |         |  
|Balances, September 28, 2001                                                      |  |                                   | 49 |            |  |             | 19,111 |             |  |               | (75,587 | ) |  |  | (1,181 | ) |  |  | (57,608 | )
|                                                                                  |  |                                   |    |            |  |             |        |             |  |               |         |   |  |  |        |   |  |  |         |  
|Amortization of discount and issue costs on
    senior redeemable preferred stock |  |                                   |   |            |  |             |       |             |  |               | (214    | ) |  |  |       |   |  |  | (214    | )
|Dividends on senior redeemable preferred stock                                    |  |                                   |   |            |  |             |       |             |  |               | (5,151  | ) |  |  |       |   |  |  | (5,151  | )
|Payment of dividends on junior preferred stock                                    |  |                                   |   |            |  |             |       |             |  |               | (3,356  | ) |  |  |       |   |  |  | (3,356  | )
|Net loss                                                                          |  |                                   |   |            |  |             |       |             |  |               | (6,733  | ) |  |  |       |   |  |  | (6,733  | )
|Interest accrued on stockholder loans                                             |  |                                   |   |            |  |             |       |             |  |               |        |   |  |  | (42    | ) |  |  | (42     | )
|                                                                                  |  |                                   |    |            |  |             |        |             |  |               |         |   |  |  |        |   |  |  |         |  
|Balances, September 27, 2002                                                      |  | $                                 | 49 |            |  |             | 19,111 |             |  |               | (91,041 | ) |  |  | (1,223 | ) |  |  | (73,104 | )
|                                                                                  |  |                                   |    |            |  |             |        |             |  |               |         |   |  |  |        |   |  |  |         |  

See accompanying notes to the consolidated
financial statements.

F-5



---



##### 



COMMUNICATIONS & POWER INDUSTRIES HOLDING
CORPORATION

AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                         |                                                              |                |      |         |   |      |        |         |   |  |     |        |  
|-------------------------------------------------------- | ------------------------------------------------------------ | -------------- | ---- | ------- | - | ---- | ------ | ------- | - |  | --- | ------ | -
|                                                         |                                                              |               
|                                                         |                                                              | Fiscal Years  
|                                                         |                                                              |               
|                                                         |                                                              | 2002           |      | 2001    |   | 2000
|                                                         |                                                              |                |      |         |   |     
|                                                         |                                                              |               
|                                                         |                                                              | (In thousands)
|Operating Activities                                     |                                                              |                |      |         |   |      |        |         |   |  |     |       
|                                                         | Net cash provided by operating activities                    |                | $    | 44,881  |   |      |        | 1,677   |   |  |     | 9,897  |  
|                                                         |                                                              |                |      |         |   |      |        |         |   |  |     |       
|Investing Activities                                     |                                                              |                |      |         |   |      |        |         |   |  |     |       
|                                                         | Proceeds from sale of SSPD division                          |                |      | 926     |   |      |        |        |   |  |     |       |  
|                                                         | Proceeds from sale of property, plant and
    equipment      |                |      |        |   |      |        | 1,944   |   |  |     |       |  
|                                                         | Purchase of property, plant, and equipment                   |                |      | (3,378  | ) |      |        | (5,788  | ) |  |     | (5,325 | )
|                                                         |                                                              |                |      |         |   |      |        |         |   |  |     |       
|                                                         | Net cash used in investing activities                        |                |      | (2,452  | ) |      |        | (3,844  | ) |  |     | (5,325 | )
|                                                         |                                                              |                |      |         |   |      |        |         |   |  |     |       
|Financing Activities                                     |                                                              |                |      |         |   |      |        |         |   |  |     |       
|                                                         | Repayments on capital leases                                 |                |      | (964    | ) |      |        | (960    | ) |  |     | (855   | )
|                                                         | Payment of debt issue costs                                  |                |      | (101    | ) |      |        | (2,217  | ) |  |     |       |  
|                                                         | Repayment of terminated revolving credit facility            |                |      |        |   |      |        | (40,000 | ) |  |     |       |  
|                                                         | Net (repayments) proceeds from revolving
    credit facility |                |      | (21,293 | ) |      |        | 21,530  |   |  |     | 4,800  |  
|                                                         | Repayments on terminated senior term loans                   |                |      |        |   |      |        | (16,049 | ) |  |     | (7,995 | )
|                                                         | Net (repayments) proceeds from senior term
    loan          |                |      | (20,000 | ) |      |        | 20,000  |   |  |     |       |  
|                                                         | Net (repayments) proceeds from mortgage
    financing        |                |      | (250    | ) |      |        | 18,000  |   |  |     |       |  
|                                                         | Purchases of treasury stock                                  |                |      |        |   |      |        |        |   |  |     | (23    | )
|                                                         | Proceeds from stockholder loans                              |                |      |        |   |      |        |        |   |  |     | 20     |  
|                                                         |                                                              |                |      |         |   |      |        |         |   |  |     |       
|                                                         | Net cash (used in) provided by financing
    activities      |                |      | (42,608 | ) |      |        | 304     |   |  |     | (4,053 | )
|                                                         |                                                              |                |      |         |   |      |        |         |   |  |     |       
|Net (Decrease) Increase in Cash and Cash
    Equivalents |                                                              |                | (179 | )       |   |      | (1,863 | )       |   |  | 519 |       
|                                                         | Cash and cash equivalents at beginning of period             |                |      | 2,903   |   |      |        | 4,766   |   |  |     | 4,247  |  
|                                                         |                                                              |                |      |         |   |      |        |         |   |  |     |       
|                                                         | Cash and cash equivalents at end of period                   |                | $    | 2,724   |   |      |        | 2,903   |   |  |     | 4,766  |  
|                                                         |                                                              |                |      |         |   |      |        |         |   |  |     |       

See accompanying notes to the consolidated
financial statements.

F-6



---



##### 



COMMUNICATIONS & POWER INDUSTRIES HOLDING
CORPORATION

AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH
FLOWS  (Continued)

|                                                                                    |                                                     |                                 |        |       |        |      |         |        |        |   |         |        |         |  
|----------------------------------------------------------------------------------- | --------------------------------------------------- | ------------------------------- | ------ | ----- | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------- | -
|                                                                                    |                                                     |                                
|                                                                                    |                                                     | Fiscal Years                   
|                                                                                    |                                                     |                                
|                                                                                    |                                                     | 2002                            |        | 2001  |        | 2000
|                                                                                    |                                                     |                                 |        |       |        |     
|                                                                                    |                                                     |                                
|                                                                                    |                                                     | (In thousands)                 
|Detail of Net Cash Provided by Operating
    Activities                             |                                                     |                                 |        |       |        |      |         |        |        |   |         |       
|Net loss                                                                            |                                                     | $                               | (6,733 | )     |        |      | (18,847 | )      |        |   | (11,592 | )     
|Adjustments to reconcile net loss to net cash
    provided by operating activities: |                                                     |                                 |        |       |        |      |         |        |        |   |         |       
|                                                                                    | Depreciation                                        |                                 |        | 9,240 |        |      |         | 10,708 |        |   |         | 12,682 |        
|                                                                                    | Amortization of deferred debt issue costs           |                                 |        | 1,629 |        |      |         | 1,987  |        |   |         | 1,288  |        
|                                                                                    | Amortization of goodwill and intangibles            |                                 |        | 2,064 |        |      |         | 2,638  |        |   |         | 2,634  |        
|                                                                                    | Allowance for doubtful accounts                     |                                 |        | 142   |        |      |         | (362   | )      |   |         | (346   | )      
|                                                                                    | Net loss on the sale of SSPD                        |                                 |        | 3,004 |        |      |         |       |        |   |         |       |        
|                                                                                    | Deferred taxes                                      |                                 |        | 3,500 |        |      |         | 11,360 |        |   |         | 289    |        
|                                                                                    | Loss on liquidation of capital lease                |                                 |        | 73    |        |      |         |       |        |   |         |       |        
|                                                                                    | Interest accrued on stockholder loans               |                                 |        | (42   | )      |      |         | (48    | )      |   |         | (47    | )      
|                                                                                    | Asset impairment loss                               |                                 |        | 508   |        |      |         |       |        |   |         |       |        
|                                                                                    | Net losses (gains) on the disposition of
    assets |                                 |        | 187   |        |      |         | (792   | )      |   |         | 212    |        
|                                                                                    | Changes in operating assets and liabilities:        |                                 |        |       |        |      |         |        |        |   |         |        |        
|                                                                                    |                                                     | Accounts receivable             |        |       | 16,122 |      |         |        | (3,942 | ) |         |        | 7,508   |  
|                                                                                    |                                                     | Inventories                     |        |       | 16,974 |      |         |        | 6,271  |   |         |        | (11,423 | )
|                                                                                    |                                                     | Other current assets            |        |       | (437   | )    |         |        | (638   | ) |         |        | (79     | )
|                                                                                    |                                                     | Accounts payable                |        |       | (454   | )    |         |        | (3,733 | ) |         |        | 4,940   |  
|                                                                                    |                                                     | Accrued expenses                |        |       | (567   | )    |         |        | 956    |   |         |        | 414     |  
|                                                                                    |                                                     | Product warranty                |        |       | 618    |      |         |        | 1,247  |   |         |        | (597    | )
|                                                                                    |                                                     | Income tax payable, net         |        |       | 652    |      |         |        | (9,111 | ) |         |        | 540     |  
|                                                                                    |                                                     | Advance payments from customers |        |       | (1,599 | )    |         |        | 3,983  |   |         |        | 3,474   |  
|                                                                                    |                                                     |                                 |        |       |        |      |         |        |        |   |         |       
|Net cash provided by operating activities                                           |                                                     | $                               | 44,881 |       |        |      | 1,677   |        |        |   | 9,897   |       
|                                                                                    |                                                     |                                 |        |       |        |      |         |        |        |   |         |       

See accompanying notes to the consolidated
financial statements.

F-7



---



##### 



COMMUNICATIONS & POWER INDUSTRIES HOLDING
CORPORATION

AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

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 five 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 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 the Company.
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 reported are the
52- or 53-week periods ending on the Friday nearest to
September 30. Fiscal years 2002, 2001 and 2000 comprised
the 52-week periods ending on September 27, 2002,
September 28, 2001 and September 29, 2000,
respectively. All references to years in these notes to
consolidated financial statements represent fiscal years unless
otherwise noted.

Use of
Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America 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.

Generally, the Company requires no collateral
from its customers and the Company estimates an allowance for
doubtful accounts based on the creditworthiness 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.

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



---



##### 



COMMUNICATIONS & POWER INDUSTRIES HOLDING
CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Revenue
Recognition

Sales are recognized when persuasive evidence of
an arrangement exists, delivery has occurred, the price is fixed
or determinable, and collectibility is reasonably assured. The
Companys products are generally subject to warranties, and
the Company provides for the estimated future costs of repair,
replacement or customer accommodation in costs of sales.

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.

Gains and losses resulting from the disposition
of assets (property, plant and equipment) are reported on a net
basis in the caption General and administrative on
the Consolidated Statements of Operations. Net (losses) gains on
the disposition of assets were ($0.2) million,
$0.8 million and ($0.2) million for fiscal years 2002,
2001, and 2000 respectively.

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 $7.7 million
and $7.3 million as of September 27, 2002 and
September 28, 2001, respectively.

F-9



---



##### 



COMMUNICATIONS & POWER INDUSTRIES HOLDING
CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Product
Warranty

The Companys products are generally
warranted for a variety of periods, typically one to three years
or a predetermined product usage life. A provision for estimated
future costs of repair, replacement or customer accommodations
is 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 years 2002, 2001 or 2000.

Deferred Debt
Issue Costs

Costs incurred related to the issuance of
CPIs long-term debt, mortgage financing 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 periods used for the
deferred costs associated with the mortgage financing, revolving
credit facility, and the Senior Subordinated Notes are
1 year, 4 years and 10 years, respectively.

Senior
Redeemable Preferred Stock

CPIs Senior Redeemable Preferred Stock was
issued in units with an aggregate of 262,500 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 are being amortized via a charge to accumulated
deficit over the period until mandatory redemption, 12 years,
using the straight-line method.

Income
Taxes

The Company records income taxes using the asset
and liability method. Deferred tax assets and liabilities are
recognized for the estimated future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recorded or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date.

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.
Companies engaged in supplying defense-related equipment and
services to government agencies are subject to certain business
risks peculiar to that industry. Sales to the government may be
affected by changes in procurement policies, budget
considerations, changing concepts of national defense, political
developments abroad, and other factors.

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 loss.

F-10



---



##### 



COMMUNICATIONS & POWER INDUSTRIES HOLDING
CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Fair Value of
Financial Instruments

Financial instruments consist of cash and cash
equivalents, accounts receivable, accounts payable, revolving
credit facility, mortgage financing and long-term debt. The
carrying value of the Companys cash and cash equivalents,
accounts receivable, accounts payable, revolving credit facility
and mortgage financing 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 84.00 as of September 27, 2002
and 47.00 as of September 28, 2001 (100.00 is face value).

Stock-Based
Compensation

The Company applies the intrinsic value-based
method of accounting prescribed by Accounting Principles Board
(APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations
including FASB Interpretation No. 44, Accounting for
Certain Transactions involving Stock Compensation an
interpretation of APB Opinion No. 25 issued in March
2000, to account for its stock options. Under this method,
compensation expense is recorded only if the current market
price of the underlying stock exceeded the exercise price at the
measurement date. SFAS No. 123, Accounting for
Stock-Based Compensation, established accounting and
disclosure requirements using a fair value-based method of
accounting for stock-based employee compensation plans. As
allowed by SFAS No. 123, the Company has elected to
continue to apply the intrinsic value-based method of accounting
described above, and has adopted the disclosure requirements of
SFAS No. 123.

Comprehensive
Income

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



| |                                     
| | ------------------------------------
| | Recent Accounting
    Pronouncements

In June 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS
No. 142 addresses financial accounting and reporting for
acquired goodwill and other intangible assets. SFAS No. 142
changes the accounting for goodwill from an amortization method
to an impairment-only approach. Goodwill will be tested annually
and whenever events or circumstances occur indicating that
goodwill might be impaired. Upon adoption of SFAS No. 142,
amortization of goodwill recorded for business combinations will
cease. Companies are required to adopt SFAS No. 142 for
fiscal years beginning after December 15, 2001, but early
adoption is permitted. The Company will adopt this Statement
beginning in the first quarter of fiscal year 2003 and has not
yet determined whether there will be an impairment charge. At
the beginning of fiscal year 2003, the goodwill balance, net of
amortization, is $19.1 million, which will no longer be
amortized.

The FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations, in
August 2001, and SFAS No. 144, Accounting for the
Impairment or Disposal of Long-lived Assets, in October
2001. SFAS No. 143 is effective for fiscal years beginning
after June 15, 2002 and will require that the fair value of
an asset retirement obligation be recorded as a liability in the
period in which it incurs the obligation. SFAS No. 144 is
effective for fiscal years beginning after December 15,
2001. It provides a single accounting model for long-lived
assets to be disposed of and replaces SFAS No. 121
Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of. The Company does not
expect the adoption of these statements to have a material
effect on the Companys consolidated financial position or
results of operations. The Company will adopt these Statements
beginning in the first quarter of fiscal year 2003.

F-11



---



##### 



COMMUNICATIONS & POWER INDUSTRIES HOLDING
CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections. This Statement rescinds SFAS Statement
No. 4, Reporting Gains and Losses from Extinguishment
of Debt, and an amendment of that Statement, SFAS
Statement No. 64, Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements. This Statement amends
SFAS Statement No. 13, Accounting for Leases,
to eliminate an inconsistency between the required accounting
for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. This Statement also
amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe
their applicability under changed conditions. The provisions of
SFAS No. 145 are effective in fiscal years beginning after
May 15, 2002, with early adoption permitted and, in
general, are to be applied prospectively. The Company does not
expect the adoption of this statement to have a material effect
on the Companys consolidated financial position or results
of operations. The Company will adopt this Statement beginning
in the first quarter of fiscal year 2003.

In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit and Disposal
Activities. SFAS 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized
and measured initially at fair value only when the liability is
incurred. The provisions of SFAS No. 146 are effective
prospectively for exit or disposal activities initiated after
December 31, 2002. The Company does not expect the adoption
of this statement to have a material effect on the
Companys consolidated financial position or results of
operations.



|   |                         
|-- | ------------------------
|3. | Balance Sheet Components

Accounts
Receivable

Accounts receivable are stated net of allowances
for doubtful accounts of $0.6 million and $0.4 million
at the end of fiscal years 2002 and 2001, respectively.

Inventories

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

|                        |  |                        |        |      |  |  |        | 
|----------------------- |  | ---------------------- | ------ | ---- |  |  | ------ | 
|                        |  |                       
|                        |  | Fiscal Year-End       
|                        |  |                       
|                        |  | 2002                   |        | 2001
|                        |  |                        |        |     
|                        |  |                       
|                        |  | (Dollars in thousands)
|Raw materials and parts |  | $                      | 30,638 |      |  |  | 40,776 | 
|Work in process         |  |                        | 6,507  |      |  |  | 14,874 | 
|Finished goods          |  |                        | 2,782  |      |  |  | 2,028  | 
|                        |  |                        |        |      |  |  |        | 
|Total inventories       |  | $                      | 39,927 |      |  |  | 57,678 | 
|                        |  |                        |        |      |  |  |        | 

F-12



---



##### 



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:

|                                               |  |                        |         |      |  |  |         |  
|---------------------------------------------- |  | ---------------------- | ------- | ---- |  |  | ------- | -
|                                               |  |                       
|                                               |  | Fiscal Year-End       
|                                               |  |                       
|                                               |  | 2002                   |         | 2001
|                                               |  |                        |         |     
|                                               |  |                       
|                                               |  | (Dollars in thousands)
|Land and land leaseholds                       |  | $                      | 36,243  |      |  |  | 36,632  |  
|Buildings                                      |  |                        | 21,141  |      |  |  | 21,487  |  
|Machinery and equipment                        |  |                        | 54,874  |      |  |  | 55,158  |  
|Leased equipment                               |  |                        | 3,727   |      |  |  | 3,914   |  
|Construction in progress                       |  |                        | 986     |      |  |  | 1,540   |  
|                                               |  |                        |         |      |  |  |         |  
|                                               |  |                        | 116,971 |      |  |  | 118,731 |  
|Less accumulated depreciation and amortization |  |                        | (61,125 | )    |  |  | (56,033 | )
|                                               |  |                        |         |      |  |  |         |  
|Net property, plant and equipment              |  | $                      | 55,846  |      |  |  | 62,698  |  
|                                               |  |                        |         |      |  |  |         |  

Accumulated amortization of equipment under
capital lease arrangements was $3.4 million and
$2.8 million and at the end of fiscal year 2002 and 2001,
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:

|                              |  |                        |        |      |  |  |        | 
|----------------------------- |  | ---------------------- | ------ | ---- |  |  | ------ | 
|                              |  |                       
|                              |  | Fiscal Year-End       
|                              |  |                       
|                              |  | 2002                   |        | 2001
|                              |  |                        |        |     
|                              |  |                       
|                              |  | (Dollars in thousands)
|Payroll and employee benefits |  | $                      | 11,253 |      |  |  | 10,303 | 
|Accrued interest              |  |                        | 2,152  |      |  |  | 2,755  | 
|Non-income taxes              |  |                        | 1,064  |      |  |  | 1,360  | 
|Other                         |  |                        | 2,835  |      |  |  | 3,441  | 
|                              |  |                        |        |      |  |  |        | 
|Total accrued expenses        |  | $                      | 17,304 |      |  |  | 17,859 | 
|                              |  |                        |        |      |  |  |        | 

4.     Sale of Solid
State Products Division

On September 26, 2002, the Company sold its
Solid State Products Division (SSPD) to KMIC
Technology, Inc., a company owned by the former management of
SSPD. The Company received approximately $0.9 million in
cash and a $0.3 million unsecured promissory note. The note
bears interest at 12% per annum and is payable as follows:
one-third of the principal plus unpaid interest is due
October 1, 2003 with the remaining balance payable in eight
quarterly installments of principal and interest beginning
January 1, 2004 and ending October 1, 2005. The sale
resulted in a fourth quarter charge to operations of
approximately $3.0 million which represents the net assets
sold including approximately $2.5 million in goodwill and
costs and expenses of the transaction, net of $0.9 million
of cash received from the sale of the operations net
assets. Due to the uncertainty of ultimate collection, the
proceeds from the promissory note will be recognized when the
cash payments are received. In connection with the SSPD
transaction, the Company agreed, subject to certain limitations
and exceptions, to not engage in the manufacture of intermediate
power amplifiers for satcom amplifiers (IPAs)
for a 3-year period. In addition, the Company agreed to purchase
from KMIC Technology Inc. all of its requirements for IPAs
for such 3-year period.

F-13



---



##### 



COMMUNICATIONS & POWER INDUSTRIES HOLDING
CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

5.     Credit
Facility

On December 22, 2000, the Company terminated
the previous credit agreement and replaced it with a
$61.0 million secured credit facility (Credit
Facility). This Credit 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 due
December 22, 2002. The term loan was prepaid in June 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. As of September 27, 2002, CPI had
$28.5 million available under the revolving line of credit.

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. Additionally, the
terms of the Credit Facility require the Company to maintain
certain financial covenants and limit the payment of cash
dividends on the Senior Preferred Stock and Junior Preferred
Stock. In addition to customary fronting and other fees, CPI
pays a fee equal to 1.25% per annum on outstanding but undrawn
amounts of letters of credit; and additionally CPI pays
customary collateral management fees and a commitment fee of
0.375% per annum on unused facilities under the Credit Facility.

6.     Senior
Subordinated Notes of CPI

The $100 million principal amount of Senior
Subordinated Notes (Notes) matures in 2005 and bears
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 Notes (the
Indenture), to the prior payment in full of all
senior indebtedness (as defined), including indebtedness under
the 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 all of 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:

|                    |  |            |       |  
|------------------- |  | ---------- | ----- | -
|Year                |  | Percentage
|                    |  |           
|2002                |  |            | 103.0 | %
|2003                |  |            | 101.5 | %
|2004 and thereafter |  |            | 100.0 | %

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
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.

7.     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 (the Senior Preferred
Stock) due 2007, including shares of

F-14



---



##### 



COMMUNICATIONS & POWER INDUSTRIES HOLDING
CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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. On or before August 1, 2000, CPI
may, at its option and subject to debt covenant restrictions,
pay dividends in cash or in shares of Senior Preferred Stock
having an aggregate liquidation preference equal to the amount
of such dividends. Beginning August 1, 2000, dividends may
only be paid in cash.

During fiscal year 2002 and 2001, cash dividends
of $5.1 million and $4.4 million, respectively were
accrued for payment on Senior Preferred Stock. In addition, at a
value of $100 per share, CPI paid preferred dividends on its
Senior Preferred Stock through the issuance of
38,226 shares in fiscal year 2000.

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 Credit Facility 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 Restated Certificate of Incorporation of CPI,
which governs the rights, preferences, privileges and
restrictions of 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 (the Exchange Notes) due 2007, so long as such
exchange is permitted by the 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 Credit Facility 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.

8.     Junior
Preferred Stock of CPI

CPI is authorized to issue up to
525,000 shares of nonvoting 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

F-15



---



##### 



COMMUNICATIONS & POWER INDUSTRIES HOLDING
CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.

At a value of $100 per share, CPI paid preferred
dividends on its Junior Preferred Stock through the issuance of
33,557, 29,243, and 25,484 shares for fiscal years 2002, 2001
and 2000, respectively.

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 parity with the
Junior Preferred Stock and CPIs common stock.

9.     Supplemental
Cash Flow Information

Cash paid for interest was $15.5 million,
$19.2 million and $16.7 million, in fiscal years 2002,
2001, and 2000, respectively. Cash paid (refunded) for
taxes was $1.2 million, $0.6 million, and $(32,000),
in fiscal years 2002, 2001, and 2000, respectively.

Non-cash financing activities included the
following: Dividends on Senior Redeemable Preferred Stock
included $5.1 million and $4.4 million of accrued but
unpaid preferred dividends in fiscal year 2001 and 2001 and the
issuance of 38,226 shares of Senior Redeemable Preferred Stock
in 2000. Preferred stock dividends on Junior Preferred Stock was
through the issuance of 33,557, 29,243, and 25,484 shares of
Junior Preferred Stock during fiscal years 2002, 2001, and 2000,
respectively. Amortization of discount and issue costs on the
Senior Redeemable Preferred Stock was $0.2 million for each
of the fiscal years 2002, 2001 and 2000. Equipment of
$0.1 million was acquired under capital leases in fiscal
year 2001; no equipment was acquired under capital leases in
fiscal year 2002 or 2000.

10.     Leases

At September 27, 2002, 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 December 2002. As collateral for these
capital leases, the

F-16



---



##### 



COMMUNICATIONS & POWER INDUSTRIES HOLDING
CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Company has issued letters of credit totaling
$0.2 million. A summary of future minimum lease payments
(dollars in thousands) follows:

|                                                                            |  |         |    |           |  |          |       |  |  |   |     | 
|--------------------------------------------------------------------------- |  | ------- | -- | --------- |  | -------- | ----- |  |  | - | --- | 
|                                                                            |  | Capital |    | Operating |  | Sublease
|Fiscal Year                                                                 |  | Leases  |    | Leases    |  | Income  
|                                                                            |  |         |    |           |  |         
|2003                                                                        |  | $       | 50 |           |  | $        | 891   |  |  | $ | 210 | 
|2004                                                                        |  |         |   |           |  |          | 617   |  |  |   | 236 | 
|2005                                                                        |  |         |   |           |  |          | 458   |  |  |   | 205 | 
|2006                                                                        |  |         |   |           |  |          | 89    |  |  |   | 100 | 
|2007                                                                        |  |         |   |           |  |          | 41    |  |  |   |    | 
|                                                                            |  |         |    |           |  |          |       |  |  |   |     | 
|Total future minimum lease payments                                         |  |         | 50 |           |  | $        | 2,096 |  |  | $ | 751 | 
|                                                                            |  |         |    |           |  |          |       |  |  |   |     | 
|Less amount representing interest, sales tax and
    additional obligations |  |         | 5  |           |  |          |       |  |  |   |     | 
|                                                                            |  |         |    |           |  |          |       |  |  |   |     | 
|Present value of future minimum lease payments                              |  |         | 45 |           |  |          |       |  |  |   |     | 
|Less current portion of obligations under capital
    leases                |  |         | 45 |           |  |          |       |  |  |   |     | 
|                                                                            |  |         |    |           |  |          |       |  |  |   |     | 
|Obligations under capital leases, less current
    portion                  |  | $       |   |           |  |          |       |  |  |   |     | 
|                                                                            |  |         |    |           |  |          |       |  |  |   |     | 

Real estate taxes, insurance, and maintenance are
also obligations of the Company. Rental expense under
non-cancelable operating leases amounted to $1.3 million,
$1.2 million, and $1.0 million, for fiscal years 2002,
2001, and 2000, respectively.

11.     Contingencies

The amount of outstanding letters of credit
provided for under CPIs Credit Facility was
$4.5 million as of September 27, 2002. These
outstanding obligations are comprised of the following:
$2.5 million related to eight performance bond guarantees,
$1.1 million related to the Companys workers
compensation insurance, $0.2 million to a lender related to
a capital lease arrangement and $0.8 million to various
other beneficiaries related primarily to insurance and service
contracts.

Varian Medical Systems, Inc. is currently a
defendant in one lawsuit relating to operations prior to the
acquisition by the Company of its business from Varian. 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.

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.

F-17



---



##### 



COMMUNICATIONS & POWER INDUSTRIES HOLDING
CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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
Companys consolidated financial position or results of
operations.

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, as of September 27, 2002, all
such matters involve amounts which would not have a material
adverse effect on the Companys consolidated financial
position if unfavorably resolved.

12.     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
either to the Chief Operating Officer, who in turns reports to
the Chief Executive Officer (CEO), or directly to
the 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 and
certain other non-cash charges (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. 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

F-18



---



##### 



COMMUNICATIONS & POWER INDUSTRIES HOLDING
CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Products Division which was sold in September
2002 and did not meet the quantitative thresholds to be reported
separately, and certain unallocated corporate-level operating
expenses.

|                                 |  |                        |         |           |  |       |        |       |  |  |        |   |  |  |         | 
|-------------------------------- |  | ---------------------- | ------- | --------- |  | ----- | ------ | ----- |  |  | ------ | - |  |  | ------- | 
|                                 |  |                        |         | Satcom    |  |       |        |      
|                                 |  | VEDs                   |         | Equipment |  | Other |        | Total
|                                 |  |                        |         |           |  |       |        |      
|                                 |  |                       
|                                 |  | (Dollars in thousands)
|Fiscal Year 2002:                |  |                        |         |           |  |       |        |       |  |  |        |   |  |  |         | 
|Revenues from external customers |  | $                      | 202,978 |           |  |       | 45,432 |       |  |  | 2,835  |   |  |  | 251,245 | 
|Intersegment product transfers   |  |                        | 12,527  |           |  |       |       |       |  |  | 952    |   |  |  | 13,479  | 
|EBITDA                           |  |                        | 37,300  |           |  |       | 672    |       |  |  | (9,306 | ) |  |  | 28,666  | 
|Total assets                     |  |                        | 90,831  |           |  |       | 13,957 |       |  |  | 50,374 |   |  |  | 155,162 | 
|Capital expenditures             |  |                        | 3,086   |           |  |       | 87     |       |  |  | 205    |   |  |  | 3,378   | 
|Fiscal Year 2001:                |  |                        |         |           |  |       |        |       |  |  |        |   |  |  |         | 
|Revenues from external customers |  | $                      | 203,656 |           |  |       | 64,819 |       |  |  | 4,046  |   |  |  | 272,521 | 
|Intersegment product transfers   |  |                        | 20,081  |           |  |       |       |       |  |  | 1,432  |   |  |  | 21,513  | 
|EBITDA                           |  |                        | 29,183  |           |  |       | (4,046 | )     |  |  | (6,954 | ) |  |  | 18,183  | 
|Total assets                     |  |                        | 109,684 |           |  |       | 33,015 |       |  |  | 61,368 |   |  |  | 204,067 | 
|Capital expenditures             |  |                        | 3,522   |           |  |       | 1,487  |       |  |  | 779    |   |  |  | 5,788   | 
|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   | 

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

|                  |                               |                        |        |        |  |      |         |        |  |  |         |        | 
|----------------- | ----------------------------- | ---------------------- | ------ | ------ |  | ---- | ------- | ------ |  |  | ------- | ------ | 
|                  |                               |                       
|                  |                               | Fiscal Year           
|                  |                               |                       
|                  |                               | 2002                   |        | 2001   |  | 2000
|                  |                               |                        |        |        |  |     
|                  |                               |                       
|                  |                               | (Dollars in thousands)
|Segment EBITDA    |                               | $                      | 28,666 |        |  |      | 18,183  |        |  |  | 23,619  |       
|Less:             |                               |                        |        |        |  |      |         |        |  |  |         |       
|                  | Depreciation and amortization |                        |        | 11,304 |  |      |         | 13,346 |  |  |         | 15,316 | 
|                  | Other                         |                        |        | 3,033  |  |      |         |       |  |  |         |       | 
|                  | Interest expense              |                        |        | 16,508 |  |      |         | 20,734 |  |  |         | 18,663 | 
|                  |                               |                        |        |        |  |      |         |        |  |  |         |       
|Loss before taxes |                               | $                      | (2,179 | )      |  |      | (15,897 | )      |  |  | (10,360 | )     
|                  |                               |                        |        |        |  |      |         |        |  |  |         |       

Other in the above table represents non-cash
charges of $2.5 million resulting from the write-off of
goodwill in conjunction with the sale of SSPD and
$0.5 million related to impairment of equipment used in the
satcom equipment segment.

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.

F-19



---



##### 



COMMUNICATIONS & POWER INDUSTRIES HOLDING
CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Sales by geographic area are as follows:

|                      |  |                        |         |      |  |      |         |  |  |  |         | 
|--------------------- |  | ---------------------- | ------- | ---- |  | ---- | ------- |  |  |  | ------- | 
|                      |  |                       
|                      |  | Fiscal Year           
|                      |  |                       
|                      |  | 2002                   |         | 2001 |  | 2000
|                      |  |                        |         |      |  |     
|                      |  |                       
|                      |  | (Dollars in thousands)
|United States         |  | $                      | 175,060 |      |  |      | 182,637 |  |  |  | 163,484 | 
|All foreign countries |  |                        | 76,185  |      |  |      | 89,884  |  |  |  | 79,570  | 
|                      |  |                        |         |      |  |      |         |  |  |  |         | 
|Total Sales           |  | $                      | 251,245 |      |  |      | 272,521 |  |  |  | 243,054 | 
|                      |  |                        |         |      |  |      |         |  |  |  |         | 

CPI has a single customer that accounts for 10%
or more of consolidated sales. Sales to this customer were
$43.9 million, $42.8 million, and $41.3 million
of the Companys consolidated sales for fiscal years 2002,
2001, and 2000, respectively. A substantial majority of these
sales were VED segment products, but this customer also
purchased satcom equipment products.

13.     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:

|                 |  |                        |       |           |  |          |       |  |  |  |        | 
|---------------- |  | ---------------------- | ----- | --------- |  | -------- | ----- |  |  |  | ------ | 
|                 |  | CPI                    |       | Customer  |  | Total   
|                 |  | Sponsored              |       | Sponsored |  | Incurred
|                 |  |                        |       |           |  |         
|                 |  |                       
|                 |  | (Dollars in thousands)
|Fiscal year 2002 |  | $                      | 5,873 |           |  |          | 5,174 |  |  |  | 11,047 | 
|Fiscal year 2001 |  |                        | 5,767 |           |  |          | 5,012 |  |  |  | 10,779 | 
|Fiscal year 2000 |  |                        | 8,690 |           |  |          | 6,476 |  |  |  | 15,166 | 

14.     Provision for
Income Taxes

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

|         |  |                        |        |      |  |      |         |   |  |   |         |  
|-------- |  | ---------------------- | ------ | ---- |  | ---- | ------- | - |  | - | ------- | -
|         |  |                       
|         |  | Fiscal Year           
|         |  |                       
|         |  | 2002                   |        | 2001 |  | 2000
|         |  |                        |        |      |  |     
|         |  |                       
|         |  | (Dollars in thousands)
|Domestic |  | $                      | (2,138 | )    |  | $    | (10,431 | ) |  | $ | (13,985 | )
|Non-U.S  |  |                        | (41    | )    |  |      | (5,466  | ) |  |   | 3,625   |  
|         |  |                        |        |      |  |      |         |   |  |   |         |  
|Total    |  | $                      | (2,179 | )    |  | $    | (15,897 | ) |  | $ | (10,360 | )
|         |  |                        |        |      |  |      |         |   |  |   |         |  

Income tax expense is comprised of the following:

|        |              |                        |   |       |       |      |   |        |        |   |   |     |     | 
|------- | ------------ | ---------------------- | - | ----- | ----- | ---- | - | ------ | ------ | - | - | --- | --- | 
|        |              |                       
|        |              | Fiscal Year           
|        |              |                       
|        |              | 2002                   |   | 2001  |       | 2000
|        |              |                        |   |       |       |     
|        |              |                       
|        |              | (Dollars in thousands)
|Current |              |                        |   |       |       |      |   |        |        |   |   |    
|        | U.S. federal |                        | $ | 1,600 |       |      | $ | (8,730 | )      |   | $ |    |    
|        | State        |                        |   | 221   |       |      |   | 10     |        |   |   |    |    
|        | Non-U.S      |                        |   | (767  | )     |      |   | 310    |        |   |   | 943 |    
|        |              |                        |   |       |       |      |   |        |        |   |   |    
|        |              | Total Current          |   |       | 1,054 |      |   |        | (8,410 | ) |   |     | 943 | 
|        |              |                        |   |       |       |      |   |        |        |   |   |    

F-20



---



##### 



COMMUNICATIONS & POWER INDUSTRIES HOLDING
CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                   |              |                        |       |       |       |      |       |       |        |   |       |     |     | 
|------------------ | ------------ | ---------------------- | ----- | ----- | ----- | ---- | ----- | ----- | ------ | - | ----- | --- | --- | 
|                   |              |                       
|                   |              | Fiscal Year           
|                   |              |                       
|                   |              | 2002                   |       | 2001  |       | 2000
|                   |              |                        |       |       |       |     
|                   |              |                       
|                   |              | (Dollars in thousands)
|Deferred           |              |                        |       |       |       |      |       |       |        |   |       |    
|                   | U.S. federal |                        |       | 2,389 |       |      |       | 9,350 |        |   |       |    |    
|                   | State        |                        |       | 1,085 |       |      |       | 2,994 |        |   |       |    |    
|                   | Non-U.S      |                        |       | 26    |       |      |       | (984  | )      |   |       | 289 |    
|                   |              |                        |       |       |       |      |       |       |        |   |       |    
|                   |              | Total Deferred         |       |       | 3,500 |      |       |       | 11,360 |   |       |     | 289 | 
|                   |              |                        |       |       |       |      |       |       |        |   |       |    
|Income tax expense |              | $                      | 4,554 |       |       | $    | 2,950 |       |        | $ | 1,232 |    
|                   |              |                        |       |       |       |      |       |       |        |   |       |    

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

|                          |                                             |                                |         |        |        |   |         |        |        |  
|------------------------- | ------------------------------------------- | ------------------------------ | ------- | ------ | ------ | - | ------- | ------ | ------ | -
|                          |                                             |                               
|                          |                                             | Fiscal Year-End               
|                          |                                             |                               
|                          |                                             | 2002                           |         | 2001  
|                          |                                             |                                |         |       
|                          |                                             |                               
|                          |                                             | (Dollars in thousands)        
|Deferred tax assets:      |                                             |                                |         |        |        |   |         |       
|                          | Inventory and other reserves                |                                | $       | 8,116  |        |   | $       | 6,708  |       
|                          | Accrued vacation                            |                                |         | 1,474  |        |   |         | 1,721  |       
|                          | Deferred compensation and other accruals    |                                |         | 474    |        |   |         | 727    |       
|                          | Foreign jurisdictions, net                  |                                |         | 1,154  |        |   |         | 2,953  |       
|                          | Net operating loss and credit carryforwards |                                |         | 2,089  |        |   |         | 6,928  |       
|                          |                                             |                                |         |        |        |   |         |       
|                          |                                             | Gross deferred tax assets      |         |        | 13,307 |   |         |        | 19,037 |  
|Valuation allowance       |                                             |                                | (11,799 | )      |        |   | (12,373 | )     
|                          |                                             |                                |         |        |        |   |         |       
|                          |                                             | Total deferred tax assets      |         |        | 1,508  |   |         |        | 6,664  |  
|Deferred tax liabilities: |                                             |                                |         |        |        |   |         |       
|                          | Accelerated depreciation                    |                                |         | (1,507 | )      |   |         | (3,164 | )     
|                          | Foreign jurisdictions, net                  |                                |         | (1     | )      |   |         |       |       
|                          |                                             |                                |         |        |        |   |         |       
|                          |                                             | Total deferred tax liabilities |         |        | (1,508 | ) |         |        | (3,164 | )
|                          |                                             |                                |         |        |        |   |         |       
|Net deferred tax asset    |                                             | $                              |        |        |        | $ | 3,500   |       
|                          |                                             |                                |         |        |        |   |         |       

The provision for income tax expense for fiscal
year 2002 consists of current federal and deferred income tax
expense resulting from a net decrease in deferred tax assets.
The state income tax expense consists of current income tax
expense and deferred tax expense resulting from a net decrease
in deferred tax assets. The foreign income tax benefit results
from current refund receivables in the foreign jurisdictions.

Management has established a full valuation
allowance for the portion of deferred tax assets for which
realization is uncertain. This allowance has been established
based on the uncertainty of using net operating losses and
various tax credits. In assessing the realizability of deferred
tax assets, management considers whether it is more likely than
not that some portion or all of the deferred tax assets will not
be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during
the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and
tax planning strategies in making this assessment. The valuation
allowance for deferred tax assets as of September 27, 2002
was $11.8 million. The net change in the total valuation
allowance for the 52-week period ended September 27, 2002
and September 28, 2001, was a decrease of $0.6 million
and an increase of $5.9 million, respectively.

F-21



---



##### 



COMMUNICATIONS & POWER INDUSTRIES HOLDING
CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of September 27, 2002, the Company has
fully utilized the net operating loss carryforwards for federal
income tax and has approximately $8.5 million in state
operating loss carryforwards available to reduce future income
subject to income taxes. State net operating loss carryforwards
expire beginning in 2003.

As of September 27, 2002, the Company has
foreign tax credit carryforwards for federal income tax purposes
of $0.9 million, and manufacturers investment credit
for California income tax purposes of approximately
$0.9 million available to reduce future federal and
California income taxes. Foreign tax credit carryforwards expire
beginning in 2003. The California credit will carryforward
indefinitely.

The Internal Revenue code of 1986 substantially
restricts the ability of a corporation to utilize existing net
operating losses in the event of an ownership change
of the corporation. The Company has not yet determined if such
an ownership change has occurred. If such an ownership change
has occurred, then the utilization of the net operating losses
will be subject to an annual limitation in future years.

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

|                                          |                    |             |       |       |   |      |       |      |   |  |       |      |  
|----------------------------------------- | ------------------ | ----------- | ----- | ----- | - | ---- | ----- | ---- | - |  | ----- | ---- | -
|                                          |                    |            
|                                          |                    | Fiscal Year
|                                          |                    |            
|                                          |                    | 2002        |       | 2001  |   | 2000
|                                          |                    |             |       |       |   |     
|Statutory federal income tax benefit rate |                    |             | (35.0 | )%    |   |      | (35.0 | )%   |   |  | (35.0 | )%  
|Net operating loss not utilized           |                    |             |      |       |   |      |      |      |   |  | 30.7  |     
|Foreign tax rate differential             |                    |             | (33.2 | )     |   |      | 2.0   |      |   |  | 11.9  |     
|State taxes                               |                    |             | 38.9  |       |   |      | 18.9  |      |   |  |      |     
|Non-deductible expenses                   |                    |             | 8.3   |       |   |      | 24.4  |      |   |  | 0.6   |     
|Change in valuation allowance             |                    |             | 230.0 |       |   |      | 7.7   |      |   |  |      |     
|Other                                     |                    |             |      |       |   |      | 0.6   |      |   |  | 3.7   |     
|                                          |                    |             |       |       |   |      |       |      |   |  |       |     
|                                          | Effective tax rate |             |       | 209.0 | % |      |       | 18.6 | % |  |       | 11.9 | %
|                                          |                    |             |       |       |   |      |       |      |   |  |       |     

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

F-22



---



##### 



COMMUNICATIONS & POWER INDUSTRIES HOLDING
CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

obtained in the Stock Option and Stockholders
Agreements. A summary of the status of Holdings fixed
stock option plan is as follows:

|           |                               |                   |          |                  |  |                  |         |         |  |   |      |      | 
|---------- | ----------------------------- | ----------------- | -------- | ---------------- |  | ---------------- | ------- | ------- |  | - | ---- | ---- | 
|           |                               | Options Available |          | Number of Shares |  | Weighted-average
|           |                               | for Grant         |          | Under Option     |  | Exercise Price  
|           |                               |                   |          |                  |  |                 
|Authorized |                               |                   | 250,000  |                  |  |                  |        |         |  |   |     |     
|Granted    |                               |                   | (232,500 | )                |  |                  | 232,500 |         |  | $ | 4.00 |     
|           |                               |                   |          |                  |  |                  |         |         |  |   |      |     
|           | Balance at September 29, 2000 |                   |          | 17,500           |  |                  |         | 232,500 |  |   | $    | 4.00 | 
|           |                               |                   |          |                  |  |                  |         |         |  |   |      |     
|Granted    |                               |                   | (11,300  | )                |  |                  | 11,300  |         |  | $ | 4.00 |     
|Canceled   |                               |                   | 8,750    |                  |  |                  | (8,750  | )       |  | $ | 4.00 |     
|           |                               |                   |          |                  |  |                  |         |         |  |   |      |     
|           | Balance at September 28, 2001 |                   |          | 14,950           |  |                  |         | 235,050 |  |   | $    | 4.00 | 
|           |                               |                   |          |                  |  |                  |         |         |  |   |      |     
|Granted    |                               |                   | (2,000   | )                |  |                  | 2,000   |         |  | $ | 4.00 |     
|Canceled   |                               |                   | 21,750   |                  |  |                  | (21,750 | )       |  | $ | 4.00 |     
|           |                               |                   |          |                  |  |                  |         |         |  |   |      |     
|           | Balance at September 27, 2002 |                   |          | 34,700           |  |                  |         | 215,300 |  |   | $    | 4.00 | 
|           |                               |                   |          |                  |  |                  |         |         |  |   |      |     

The per share weighted-average fair value of
stock options granted during fiscal years 2002, 2001 and 2000
was $.62, $.74 and $1.00, respectively, on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions: risk-free interest rate of 3.38%,
4.09%, and 5.85% in fiscal years 2002, 2001 and 2000,
respectively; expected life of 5 years; no expected stock
price volatility as the shares are not publicly traded; and an
expected dividend yield of 0.0% in all years presented.

There were 107,650 and 57,075 options exercisable
at September 27, 2002, and September 28, 2001,
respectively and no options were exercisable as of
September 29, 2000. Outstanding options as of
September 27, 2002, September 28, 2001, and
September 29, 2000 had a weighted-average remaining
contractual life of 7.77, 8.75 and 9.75 years, respectively.

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 years 2002, 2001 and 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 former Chief Executive Officer, certain officers
and key employees in fiscal year 1995. As of September 27,
2002, based on retirements and management changes, 164,828 of
these Management Shares have been repurchased, and 73,000 have
been resold.

F-23



---



##### 



COMMUNICATIONS & POWER INDUSTRIES HOLDING
CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

16.     Retirement
and Profit Sharing Plans

CPI provides a qualified 401(k) investment plan
covering substantially all of its domestic employees and a
pension contribution plan covering substantially all of its
Canadian employees. The plans provide 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 $0.1 and $0.4 million
as of September 27, 2002 and September 28, 2001,
respectively.

Total CPI contributions to these plans were
$2.7 million, $2.7 million, and $2.8 million for
fiscal years 2002, 2001, and 2000, respectively.

CPIs bonus program provides incentive
bonuses to management if certain performance goals are achieved.
Such performance goals are measured based upon earnings before
interest, taxes, depreciation and amortization, cash flow and
asset utilization.

17.     Related Party
Transactions

Sale-leaseback
Transaction Between CPI and Holding

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. The promissory note matures in December
2009, and provides for 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
matured June 1, 2002. During fiscal year 2002, the loan was
extended until June 1, 2003 and $0.2 million of
principal was repaid. The loan bears interest at LIBOR plus
4.25% and is secured on a non-recourse basis (subject to normal
and customary exceptions) by the San Carlos real property. CPI
realized a gain on the sale of the property of approximately
$8.5 million that is being recognized over the twenty year
lease term. Intercompany accounts and transactions associated
with this sale-leaseback transaction have been eliminated in
consolidation.

Outside
Advisors

Holding and CPI have entered into a management
services agreement with Leonard Green & Partners, L.P.
to pay $0.4 million, 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 the
Board of Directors of Holding and CPI. The management services
agreement provides for management, consulting and financial
planning services, including assistance in strategic planning,
providing market and financial analyses, negotiating and
structuring financing and exploring expansion opportunities.

Stockholder
Loans

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 $0.9 million as

F-24



---



##### 



COMMUNICATIONS & POWER INDUSTRIES HOLDING
CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

of September 27, 2002. Of this amount,
$0.7 million 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
$0.2 million 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. The
Board of Directors has extended the due dates of all past and
future scheduled interest and principal payments on these
Management Notes until the Management Notes are due in 2004 or
upon Board request, whichever comes first.

18.     Guarantees

Holding has guaranteed CPIs senior debt
obligations. Other than the transactions associated with the San
Carlos real estate purchase and related financing and leaseback
arrangements, the consolidated balance sheets of Holding as of
September 27, 2002 and September 28, 2001 are
substantially identical to those of CPI.

19.     Quarterly
Financial Data (Unaudited)

|             |  |               |        |          |  |          |        |          |  |           |        |          |  |          |        |          |  |   |         |   |  |   |        |   |  |   |        |   |  |   |        |  
|------------ |  | ------------- | ------ | -------- |  | -------- | ------ | -------- |  | --------- | ------ | -------- |  | -------- | ------ | -------- |  | - | ------- | - |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|             |  |              
|             |  | Quarter Ended
|             |  |              
|             |  | Sept. 27,     |        | June 28, |  | Mar. 29, |        | Dec. 28, |  | Sept. 28, |        | June 29, |  | Mar. 30, |        | Dec. 29,
|             |  | 2002          |        | 2002     |  | 2002     |        | 2001     |  | 2001      |        | 2001     |  | 2001     |        | 2000    
|             |  |               |        |          |  |          |        |          |  |           |        |          |  |          |        |         
|Sales        |  | $             | 59,613 |          |  | $        | 64,792 |          |  | $         | 60,612 |          |  | $        | 66,228 |          |  | $ | 72,851  |   |  | $ | 72,724 |   |  | $ | 66,570 |   |  | $ | 60,376 |  
|Gross profit |  | $             | 15,287 |          |  | $        | 16,664 |          |  | $         | 12,946 |          |  | $        | 14,159 |          |  | $ | 8,115   |   |  | $ | 15,653 |   |  | $ | 12,623 |   |  | $ | 12,798 |  
|Net loss     |  | $             | (2,927 | )        |  | $        | (1,039 | )        |  | $         | (1,733 | )        |  | $        | (1,034 | )        |  | $ | (10,733 | ) |  | $ | (1,873 | ) |  | $ | (3,836 | ) |  | $ | (2,405 | )

F-25



---



##### 



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 27, 2002 and September 28,
2001, and the related consolidated statements of operations,
stockholders equity (deficit), and cash flows for the
52-week periods ended September 27, 2002,
September 28, 2001 and September 29, 2000. 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 27,
2002 and September 28, 2001, and the results of their
operations and their cash flows for the 52-week periods ended
September 27, 2002, September 28, 2001, and
September 29, 2000, 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

November 27, 2002


F-26



---



##### 



COMMUNICATION & POWER INDUSTRIES, INC. AND
SUBSIDIARIES

(A wholly owned subsidiary of
Communication & Power Industries Holding
Corporation)


CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                                                     |                                                                                                                                                                                                            |                                                                                    |         |         |         |   |         |         |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|                                                                                                                                                                                                     |                                                                                                                                                                                                            |                                                                                   
|                                                                                                                                                                                                     |                                                                                                                                                                                                            | Fiscal Year-End                                                                   
|                                                                                                                                                                                                     |                                                                                                                                                                                                            |                                                                                   
|                                                                                                                                                                                                     |                                                                                                                                                                                                            | 2002                                                                               |         | 2001   
|                                                                                                                                                                                                     |                                                                                                                                                                                                            |                                                                                    |         |        
|                                                                                                                                                                                                     |                                                                                                                                                                                                            |                                                                                   
|                                                                                                                                                                                                     |                                                                                                                                                                                                            | (In thousands, except                                                             
|                                                                                                                                                                                                     |                                                                                                                                                                                                            | share and per share                                                               
|                                                                                                                                                                                                     |                                                                                                                                                                                                            | data)                                                                             
|ASSETS                                                                                                                                                                                              
|Current Assets                                                                                                                                                                                       |                                                                                                                                                                                                            |                                                                                    |         |         |         |   |         |        
|                                                                                                                                                                                                     | Cash and cash equivalents                                                                                                                                                                                  |                                                                                    | $       | 2,724   |         |   |         | 2,903   |        
|                                                                                                                                                                                                     | Accounts receivable, net                                                                                                                                                                                   |                                                                                    |         | 29,937  |         |   |         | 46,738  |        
|                                                                                                                                                                                                     | Inventories                                                                                                                                                                                                |                                                                                    |         | 39,927  |         |   |         | 57,678  |        
|                                                                                                                                                                                                     | Deferred taxes                                                                                                                                                                                             |                                                                                    |         |        |         |   |         | 3,500   |        
|                                                                                                                                                                                                     | Other current assets                                                                                                                                                                                       |                                                                                    |         | 2,637   |         |   |         | 2,241   |        
|                                                                                                                                                                                                     |                                                                                                                                                                                                            |                                                                                    |         |         |         |   |         |        
|                                                                                                                                                                                                     |                                                                                                                                                                                                            | Total current assets                                                               |         |         | 75,225  |   |         |         | 113,060 |  
|Property, plant, and equipment, net                                                                                                                                                                  |                                                                                                                                                                                                            |                                                                                    | 42,478  |         |         |   | 48,672  |        
|Goodwill and other intangibles, net                                                                                                                                                                  |                                                                                                                                                                                                            |                                                                                    | 20,762  |         |         |   | 23,452  |        
|Debt issue costs, net                                                                                                                                                                                |                                                                                                                                                                                                            |                                                                                    | 3,259   |         |         |   | 4,715   |        
|Note receivable from parent                                                                                                                                                                          |                                                                                                                                                                                                            |                                                                                    | 5,750   |         |         |   | 5,750   |        
|                                                                                                                                                                                                     |                                                                                                                                                                                                            |                                                                                    |         |         |         |   |         |        
|                                                                                                                                                                                                     |                                                                                                                                                                                                            | Total assets                                                                       |         | $       | 147,474 |   |         |         | 195,649 |  
|                                                                                                                                                                                                     |                                                                                                                                                                                                            |                                                                                    |         |         |         |   |         |        
|LIABILITIES, SENIOR REDEEMABLE PREFERRED STOCK
    AND STOCKHOLDERS DEFICIT                                                                                                                        
|Current Liabilities                                                                                                                                                                                  |                                                                                                                                                                                                            |                                                                                    |         |         |         |   |         |        
|                                                                                                                                                                                                     | Revolving credit facility                                                                                                                                                                                  |                                                                                    | $       |        |         |   |         | 21,293  |        
|                                                                                                                                                                                                     | Current portion of capital leases                                                                                                                                                                          |                                                                                    |         | 45      |         |   |         | 919     |        
|                                                                                                                                                                                                     | Accounts payable                                                                                                                                                                                           |                                                                                    |         | 14,111  |         |   |         | 15,175  |        
|                                                                                                                                                                                                     | Accrued expenses                                                                                                                                                                                           |                                                                                    |         | 18,313  |         |   |         | 18,196  |        
|                                                                                                                                                                                                     | Product warranty                                                                                                                                                                                           |                                                                                    |         | 4,823   |         |   |         | 4,225   |        
|                                                                                                                                                                                                     | Income taxes payable                                                                                                                                                                                       |                                                                                    |         | 2,964   |         |   |         | 407     |        
|                                                                                                                                                                                                     | Accrued dividends payable                                                                                                                                                                                  |                                                                                    |         | 9,538   |         |   |         | 4,387   |        
|                                                                                                                                                                                                     | Advance payments from customers                                                                                                                                                                            |                                                                                    |         | 7,594   |         |   |         | 9,193   |        
|                                                                                                                                                                                                     |                                                                                                                                                                                                            |                                                                                    |         |         |         |   |         |        
|                                                                                                                                                                                                     |                                                                                                                                                                                                            | Total current liabilities                                                          |         |         | 57,388  |   |         |         | 73,795  |  
|Senior term loans                                                                                                                                                                                    |                                                                                                                                                                                                            |                                                                                    |        |         |         |   | 20,000  |        
|Senior subordinated notes                                                                                                                                                                            |                                                                                                                                                                                                            |                                                                                    | 100,000 |         |         |   | 100,000 |        
|Deferred income on sale-leaseback                                                                                                                                                                    |                                                                                                                                                                                                            |                                                                                    | 7,311   |         |         |   | 7,735   |        
|Obligations under capital leases                                                                                                                                                                     |                                                                                                                                                                                                            |                                                                                    |        |         |         |   | 90      |        
|Deferred taxes                                                                                                                                                                                       |                                                                                                                                                                                                            |                                                                                    |         |         |         |   |        |        
|                                                                                                                                                                                                     |                                                                                                                                                                                                            |                                                                                    |         |         |         |   |         |        
|                                                                                                                                                                                                     |                                                                                                                                                                                                            | Total liabilities                                                                  |         |         | 164,699 |   |         |         | 201,620 |  
|                                                                                                                                                                                                     |                                                                                                                                                                                                            |                                                                                    |         |         |         |   |         |        
|Senior Redeemable Preferred Stock($.01 par value, 325,000 shares
    authorized; 297,346 shares issued and outstanding as of 2002 and
    2001, respectively; liquidation preference $100 per share) |                                                                                                                                                                                                            |                                                                                    | 28,693  |         |         |   | 28,479  |        
|                                                                                                                                                                                                     |                                                                                                                                                                                                            |                                                                                    |         |         |         |   |         |        
|Commitments and contingencies                                                                                                                                                                        |                                                                                                                                                                                                            |                                                                                    |         |         |         |   |         |        
|Stockholders Deficit                                                                                                                                                                                |                                                                                                                                                                                                            |                                                                                    |         |         |         |   |         |        
|                                                                                                                                                                                                     | Junior Preferred Stock ($.01 par value, 525,000
    shares authorized; 261,032 and 227,475 shares issued and
    outstanding as of 2002 and 2001, respectively; liquidation
    preference $100 per share) |                                                                                    |         | 2       |         |   |         | 2       |        
|                                                                                                                                                                                                     | Common stock ($.01 par value, 400,000 shares
    authorized; 1 share issued and outstanding as of 2002 and 2001)                                                                                           |                                                                                    |         |        |         |   |         |        |        
|                                                                                                                                                                                                     | Additional paid-in capital                                                                                                                                                                                 |                                                                                    |         | 44,608  |         |   |         | 41,252  |        
|                                                                                                                                                                                                     | Accumulated deficit                                                                                                                                                                                        |                                                                                    |         | (89,305 | )       |   |         | (74,523 | )      
|                                                                                                                                                                                                     | Stockholder loan                                                                                                                                                                                           |                                                                                    |         | (1,223  | )       |   |         | (1,181  | )      
|                                                                                                                                                                                                     |                                                                                                                                                                                                            |                                                                                    |         |         |         |   |         |        
|                                                                                                                                                                                                     |                                                                                                                                                                                                            | Net stockholders deficit                                                          |         |         | (45,918 | ) |         |         | (34,450 | )
|                                                                                                                                                                                                     |                                                                                                                                                                                                            |                                                                                    |         |         |         |   |         |        
|                                                                                                                                                                                                     |                                                                                                                                                                                                            | Total liabilities, senior redeemable preferred
    stock and stockholders deficit |         | $       | 147,474 |   |         |         | 195,649 |  
|                                                                                                                                                                                                     |                                                                                                                                                                                                            |                                                                                    |         |         |         |   |         |        

See accompanying notes to the consolidated
financial statements.

F-27



---



##### 



COMMUNICATION & POWER INDUSTRIES, INC. AND
SUBSIDIARIES

(A wholly owned subsidiary of
Communication & Power Industries Holding
Corporation)


CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                      |                                                          |                |         |        |  |      |         |        |  |  |         |        | 
|------------------------------------- | -------------------------------------------------------- | -------------- | ------- | ------ |  | ---- | ------- | ------ |  |  | ------- | ------ | 
|                                      |                                                          |               
|                                      |                                                          | Fiscal Year   
|                                      |                                                          |               
|                                      |                                                          | 2002           |         | 2001   |  | 2000
|                                      |                                                          |                |         |        |  |     
|                                      |                                                          |               
|                                      |                                                          | (In thousands)
|Sales                                 |                                                          | $              | 251,245 |        |  |      | 272,521 |        |  |  | 243,054 |       
|Cost of sales                         |                                                          |                | 192,189 |        |  |      | 223,332 |        |  |  | 188,748 |       
|                                      |                                                          |                |         |        |  |      |         |        |  |  |         |       
|Gross profit                          |                                                          |                | 59,056  |        |  |      | 49,189  |        |  |  | 54,306  |       
|                                      |                                                          |                |         |        |  |      |         |        |  |  |         |       
|Operating costs and expenses:         |                                                          |                |         |        |  |      |         |        |  |  |         |       
|                                      | Research and development                                 |                |         | 5,873  |  |      |         | 5,767  |  |  |         | 8,690  | 
|                                      | Selling and marketing                                    |                |         | 16,073 |  |      |         | 17,544 |  |  |         | 18,524 | 
|                                      | General and administrative                               |                |         | 21,179 |  |      |         | 21,935 |  |  |         | 18,253 | 
|                                      | Loss on sale of Solid State Products Division
    (SSPD) |                |         | 3,004  |  |      |         |       |  |  |         |       | 
|                                      |                                                          |                |         |        |  |      |         |        |  |  |         |       
|Total operating costs and expenses    |                                                          |                | 46,129  |        |  |      | 45,246  |        |  |  | 45,467  |       
|                                      |                                                          |                |         |        |  |      |         |        |  |  |         |       
|Operating income                      |                                                          |                | 12,927  |        |  |      | 3,943   |        |  |  | 8,839   |       
|Foreign currency income (loss)        |                                                          |                | 34      |        |  |      | (130    | )      |  |  | (536    | )     
|Interest expense                      |                                                          |                | 14,463  |        |  |      | 18,646  |        |  |  | 18,663  |       
|                                      |                                                          |                |         |        |  |      |         |        |  |  |         |       
|Loss before taxes                     |                                                          |                | (1,502  | )      |  |      | (14,833 | )      |  |  | (10,360 | )     
|Income tax expense                    |                                                          |                | 4,559   |        |  |      | 2,950   |        |  |  | 1,232   |       
|                                      |                                                          |                |         |        |  |      |         |        |  |  |         |       
|Net loss                              |                                                          |                | (6,061  | )      |  |      | (17,783 | )      |  |  | (11,592 | )     
|Preferred dividends:                  |                                                          |                |         |        |  |      |         |        |  |  |         |       
|                                      | Senior Redeemable Preferred Stock                        |                |         | 5,151  |  |      |         | 4,387  |  |  |         | 3,822  | 
|                                      | Junior Preferred Stock                                   |                |         | 3,356  |  |      |         | 2,924  |  |  |         | 2,548  | 
|                                      |                                                          |                |         |        |  |      |         |        |  |  |         |       
|Net loss attributable to common stock |                                                          | $              | (14,568 | )      |  |      | (25,094 | )      |  |  | (17,962 | )     
|                                      |                                                          |                |         |        |  |      |         |        |  |  |         |       

See accompanying notes to the consolidated
financial statements.

F-28



---



##### 



COMMUNICATIONS & POWER INDUSTRIES, INC.
AND SUBSIDIARIES

(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)


CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY (DEFICIT)

|                                                                                  |  |                                   |   |        |  |            |   |             |  |             |        |                  |  |  |         |   |  |  |        |   |  |  |         |  
|--------------------------------------------------------------------------------- |  | --------------------------------- | - | ------ |  | ---------- | - | ----------- |  | ----------- | ------ | ---------------- |  |  | ------- | - |  |  | ------ | - |  |  | ------- | -
|                                                                                  |  | Junior                            |   |        |  | Additional |   |             |  |             |        | Total           
|                                                                                  |  | Preferred                         |   | Common |  | Paid-in    |   | Accumulated |  | Stockholder |        | Stockholders   
|                                                                                  |  | Stock                             |   | Stock  |  | Capital    |   | Deficit     |  | Loans       |        | Equity (Deficit)
|                                                                                  |  |                                   |   |        |  |            |   |             |  |             |        |                 
|                                                                                  |  |                                  
|                                                                                  |  | (In thousands, except share data)
|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 loan                                                     |  |                                   |  |        |  |            |  |             |  |             |       |                  |  |  |        |   |  |  | 20     |   |  |  | 20      |  
|Interest accrued on stockholder loan                                              |  |                                   |  |        |  |            |  |             |  |             |       |                  |  |  |        |   |  |  | (47    | ) |  |  | (47     | )
|Purchase of treasury stock                                                        |  |                                   |  |        |  |            |  |             |  |             | (23    | )                |  |  |        |   |  |  |       |   |  |  | (23     | )
|                                                                                  |  |                                   |   |        |  |            |   |             |  |             |        |                  |  |  |         |   |  |  |        |   |  |  |         |  
|Balances, September 29, 2000                                                      |  | $                                 | 2 |        |  |            |  |             |  |             | 38,328 |                  |  |  | (49,215 | ) |  |  | (1,133 | ) |  |  | (12,018 | )
|                                                                                  |  |                                   |   |        |  |            |   |             |  |             |        |                  |  |  |         |   |  |  |        |   |  |  |         |  
|Amortization of discount and issue costs on
    senior redeemable preferred stock |  |                                   |  |        |  |            |  |             |  |             |       |                  |  |  | (214    | ) |  |  |       |   |  |  | (214    | )
|Dividends on senior redeemable preferred stock                                    |  |                                   |  |        |  |            |  |             |  |             |       |                  |  |  | (4,387  | ) |  |  |       |   |  |  | (4,387  | )
|Payment of dividends on junior preferred stock                                    |  |                                   |  |        |  |            |  |             |  |             | 2,924  |                  |  |  | (2,924  | ) |  |  |       |   |  |  |        |  
|Net loss                                                                          |  |                                   |  |        |  |            |  |             |  |             |       |                  |  |  | (17,783 | ) |  |  |       |   |  |  | (17,783 | )
|Interest accrued on stockholder loan                                              |  |                                   |  |        |  |            |  |             |  |             |       |                  |  |  |        |   |  |  | (48    | ) |  |  | (48     | )
|                                                                                  |  |                                   |   |        |  |            |   |             |  |             |        |                  |  |  |         |   |  |  |        |   |  |  |         |  
|Balances, September 28, 2001                                                      |  | $                                 | 2 |        |  |            |  |             |  |             | 41,252 |                  |  |  | (74,523 | ) |  |  | (1,181 | ) |  |  | (34,450 | )
|                                                                                  |  |                                   |   |        |  |            |   |             |  |             |        |                  |  |  |         |   |  |  |        |   |  |  |         |  
|Amortization of discount and issue costs on
    senior redeemable preferred stock |  |                                   |  |        |  |            |  |             |  |             |       |                  |  |  | (214    | ) |  |  |       |   |  |  | (214    | )
|Dividends on senior redeemable preferred stock                                    |  |                                   |  |        |  |            |  |             |  |             |       |                  |  |  | (5,151  | ) |  |  |       |   |  |  | (5,151  | )
|Payment of dividends on junior preferred stock                                    |  |                                   |  |        |  |            |  |             |  |             | 3,356  |                  |  |  | (3,356  | ) |  |  |       |   |  |  |        |  
|Net loss                                                                          |  |                                   |  |        |  |            |  |             |  |             |       |                  |  |  | (6,061  | ) |  |  |       |   |  |  | (6,061  | )
|Interest accrued on stockholder loan                                              |  |                                   |  |        |  |            |  |             |  |             |       |                  |  |  |        |   |  |  | (42    | ) |  |  | (42     | )
|                                                                                  |  |                                   |   |        |  |            |   |             |  |             |        |                  |  |  |         |   |  |  |        |   |  |  |         |  
|Balances, September 27, 2002                                                      |  | $                                 | 2 |        |  |            |  |             |  |             | 44,608 |                  |  |  | (89,305 | ) |  |  | (1,223 | ) |  |  | (45,918 | )
|                                                                                  |  |                                   |   |        |  |            |   |             |  |             |        |                  |  |  |         |   |  |  |        |   |  |  |         |  

See accompanying notes to the consolidated
financial statements.

F-29



---



##### 



COMMUNICATIONS & POWER INDUSTRIES, INC.
AND SUBSIDIARIES

(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)


CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                         |                                                              |                |      |         |   |      |        |         |   |  |     |        |  
|-------------------------------------------------------- | ------------------------------------------------------------ | -------------- | ---- | ------- | - | ---- | ------ | ------- | - |  | --- | ------ | -
|                                                         |                                                              |               
|                                                         |                                                              | Fiscal Years  
|                                                         |                                                              |               
|                                                         |                                                              | 2002           |      | 2001    |   | 2000
|                                                         |                                                              |                |      |         |   |     
|                                                         |                                                              |               
|                                                         |                                                              | (In thousands)
|Operating Activities                                     |                                                              |                |      |         |   |      |        |         |   |  |     |       
|                                                         | Net cash provided by operating activities                    |                | $    | 44,631  |   |      |        | 1,953   |   |  |     | 9,897  |  
|                                                         |                                                              |                |      |         |   |      |        |         |   |  |     |       
|Investing Activities                                     |                                                              |                |      |         |   |      |        |         |   |  |     |       
|                                                         | Proceeds from sale of property to parent                     |                |      |        |   |      |        | 17,250  |   |  |     |       |  
|                                                         | Proceeds from sale of SSPD division                          |                |      | 926     |   |      |        |        |   |  |     |       |  
|                                                         | Proceeds from sale of property, plant and
    equipment      |                |      |        |   |      |        | 1,944   |   |  |     |       |  
|                                                         | Purchase of property, plant, and equipment                   |                |      | (3,378  | ) |      |        | (5,788  | ) |  |     | (5,325 | )
|                                                         |                                                              |                |      |         |   |      |        |         |   |  |     |       
|                                                         | Net cash (used in) provided by investing
    activities      |                |      | (2,452  | ) |      |        | 13,406  |   |  |     | (5,325 | )
|                                                         |                                                              |                |      |         |   |      |        |         |   |  |     |       
|Financing Activities                                     |                                                              |                |      |         |   |      |        |         |   |  |     |       
|                                                         | Repayments on capital leases                                 |                |      | (964    | ) |      |        | (960    | ) |  |     | (855   | )
|                                                         | Payment of debt issue costs                                  |                |      | (101    | ) |      |        | (1,743  | ) |  |     |       |  
|                                                         | Repayment of terminated revolving credit facility            |                |      |        |   |      |        | (40,000 | ) |  |     |       |  
|                                                         | Net (repayments) proceeds from revolving
    credit facility |                |      | (21,293 | ) |      |        | 21,530  |   |  |     | 4,800  |  
|                                                         | Repayments on terminated senior term loans                   |                |      |        |   |      |        | (16,049 | ) |  |     | (7,995 | )
|                                                         | Net (repayments) proceeds from senior term
    loans         |                |      | (20,000 | ) |      |        | 20,000  |   |  |     |       |  
|                                                         | Purchases of treasury stock                                  |                |      |        |   |      |        |        |   |  |     | (23    | )
|                                                         | Proceeds from stockholder loan                               |                |      |        |   |      |        |        |   |  |     | 20     |  
|                                                         |                                                              |                |      |         |   |      |        |         |   |  |     |       
|                                                         | Net cash used in financing activities                        |                |      | (42,358 | ) |      |        | (17,222 | ) |  |     | (4,053 | )
|                                                         |                                                              |                |      |         |   |      |        |         |   |  |     |       
|Net (Decrease) Increase in Cash and Cash
    Equivalents |                                                              |                | (179 | )       |   |      | (1,863 | )       |   |  | 519 |       
|                                                         | Cash and cash equivalents at beginning of period             |                |      | 2,903   |   |      |        | 4,766   |   |  |     | 4,247  |  
|                                                         |                                                              |                |      |         |   |      |        |         |   |  |     |       
|                                                         | Cash and cash equivalents at end of period                   |                | $    | 2,724   |   |      |        | 2,903   |   |  |     | 4,766  |  
|                                                         |                                                              |                |      |         |   |      |        |         |   |  |     |       

See accompanying notes to the consolidated
financial statements.

F-30



---



##### 



COMMUNICATIONS & POWER INDUSTRIES, INC.
AND SUBSIDIARIES

(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)


CONSOLIDATED STATEMENTS OF CASH FLOWS,
CONTINUED

|                                                                                    |                                                 |                                 |        |       |        |      |         |        |        |   |         |        |         |  
|----------------------------------------------------------------------------------- | ----------------------------------------------- | ------------------------------- | ------ | ----- | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------- | -
|                                                                                    |                                                 |                                
|                                                                                    |                                                 | Fiscal Years                   
|                                                                                    |                                                 |                                
|                                                                                    |                                                 | 2002                            |        | 2001  |        | 2000
|                                                                                    |                                                 |                                 |        |       |        |     
|                                                                                    |                                                 |                                
|                                                                                    |                                                 | (In thousands)                 
|DETAIL OF NET CASH PROVIDED BY OPERATING
    ACTIVITIES                             |                                                 |                                 |        |       |        |      |         |        |        |   |         |       
|Net loss                                                                            |                                                 | $                               | (6,061 | )     |        |      | (17,783 | )      |        |   | (11,592 | )     
|Adjustments to reconcile net loss to net cash
    provided by operating activities: |                                                 |                                 |        |       |        |      |         |        |        |   |         |       
|                                                                                    | Depreciation                                    |                                 |        | 8,581 |        |      |         | 10,210 |        |   |         | 12,682 |        
|                                                                                    | Amortization of deferred debt issue costs       |                                 |        | 1,557 |        |      |         | 1,655  |        |   |         | 1,288  |        
|                                                                                    | Amortization of goodwill and intangibles        |                                 |        | 2,064 |        |      |         | 2,638  |        |   |         | 2,634  |        
|                                                                                    | Allowance for doubtful accounts                 |                                 |        | 142   |        |      |         | (362   | )      |   |         | (346   | )      
|                                                                                    | Loss on the sale of SSPD                        |                                 |        | 3,004 |        |      |         |       |        |   |         |       |        
|                                                                                    | Gain on sale of property to Holding             |                                 |        | (424  | )      |      |         | (317   | )      |   |         |       |        
|                                                                                    | Deferred taxes                                  |                                 |        | 3,500 |        |      |         | 11,360 |        |   |         | 289    |        
|                                                                                    | Loss on liquidation of capital lease            |                                 |        | 73    |        |      |         |       |        |   |         |       |        
|                                                                                    | Interest accrued on stockholder loan            |                                 |        | (42   | )      |      |         | (48    | )      |   |         | (47    | )      
|                                                                                    | Asset impairment loss                           |                                 |        | 508   |        |      |         |       |        |   |         |       |        
|                                                                                    | Net (gains) losses on the disposition of assets |                                 |        | 188   |        |      |         | (792   | )      |   |         | 212    |        
|                                                                                    | Changes in operating assets and liabilities:    |                                 |        |       |        |      |         |        |        |   |         |        |        
|                                                                                    |                                                 | Accounts receivable             |        |       | 16,122 |      |         |        | (3,942 | ) |         |        | 7,508   |  
|                                                                                    |                                                 | Inventories                     |        |       | 16,974 |      |         |        | 6,271  |   |         |        | (11,423 | )
|                                                                                    |                                                 | Other current assets            |        |       | (436   | )    |         |        | (638   | ) |         |        | (79     | )
|                                                                                    |                                                 | Accounts payable                |        |       | (900   | )    |         |        | (3,287 | ) |         |        | 4,940   |  
|                                                                                    |                                                 | Accrued expenses                |        |       | 105    |      |         |        | 869    |   |         |        | 414     |  
|                                                                                    |                                                 | Product warranty                |        |       | 618    |      |         |        | 1,247  |   |         |        | (597    | )
|                                                                                    |                                                 | Income tax payable, net         |        |       | 657    |      |         |        | (9,111 | ) |         |        | 540     |  
|                                                                                    |                                                 | Advance payments from customers |        |       | (1,599 | )    |         |        | 3,983  |   |         |        | 3,474   |  
|                                                                                    |                                                 |                                 |        |       |        |      |         |        |        |   |         |       
|Net cash provided by operating activities                                           |                                                 | $                               | 44,631 |       |        |      | 1,953   |        |        |   | 9,897   |       
|                                                                                    |                                                 |                                 |        |       |        |      |         |        |        |   |         |       

See accompanying notes to the consolidated
financial statements.

F-31



---



##### 



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
five 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 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 the Company. 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 reported are the
52- or 53-week periods ending on the Friday nearest to
September 30. Fiscal years 2002, 2001 and 2000 comprised
the 52-week periods ending on September 27, 2002,
September 28, 2001 and September 29, 2000,
respectively. All references to years in these notes to
consolidated financial statements represent fiscal years unless
otherwise noted.



| |                 
| | ----------------
| | Use of Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America 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.

Generally, CPI requires no collateral from its
customers and CPI estimates an allowance for doubtful accounts
based on the creditworthiness 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.



| |                          
| | -------------------------
| | 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



---



##### 



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 are recognized when persuasive evidence of
an arrangement exists, delivery has occurred, the price is fixed
or determinable, and collectibility is reasonably assured. The
Companys products are generally subject to warranties, and
the Company provides for the estimated future costs of repair,
replacement or customer accommodation in costs of sales.

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.

Gains and losses resulting from the disposition
of assets (property, plant and equipment) are reported on a net
basis in the caption General and administrative on
the Consolidated Statements of Operations. Net (losses) gains on
the disposition of assets were ($0.2) million,
$0.8 million, and ($0.2) million for fiscal years
2002, 2001 and 2000, respectively.



| |                                     
| | ------------------------------------
| | 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 $7.7 million
and $7.3 million as of September 27, 2002 and
September 28, 2001, respectively.

F-33



---



##### 



COMMUNICATIONS & POWER INDUSTRIES, INC.
AND SUBSIDIARIES


(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                 
| | ----------------
| | Product Warranty

CPIs products are generally warranted for a
variety of periods, typically one to three years or a
predetermined product usage life. A provision for estimated
future costs of repair, replacement or customer accommodations
is 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 years
2002, 2001 or 2000.



| |                          
| | -------------------------
| | 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 periods used for the deferred
costs associated with the revolving credit facility, and the
Senior Subordinated Notes are 4 years and 10 years,
respectively.



| |                                      
| | -------------------------------------
| | Senior Redeemable Preferred
    Stock

CPIs Senior Redeemable Preferred Stock was
issued in units with an aggregate of 262,500 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 are being amortized via a charge to accumulated
deficit over the period until mandatory redemption, 12 years,
using the straight-line method.



| |             
| | ------------
| | Income Taxes

The Company records income taxes using the asset
and liability method. Deferred tax assets and liabilities are
recognized for the estimated future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recorded or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date.



| |                                             
| | --------------------------------------------
| | 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.
Companies engaged in supplying defense-related equipment and
services to government agencies are subject to certain business
risks peculiar to that industry. Sales to the government may be
affected by changes in procurement policies, budget
considerations, changing concepts of national defense, political
developments abroad, and other factors.



| |                             
| | ----------------------------
| | 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 loss.

F-34



---



##### 



COMMUNICATIONS & POWER INDUSTRIES, INC.
AND SUBSIDIARIES


(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                        
| | ---------------------------------------
| | Fair Value of Financial
    Instruments

Financial instruments consist of cash and cash
equivalents, accounts receivable, accounts payable, revolving
credit facility and long-term debt. The carrying value of
CPIs cash and cash equivalents, accounts receivable,
accounts payable, and revolving credit facility 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
84.00 as of September 27, 2002 and 47.00 as of
September 28, 2001 (100.00 is face value).



| |                     
| | --------------------
| | Comprehensive Income

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



| |                                     
| | ------------------------------------
| | Recent Accounting
    Pronouncements

In June 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS
No. 142 addresses financial accounting and reporting for
acquired goodwill and other intangible assets. SFAS No. 142
changes the accounting for goodwill from an amortization method
to an impairment-only approach. Goodwill will be tested annually
and whenever events or circumstances occur indicating that
goodwill might be impaired. Upon adoption of SFAS No. 142,
amortization of goodwill recorded for business combinations will
cease. Companies are required to adopt SFAS No. 142 for
fiscal years beginning after December 15, 2001, but early
adoption is permitted. The Company will adopt this Statement
beginning in the first quarter of fiscal year 2003 and has not
yet determined whether there will be an impairment charge. At
the beginning of fiscal year 2003, the goodwill balance, net of
amortization, is $19.1 million, which will no longer be
amortized.

The FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations, in
August 2001, and SFAS No. 144, Accounting for the
Impairment or Disposal of Long-lived Assets, in October
2001. SFAS No. 143 is effective for fiscal years beginning
after June 15, 2002 and will require that the fair value of
an asset retirement obligation be recorded as a liability in the
period in which it incurs the obligation. SFAS No. 144 is
effective for fiscal years beginning after December 15,
2001. It provides a single accounting model for long-lived
assets to be disposed of and replaces SFAS No. 121
Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of. The Company does not
expect the adoption of these statements to have a material
effect on the Companys consolidated financial position or
results of operations. The Company will adopt these Statements
beginning in the first quarter of fiscal year 2003.

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections. This Statement rescinds SFAS Statement
No. 4, Reporting Gains and Losses from Extinguishment
of Debt, and an amendment of that Statement, SFAS
Statement No. 64, Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements. This Statement amends
SFAS Statement No. 13, Accounting for Leases,
to eliminate an inconsistency between the required accounting
for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. This Statement also
amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe
their applicability under changed conditions. The provisions of
SFAS No. 145 are effective in fiscal years beginning after
May 15, 2002, with early adoption permitted and, in
general, are to be applied prospectively. The Company does not
expect the adoption of this statement to have a material effect
on the Companys consolidated financial position or results
of operations. The Company will adopt this statement beginning
in the first quarter of fiscal year 2003.

F-35



---



##### 



COMMUNICATIONS & POWER INDUSTRIES, INC.
AND SUBSIDIARIES


(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit and Disposal
Activities. SFAS 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized
and measured initially at fair value only when the liability is
incurred. The provisions of SFAS No. 146 are effective
prospectively for exit or disposal activities initiated after
December 31, 2002. The Company does not expect the adoption
of this statement to have a material effect on the
Companys consolidated financial position or results of
operations.

3.     Balance Sheet
Components



| |                    
| | -------------------
| | Accounts Receivable

Accounts receivable are stated net of allowances
for doubtful accounts of $0.6 million and $0.4 million
at the end of fiscal years 2002 and 2001, respectively.



| |            
| | -----------
| | Inventories

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

|                        |  |                        |        |      |  |   |        | 
|----------------------- |  | ---------------------- | ------ | ---- |  | - | ------ | 
|                        |  |                       
|                        |  | Fiscal Year-End       
|                        |  |                       
|                        |  | 2002                   |        | 2001
|                        |  |                        |        |     
|                        |  |                       
|                        |  | (Dollars in thousands)
|Raw materials and parts |  | $                      | 30,638 |      |  | $ | 40,776 | 
|Work in process         |  |                        | 6,507  |      |  |   | 14,874 | 
|Finished goods          |  |                        | 2,782  |      |  |   | 2,028  | 
|                        |  |                        |        |      |  |   |        | 
|Total inventories       |  | $                      | 39,927 |      |  | $ | 57,678 | 
|                        |  |                        |        |      |  |   |        | 

Property,
Plant, and Equipment

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

|                                               |  |                        |         |      |  |  |         |  
|---------------------------------------------- |  | ---------------------- | ------- | ---- |  |  | ------- | -
|                                               |  |                       
|                                               |  | Fiscal Year-End       
|                                               |  |                       
|                                               |  | 2002                   |         | 2001
|                                               |  |                        |         |     
|                                               |  |                       
|                                               |  | (Dollars in thousands)
|Land and land leaseholds                       |  | $                      | 26,720  |      |  |  | 27,109  |  
|Buildings                                      |  |                        | 13,521  |      |  |  | 13,771  |  
|Machinery and equipment                        |  |                        | 54,874  |      |  |  | 55,158  |  
|Leased equipment                               |  |                        | 3,727   |      |  |  | 3,914   |  
|Construction in progress                       |  |                        | 986     |      |  |  | 1,540   |  
|                                               |  |                        |         |      |  |  |         |  
|                                               |  |                        | 99,828  |      |  |  | 101,492 |  
|Less accumulated depreciation and amortization |  |                        | (57,350 | )    |  |  | (52,820 | )
|                                               |  |                        |         |      |  |  |         |  
|Net property, plant and equipment              |  | $                      | 42,478  |      |  |  | 48,672  |  
|                                               |  |                        |         |      |  |  |         |  

Accumulated amortization of equipment under
capital lease arrangements was $3.4 and $2.8 million in
fiscal years 2002 and 2001, respectively, and related
amortization expense is included in depreciation expense on the
statement of cash flows.

F-36



---



##### 



COMMUNICATIONS & POWER INDUSTRIES, INC.
AND SUBSIDIARIES


(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                 
| | ----------------
| | Accrued Expenses

Accrued expenses are comprised of the following:

|                              |  |                 |        |      |  |  |        | 
|----------------------------- |  | --------------- | ------ | ---- |  |  | ------ | 
|                              |  |                
|                              |  | Fiscal Year-End
|                              |  |                
|                              |  | 2002            |        | 2001
|                              |  |                 |        |     
|                              |  |                
|                              |  | (Dollars in    
|                              |  | thousands)     
|Payroll and employee benefits |  | $               | 11,253 |      |  |  | 10,303 | 
|Accrued interest              |  |                 | 2,069  |      |  |  | 2,667  | 
|Non-income taxes              |  |                 | 1,064  |      |  |  | 1,360  | 
|Other                         |  |                 | 3,927  |      |  |  | 3,866  | 
|                              |  |                 |        |      |  |  |        | 
|Total accrued expenses        |  | $               | 18,313 |      |  |  | 18,196 | 
|                              |  |                 |        |      |  |  |        | 

4.     Sale of Solid
State Products Division

On September 26, 2002, the Company sold its
Solid State Products Division (SSPD) to KMIC
Technology, Inc., a company owned by the former management of
SSPD. The Company received approximately $0.9 million in
cash and a $0.3 million unsecured promissory note. The note
bears interest at 12% per annum and is payable as follows:
one-third of the principal plus unpaid interest is due
October 1, 2003 with the remaining balance payable in eight
quarterly installments of principal and interest beginning
January 1, 2004 and ending October 1, 2005. The sale
resulted in a fourth quarter charge to operations of
approximately $3.0 million which represents the net assets
sold including approximately $2.5 million in goodwill and
costs and expenses of the transaction, net of $0.9 million
of cash received from the sale of the operations net
assets. Due to the uncertainty of ultimate collection, the
proceeds from the promissory note will be recognized when the
cash payments are received. In connection with the SSPD
transaction, the Company agreed, subject to certain limitations
and exceptions, to not engage in the manufacture of intermediate
power amplifiers for satcom amplifiers (IPAs)
for a 3-year period. In addition, the Company agreed to purchase
from KMIC Technology Inc. all of its requirements for IPAs
for such 3-year period.

5.     Credit
Facility

During fiscal year 2001, the Company terminated
the previous 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 due
December 22, 2002. The term loan was prepaid in June 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. As of September 27, 2002, CPI had
$28.5 million available under the revolving line of credit.

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. Additionally, the
terms of the Credit Facility require the Company to maintain
certain financial covenants and limit the payment of cash
dividends on the Senior Preferred Stock and Junior Preferred
Stock. In addition to customary fronting and other fees, CPI
pays a fee equal to 1.25% per annum on outstanding but undrawn
amounts of letters of credit; and additionally CPI pays
customary collateral management fees and a commitment fee of
0.375% per annum on unused facilities under the Credit Facility.

F-37



---



##### 



COMMUNICATIONS & POWER INDUSTRIES, INC.
AND SUBSIDIARIES


(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

6.     Senior
Subordinated Notes

The $100 million principal amount of Senior
Subordinated Notes (Notes) matures in 2005 and bears
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 Notes (the
Indenture), to the prior payment in full of all
senior indebtedness (as defined), including indebtedness under
the 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 all of 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

|                    |  |            |       |  
|------------------- |  | ---------- | ----- | -
|Year                |  | Percentage
|                    |  |           
|2002                |  |            | 103.0 | %
|2003                |  |            | 101.5 | %
|2004 and thereafter |  |            | 100.0 | %

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
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.

7.     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 (the Senior Preferred
Stock) due 2007, 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. Beginning August 1,
2000, dividends may be paid only in cash.

During fiscal year 2002 and 2001, cash dividends
of $5.1 million and $4.4 million, respectively were
accrued for payment on Senior Preferred Stock. In addition, at a
value of $100 per share, CPI paid preferred dividends on
its Senior Preferred Stock through the issuance of
38,226 shares in fiscal year 2000.

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

F-38



---



##### 



COMMUNICATIONS & POWER INDUSTRIES, INC.
AND SUBSIDIARIES


(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 Restated Certificate of Incorporation of CPI,
which governs the rights, preferences, privileges and
restrictions of 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 (the Exchange Notes) due 2007, so long as such
exchange is permitted by the 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 Credit Facility 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.

8.     Junior
Preferred Stock

CPI is authorized to issue up to 525,000 shares
of nonvoting 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.

At a value of $100 per share, CPI paid preferred
dividends on its Junior Preferred Stock through the issuance of
33,557, 29,243, and 25,484 shares for fiscal years 2002,
2001, and 2000, respectively.

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 the Companys common stock.

9.     Supplemental
Cash Flow Information

Cash paid for interest was 14.5 million,
$18.2 million, and $16.7 million in fiscal years 2002,
2001, and 2000, respectively.Cash paid
(refunded) for taxes was $1.2 million,
$0.6 million, and $(32,000), in fiscal years 2002, 2001,
and 2000, respectively.

Non-cash financing activities included the
following: Dividends on Senior Redeemable Preferred Stock
included $5.1 million and $4.4 million of accrued but
unpaid preferred dividends in fiscal years 2002 and 2001,
respectively and the issuance of 38,226 shares of Senior
Redeemable Preferred Stock in fiscal year 2000.

F-39



---



##### 



COMMUNICATIONS & POWER INDUSTRIES, INC.
AND SUBSIDIARIES


(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Preferred stock dividends on Junior Preferred
Stock was through the issuance of 33,557, 29,243, and 25,484
shares of Junior Preferred Stock during fiscal years 2002, 2001,
and 2000, respectively. Amortization of discount and issue costs
on the Senior Redeemable Preferred Stock was $0.2 million
for each of the fiscal years 2002, 2001, and 2000. Equipment of
$0.1 million was acquired under capital leases for fiscal
year 2001; no equipment was acquired under capital leases for
fiscal years 2002 or 2000.

10.     Leases

At September 27, 2002, 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 December
2002. As collateral for these capital leases, CPI has issued
letters of credit totaling $0.2 million. As noted in
Note 16  Related Party Transactions, on
December 22, 2000, CPI and Holding entered into an
operating 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.

A summary of future minimum lease payments (in
thousands) follows:

|                                                                            |  |         |    |           |  |          |        |  |  |   |     | 
|--------------------------------------------------------------------------- |  | ------- | -- | --------- |  | -------- | ------ |  |  | - | --- | 
|                                                                            |  | Capital |    | Operating |  | Sublease
|Fiscal Year                                                                 |  | Leases  |    | Leases    |  | Income  
|                                                                            |  |         |    |           |  |         
|2003                                                                        |  | $       | 50 |           |  | $        | 3,341  |  |  | $ | 210 | 
|2004                                                                        |  |         |   |           |  |          | 3,067  |  |  |   | 236 | 
|2005                                                                        |  |         |   |           |  |          | 2,908  |  |  |   | 205 | 
|2006                                                                        |  |         |   |           |  |          | 2,539  |  |  |   | 100 | 
|2007                                                                        |  |         |   |           |  |          | 34,953 |  |  |   |    | 
|                                                                            |  |         |    |           |  |          |        |  |  |   |     | 
|Total future minimum lease payments                                         |  |         | 50 |           |  | $        | 46,808 |  |  | $ | 751 | 
|                                                                            |  |         |    |           |  |          |        |  |  |   |     | 
|Less amount representing interest, sales tax and
    additional obligations |  |         | 5  |           |  |          |        |  |  |   |     | 
|                                                                            |  |         |    |           |  |          |        |  |  |   |     | 
|Present value of future minimum lease payments                              |  |         | 45 |           |  |          |        |  |  |   |     | 
|Less current portion of obligations under capital
    leases                |  |         | 45 |           |  |          |        |  |  |   |     | 
|                                                                            |  |         |    |           |  |          |        |  |  |   |     | 
|Obligations under capital leases, less current
    portion                  |  | $       |   |           |  |          |        |  |  |   |     | 
|                                                                            |  |         |    |           |  |          |        |  |  |   |     | 

Real estate taxes, insurance, and maintenance are
also obligations of CPI. Rental expense under non-cancelable
operating leases amounted to $3.7 million,
$3.0 million, and $1.0 million for fiscal years 2002,
2001, and 2000, respectively.

11.     Contingencies

The amount of outstanding letters of credit
provided for under CPIs Credit Facility was
$4.5 million as of September 27, 2002. These
outstanding obligations are comprised of the following:
$2.5 million related to eight performance bond guarantees,
$1.1 million related to a workers compensation
deductible insurance program, $0.2 million to a lender
related to a capital lease arrangement and $0.8 million to
various other beneficiaries related primarily to insurance and
service contracts.

Varian Medical Systems, Inc. is currently a
defendant in one lawsuit relating to operations prior to the
acquisition by the Company of its business from Varian. 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.

F-40



---



##### 



COMMUNICATIONS & POWER INDUSTRIES, INC.
AND SUBSIDIARIES


(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)


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 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
Companys consolidated financial position or results of
operations.

From time to time, CPI may be subject to other
claims that arise in the ordinary course of business. In the
opinion of management, as of September 27, 2002, all such
matters involve amounts which would not have a material adverse
effect on the Companys consolidated financial position if
unfavorably resolved.

12.     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
either to the Chief Operating Officer, who in turns reports to
the Chief Executive Officer (CEO), or directly to
the 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 and
certain other non-cash charges (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.

F-41



---



##### 



COMMUNICATIONS & POWER INDUSTRIES, INC.
AND SUBSIDIARIES


(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 was sold on September 26, 2002 and did not
meet the quantitative thresholds to be reported separately, and
certain unallocated corporate-level operating expenses.

|                                 |  |                        |         |           |  |       |        |       |  |   |         |   |  |   |         | 
|-------------------------------- |  | ---------------------- | ------- | --------- |  | ----- | ------ | ----- |  | - | ------- | - |  | - | ------- | 
|                                 |  |                        |         | Satcom    |  |       |        |      
|                                 |  | VEDs                   |         | Equipment |  | Other |        | Total
|                                 |  |                        |         |           |  |       |        |      
|                                 |  |                       
|                                 |  | (Dollars in thousands)
|Fiscal Year 2002:                |  |                        |         |           |  |       |        |       |  |   |         |   |  |   |         | 
|Revenues from external customers |  | $                      | 202,978 |           |  | $     | 45,432 |       |  | $ | 2,835   |   |  | $ | 251,245 | 
|Intersegment product transfers   |  |                        | 12,527  |           |  |       |       |       |  |   | 952     |   |  |   | 13,479  | 
|EBITDA                           |  |                        | 37,300  |           |  |       | 672    |       |  |   | (11,333 | ) |  |   | 26,639  | 
|Total Assets                     |  |                        | 90,831  |           |  |       | 13,957 |       |  |   | 42,686  |   |  |   | 147,474 | 
|Capital Expenditures             |  |                        | 3,086   |           |  |       | 87     |       |  |   | 205     |   |  |   | 3,378   | 
|Fiscal Year 2001:                |  |                        |         |           |  |       |        |       |  |   |         |   |  |   |         | 
|Revenues from external customers |  | $                      | 203,656 |           |  |       | 64,819 |       |  |   | 4,046   |   |  |   | 272,521 | 
|Intersegment product transfers   |  |                        | 20,081  |           |  |       |       |       |  |   | 1,432   |   |  |   | 21,513  | 
|EBITDA                           |  |                        | 29,183  |           |  |       | (4,046 | )     |  |   | (8,476  | ) |  |   | 16,661  | 
|Total Assets                     |  |                        | 109,684 |           |  |       | 33,015 |       |  |   | 52,950  |   |  |   | 195,649 | 
|Capital Expenditures             |  |                        | 3,522   |           |  |       | 1,487  |       |  |   | 779     |   |  |   | 5,788   | 
|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   | 

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

|                              |  |                        |        |      |  |      |         |   |  |   |         |  
|----------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ------- | - |  | - | ------- | -
|                              |  |                       
|                              |  | Fiscal Year           
|                              |  |                       
|                              |  | 2002                   |        | 2001 |  | 2000
|                              |  |                        |        |      |  |     
|                              |  |                       
|                              |  | (Dollars in thousands)
|Segment EBITDA                |  | $                      | 26,639 |      |  | $    | 16,661  |   |  |   | 23,619  |  
|Less:                         |  |                        |        |      |  |      |         |   |  |   |         |  
|Depreciation and amortization |  |                        | 10,645 |      |  |      | 12,848  |   |  |   | 15,316  |  
|Other                         |  |                        | 3,033  |      |  |      |        |   |  |   |        |  
|Interest expense              |  |                        | 14,463 |      |  |      | 18,646  |   |  |   | 18,663  |  
|                              |  |                        |        |      |  |      |         |   |  |   |         |  
|Loss before taxes             |  | $                      | (1,502 | )    |  | $    | (14,833 | ) |  | $ | (10,360 | )
|                              |  |                        |        |      |  |      |         |   |  |   |         |  

Other in the above table represents non-cash
charges of $2.5 million resulting from the write-off of
goodwill in conjunction with the sale of SSPD and $0.5 million
related to impairment of equipment used in the satcom equipment
segment.

F-42



---



##### 



COMMUNICATIONS & POWER INDUSTRIES, INC.
AND SUBSIDIARIES


(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.

Sales by geographic area are as follows:

|                      |  |                        |         |      |  |      |         |  |  |  |         | 
|--------------------- |  | ---------------------- | ------- | ---- |  | ---- | ------- |  |  |  | ------- | 
|                      |  |                       
|                      |  | Fiscal Year           
|                      |  |                       
|                      |  | 2002                   |         | 2001 |  | 2000
|                      |  |                        |         |      |  |     
|                      |  |                       
|                      |  | (Dollars in thousands)
|United States         |  | $                      | 175,060 |      |  |      | 182,637 |  |  |  | 163,484 | 
|All foreign countries |  |                        | 76,185  |      |  |      | 89,884  |  |  |  | 79,570  | 
|                      |  |                        |         |      |  |      |         |  |  |  |         | 
|Total Sales           |  | $                      | 251,245 |      |  |      | 272,521 |  |  |  | 243,054 | 
|                      |  |                        |         |      |  |      |         |  |  |  |         | 

CPI has a single customer that accounts for 10%
or more of consolidated sales. Sales to this customer were
$43.9 million, $42.8 million and $41.3 million of
the Companys consolidated sales for fiscal years 2002,
2001, and 2000, respectively. A substantial majority of these
sales were VED segment products, but this customer also
purchased satcom equipment products.



|    |                         
|--- | ------------------------
|13. | Research and Development

CPI-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 CPI on research and development are
summarized as follows:

|                 |  |                        |       |           |  |          |       |  |  |  |        | 
|---------------- |  | ---------------------- | ----- | --------- |  | -------- | ----- |  |  |  | ------ | 
|                 |  | CPI                    |       | Customer  |  | Total   
|                 |  | Sponsored              |       | Sponsored |  | Incurred
|                 |  |                        |       |           |  |         
|                 |  |                       
|                 |  | (Dollars in thousands)
|Fiscal year 2002 |  | $                      | 5,873 |           |  |          | 5,174 |  |  |  | 11,047 | 
|Fiscal year 2001 |  |                        | 5,767 |           |  |          | 5,012 |  |  |  | 10,779 | 
|Fiscal year 2000 |  |                        | 8,690 |           |  |          | 6,476 |  |  |  | 15,166 | 



|    |                           
|--- | --------------------------
|14. | Provision for Income Taxes

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

|         |  |                        |        |      |  |      |         |   |  |   |         |  
|-------- |  | ---------------------- | ------ | ---- |  | ---- | ------- | - |  | - | ------- | -
|         |  |                       
|         |  | Fiscal Year           
|         |  |                       
|         |  | 2002                   |        | 2001 |  | 2000
|         |  |                        |        |      |  |     
|         |  |                       
|         |  | (Dollars in thousands)
|Domestic |  | $                      | (1,461 | )    |  | $    | (9,367  | ) |  | $ | (13,985 | )
|Non-U.S  |  |                        | (41    | )    |  |      | (5,466  | ) |  |   | 3,625   |  
|         |  |                        |        |      |  |      |         |   |  |   |         |  
|Total    |  | $                      | (1,502 | )    |  | $    | (14,833 | ) |  | $ | (10,360 | )
|         |  |                        |        |      |  |      |         |   |  |   |         |  

F-43



---



##### 



COMMUNICATIONS & POWER INDUSTRIES, INC.
AND SUBSIDIARIES


(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Income tax expense is comprised of the following:

|                   |              |                        |       |       |       |      |       |        |        |   |       |     |     | 
|------------------ | ------------ | ---------------------- | ----- | ----- | ----- | ---- | ----- | ------ | ------ | - | ----- | --- | --- | 
|                   |              |                       
|                   |              | Fiscal Year           
|                   |              |                       
|                   |              | 2002                   |       | 2001  |       | 2000
|                   |              |                        |       |       |       |     
|                   |              |                       
|                   |              | (Dollars in thousands)
|Current            |              |                        |       |       |       |      |       |        |        |   |       |    
|                   | U.S. federal |                        | $     | 1,601 |       |      | $     | (8,730 | )      |   | $     |    |    
|                   | State        |                        |       | 225   |       |      |       | 10     |        |   |       |    |    
|                   | Non-U.S      |                        |       | (767  | )     |      |       | 310    |        |   |       | 943 |    
|                   |              |                        |       |       |       |      |       |        |        |   |       |    
|                   |              | Total Current          |       |       | 1,059 |      |       |        | (8,410 | ) |       |     | 943 | 
|                   |              |                        |       |       |       |      |       |        |        |   |       |    
|Deferred           |              |                        |       |       |       |      |       |        |        |   |       |    
|                   | U.S. federal |                        |       | 2,389 |       |      |       | 9,350  |        |   |       |    |    
|                   | State        |                        |       | 1,085 |       |      |       | 2,994  |        |   |       |    |    
|                   | Non-U.S      |                        |       | 26    |       |      |       | (984   | )      |   |       | 289 |    
|                   |              |                        |       |       |       |      |       |        |        |   |       |    
|                   |              | Total Deferred         |       |       | 3,500 |      |       |        | 11,360 |   |       |     | 289 | 
|                   |              |                        |       |       |       |      |       |        |        |   |       |    
|Income tax expense |              | $                      | 4,559 |       |       | $    | 2,950 |        |        | $ | 1,232 |    
|                   |              |                        |       |       |       |      |       |        |        |   |       |    

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

|                          |                                             |                                |   |         |        |   |       |         |        |  
|------------------------- | ------------------------------------------- | ------------------------------ | - | ------- | ------ | - | ----- | ------- | ------ | -
|                          |                                             |                               
|                          |                                             | Fiscal Year-End               
|                          |                                             |                               
|                          |                                             | 2002                           |   | 2001   
|                          |                                             |                                |   |        
|                          |                                             |                               
|                          |                                             | (Dollars in thousands)        
|Deferred tax assets:      |                                             |                                |   |         |        |   |       |        
|                          | Inventory and other reserves                |                                | $ | 8,116   |        |   | $     | 6,708   |       
|                          | Accrued vacation                            |                                |   | 1,474   |        |   |       | 1,721   |       
|                          | Deferred compensation and other accruals    |                                |   | 474     |        |   |       | 727     |       
|                          | Foreign jurisdictions, net                  |                                |   | 1,154   |        |   |       | 2,953   |       
|                          | Net operating loss and credit carryforwards |                                |   | 2,059   |        |   |       | 6,498   |       
|                          |                                             |                                |   |         |        |   |       |        
|                          |                                             | Gross deferred tax assets      |   |         | 13,277 |   |       |         | 18,607 |  
|                          | Valuation allowance                         |                                |   | (11,769 | )      |   |       | (11,943 | )     
|                          |                                             |                                |   |         |        |   |       |        
|                          |                                             | Total deferred tax assets      |   |         | 1,508  |   |       |         | 6,664  |  
|Deferred tax liabilities: |                                             |                                |   |         |        |   |       |        
|                          | Accelerated depreciation                    |                                |   | (1,507  | )      |   |       | (3,164  | )     
|                          | Foreign jurisdictions, net                  |                                |   | (1      | )      |   |       |        |       
|                          |                                             |                                |   |         |        |   |       |        
|                          |                                             | Total deferred tax liabilities |   |         | (1,508 | ) |       |         | (3,164 | )
|                          |                                             |                                |   |         |        |   |       |        
|Net deferred tax asset    |                                             | $                              |  |         |        | $ | 3,500 |        
|                          |                                             |                                |   |         |        |   |       |        

The provision for income tax expense for fiscal
year 2002 consists of current federal and deferred income tax
expense resulting from a net decrease in deferred tax assets.
The state income tax expense consists of current income tax
expense and deferred tax expense resulting from a net decrease
in deferred tax assets. The foreign income tax benefit results
from current refund receivables in the foreign jurisdictions.

Management has established a full valuation
allowance for the portion of deferred tax assets for which
realization is uncertain. This allowance has been established
based on the uncertainty of using net operating losses and
various tax credits. In assessing the realizability of deferred
tax assets, management considers

F-44



---



##### 



COMMUNICATIONS & POWER INDUSTRIES, INC.
AND SUBSIDIARIES


(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods
in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning
strategies in making this assessment. The valuation allowance
for deferred tax assets as of September 27, 2002 was $11.8
million. The net change in the total valuation allowance for the
year ended September 27, 2002 and September 28, 2001,
was a decrease of $0.2 million and an increase of
$5.5 million, respectively.

As of September 27, 2002, the Company has
fully utilized the net operating loss carryforwards for federal
income tax and has approximately $8.5 million in state
operating loss carryforwards available to reduce future income
subject to income taxes. State net operating loss carryforwards
expire beginning in 2003.

As of September 27, 2002, the Company has
foreign tax credit carryforwards for federal income tax purposes
of $0.9 million, and manufacturers investment credit
for California income tax purposes of approximately
$0.9 million available to reduce future federal and
California income taxes. Foreign tax credit carryforwards expire
beginning in 2003. The California credit will carryforward
indefinitely.

The Internal Revenue code of 1986 substantially
restricts the ability of a corporation to utilize existing net
operating losses in the event of an ownership change
of the corporation. The Company has not yet determined if such
an ownership change has occurred. If such an ownership change
has occurred, then the utilization of the net operating losses
will be subject to an annual limitation in future years.

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

|                                          |                    |             |       |       |   |      |       |      |   |  |       |      |  
|----------------------------------------- | ------------------ | ----------- | ----- | ----- | - | ---- | ----- | ---- | - |  | ----- | ---- | -
|                                          |                    |            
|                                          |                    | Fiscal Year
|                                          |                    |            
|                                          |                    | 2002        |       | 2001  |   | 2000
|                                          |                    |             |       |       |   |     
|Statutory federal income tax benefit rate |                    |             | (35.0 | )%    |   |      | (35.0 | )%   |   |  | (35.0 | )%  
|Net operating loss not utilized           |                    |             |      |       |   |      |      |      |   |  | 30.7  |     
|Foreign tax rate differential             |                    |             | (48.2 | )     |   |      | 2.2   |      |   |  | 11.9  |     
|State taxes                               |                    |             | 56.6  |       |   |      | 20.2  |      |   |  |      |     
|Non-deductible expenses                   |                    |             | 12.0  |       |   |      | 26.1  |      |   |  | 0.6   |     
|Change in valuation allowance             |                    |             | 318.1 |       |   |      | 5.7   |      |   |  |      |     
|Other                                     |                    |             |      |       |   |      | 0.7   |      |   |  | 3.7   |     
|                                          |                    |             |       |       |   |      |       |      |   |  |       |     
|                                          | Effective tax rate |             |       | 303.5 | % |      |       | 19.9 | % |  |       | 11.9 | %
|                                          |                    |             |       |       |   |      |       |      |   |  |       |     



|    |                                    
|--- | -----------------------------------
|15. | Retirement and Profit Sharing Plans

CPI provides a qualified 401(k) investment plan
covering substantially all of its domestic employees and a
pension contribution plan covering substantially all of its
Canadian employees. The plans provide 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
$0.1 million and $0.4 million as of September 27,
2002 and September 28, 2001, respectively.

Total CPI contributions to these plans were
$2.7 million, $2.7 million and $2.8 million for
fiscal years 2002, 2001, and 2000, respectively.

F-45



---



##### 



COMMUNICATIONS & POWER INDUSTRIES, INC.
AND SUBSIDIARIES


(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

CPIs bonus program provides incentive
bonuses to management if certain performance goals are achieved.
Such performance goals are measured based upon earnings before
interest, taxes, depreciation and amortization, cash flow and
asset utilization.



|    |                           
|--- | --------------------------
|16. | Related Party Transactions



| |                                            
| | -------------------------------------------
| | Sale-leaseback transaction with
    Holding

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. The promissory note matures in December
2009, and provides for 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
matured June 1, 2002. During fiscal year 2002, the loan was
extended until June 1, 2003 and $0.2 million of
principal was repaid. The loan bears interest at LIBOR plus
4.25% and is secured on a non-recourse basis (subject to normal
and customary exceptions) by the San Carlos real property. CPI
realized a gain on the sale of the property of approximately
$8.5 million that is being recognized over the twenty year
lease term. Intercompany accounts and transactions associated
with this sale-leaseback transaction have been eliminated in
consolidation.



| |                
| | ---------------
| | Holding Summary

CPIs related party transactions with
Holding consist of the following (in thousands);

|                                  |                  |                 |       |       |  |   |       |       | 
|--------------------------------- | ---------------- | --------------- | ----- | ----- |  | - | ----- | ----- | 
|                                  |                  |                
|                                  |                  | Fiscal Year-End
|                                  |                  |                
|                                  |                  | 2002            |       | 2001 
|                                  |                  |                 |       |      
|Note receivable from Holding      |                  | $               | 5,750 |       |  | $ | 5,750 |      
|Net accounts payable to Holding   |                  | $               | 670   |       |  | $ | 446   |      
|Deferred income on sale-leaseback |                  |                 |       |       |  |   |       |      
|                                  | Current portion  |                 | $     | 424   |  |   | $     | 425   | 
|                                  | Deferred portion |                 | $     | 7,311 |  |   | $     | 7,735 | 
|Shareholder loan                  |                  | $               | 1,223 |       |  | $ | 1,181 |      

|                                    |  |             |       |      |  |   |       | 
|----------------------------------- |  | ----------- | ----- | ---- |  | - | ----- | 
|                                    |  |            
|                                    |  | Fiscal Year
|                                    |  |            
|                                    |  | 2002        |       | 2001
|                                    |  |             |       |     
|Rent expense                        |  | $           | 2,450 |      |  | $ | 1,838 | 
|Interest income on note receivable  |  | $           | 891   |      |  | $ | 690   | 
|Interest income on shareholder loan |  | $           | 42    |      |  | $ | 48    | 
|Realized gain on sale of property   |  | $           | 424   |      |  | $ | 317   | 

Stockholder
Loans

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

F-46



---



##### 



COMMUNICATIONS & POWER INDUSTRIES, INC.
AND SUBSIDIARIES


(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

promissory note to Holding. Holding owes CPI for
the amount of unpaid promissory notes, plus accrued interest,
that is owed to Holdings by Holdings shareholders.

The aggregate principal amount of such Management
Notes was $0.9 million as of September 27, 2002. Of
this amount, $0.7 million 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 $0.2 million 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. The
Board of Directors has extended the due dates of all past and
future scheduled interest and principal payments on these
Management Notes until the Management Notes are due in 2004 or
upon Board request, whichever comes first.

Outside
Advisors

Holding and CPI have entered into a management
services agreement with Leonard Green & Partners, L.P. to
pay $0.4 million, 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 the
Board of Directors of Holding and CPI. The management services
agreement provides for management, consulting and financial
planning services, including assistance in strategic planning,
providing market and financial analyses, negotiating and
structuring financing and exploring expansion opportunities.



|    |             
|--- | ------------
|17. | Holding Data

Holding has guaranteed CPIs senior debt
obligations. Other than the following, the consolidated balance
sheets of Holding as of September 27, 2002 and
September 28, 2001 are substantially identical to that of
CPI and its subsidiaries: (i) the presentation of
CPIs preferred stock as minority interest and the
components of stockholders equity of Holding, and
(ii) the transactions associated with the San Carlos real
estate purchase and related financing and leaseback
arrangements, as noted in Note 16  Related Party
Transactions.

F-47



---



##### 



COMMUNICATIONS & POWER INDUSTRIES, INC.
AND SUBSIDIARIES


(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The consolidated balance sheets of Holding are
summarized as follows (in thousands, except per share amounts):

|                                                |                                                                                                                                  |                                            |         |         |         |  |         |         |         | 
|----------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------- | ------- |  | ------- | ------- | ------- | 
|                                                |                                                                                                                                  |                                           
|                                                |                                                                                                                                  | Fiscal Year-End                           
|                                                |                                                                                                                                  |                                           
|                                                |                                                                                                                                  | 2002                                       |         | 2001   
|                                                |                                                                                                                                  |                                            |         |        
|Assets                                          |                                                                                                                                  |                                            |         |        
|Current assets                                  |                                                                                                                                  | $                                          | 75,225  |         |         |  | 113,060 |        
|Long-term assets                                |                                                                                                                                  |                                            | 79,937  |         |         |  | 91,007  |        
|                                                |                                                                                                                                  |                                            |         |         |         |  |         |        
|                                                |                                                                                                                                  | Total assets                               |         | $       | 155,162 |  |         |         | 204,067 | 
|                                                |                                                                                                                                  |                                            |         |         |         |  |         |        
|Liabilities and Stockholders
    Equity        |                                                                                                                                  |                                            |         |        
|Current liabilities                             |                                                                                                                                  | $                                          | 74,124  |         |         |  | 91,012  |        
|Long-term debt and deferred taxes               |                                                                                                                                  |                                            | 100,000 |         |         |  | 120,090 |        
|                                                |                                                                                                                                  |                                            |         |         |         |  |         |        
|                                                |                                                                                                                                  | Total liabilities                          |         |         | 174,124 |  |         |         | 211,102 | 
|Senior Redeemable Preferred Stock of subsidiary |                                                                                                                                  |                                            | 28,693  |         |         |  | 28,479  |        
|Junior Preferred Stock of subsidiary            |                                                                                                                                  |                                            | 25,449  |         |         |  | 22,094  |        
|Stockholders Equity:                           |                                                                                                                                  |                                            |         |         |         |  |         |        
|                                                | Common stock ($.01 par value, 6,500,000 shares
    authorized; 4,908,172 shares issued and outstanding as of 2002
    and 2001.) |                                            |         | 49      |         |  |         | 49      |        
|                                                | Additional paid-in capital                                                                                                       |                                            |         | 19,111  |         |  |         | 19,111  |        
|                                                | Accumulated deficit                                                                                                              |                                            |         | (91,041 | )       |  |         | (75,587 | )      
|                                                | Less stockholder loans                                                                                                           |                                            |         | (1,223  | )       |  |         | (1,181  | )      
|                                                |                                                                                                                                  |                                            |         |         |         |  |         |        
|                                                |                                                                                                                                  | Total liabilities and stockholders equity |         | $       | 155,162 |  |         |         | 204,067 | 
|                                                |                                                                                                                                  |                                            |         |         |         |  |         |        

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 for the Notes and (ii) the
separate financial statements and other disclosures concerning
these subsidiaries are not deemed by CPI to be material to
investors.



|    |                                     
|--- | ------------------------------------
|18. | Quarterly Financial Data (Unaudited)

|             |  |               |        |          |  |          |        |          |  |           |        |          |  |          |        |          |  |   |         |   |  |   |        |   |  |   |        |   |  |   |        |  
|------------ |  | ------------- | ------ | -------- |  | -------- | ------ | -------- |  | --------- | ------ | -------- |  | -------- | ------ | -------- |  | - | ------- | - |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|             |  |              
|             |  | Quarter Ended
|             |  |              
|             |  | Sept. 27,     |        | June 28, |  | Mar. 29, |        | Dec. 28, |  | Sept. 28, |        | June 29, |  | Mar. 30, |        | Dec. 29,
|             |  | 2002          |        | 2002     |  | 2002     |        | 2001     |  | 2001      |        | 2001     |  | 2001     |        | 2000    
|             |  |               |        |          |  |          |        |          |  |           |        |          |  |          |        |         
|Sales        |  | $             | 59,613 |          |  | $        | 64,792 |          |  | $         | 60,612 |          |  | $        | 66,228 |          |  | $ | 72,851  |   |  | $ | 72,724 |   |  | $ | 66,570 |   |  | $ | 60,376 |  
|Gross profit |  | $             | 15,287 |          |  | $        | 16,664 |          |  | $         | 12,946 |          |  | $        | 14,159 |          |  | $ | 8,115   |   |  | $ | 15,653 |   |  | $ | 12,623 |   |  | $ | 12,798 |  
|Net loss     |  | $             | (2,567 | )        |  | $        | (1,052 | )        |  | $         | (1,760 | )        |  | $        | (682   | )        |  | $ | (10,475 | ) |  | $ | (1,600 | ) |  | $ | (3,394 | ) |  | $ | (2,314 | )

F-48



---



##### 



SCHEDULE II

COMMUNICATIONS & POWER
INDUSTRIES

HOLDING CORPORATION AND SUBSIDIARIES


VALUATION AND QUALIFYING ACCOUNTS

|                  |                                            |                |   |            |  |            |  |            |  |  |  |      |   |  |  |     | 
|----------------- | ------------------------------------------ | -------------- | - | ---------- |  | ---------- |  | ---------- |  |  |  | ---- | - |  |  | --- | 
|                  |                                            | Balance at     |   | Charged to |  |            |  | Balance at
|                  |                                            | Beginning of   |   | Costs and  |  |            |  | End of    
|Description       |                                            | Period         |   | Expenses   |  | Deductions |  | Period    
|                  |                                            |                |   |            |  |            |  |           
|                  |                                            |               
|                  |                                            | (In thousands)
|Fiscal year 2000: |                                            |                |   |            |  |            |  |            |  |  |  |      |   |  |  |    
|                  | Allowance for doubtful accounts receivable |                | $ | 1,143      |  |            |  | 523        |  |  |  | (869 | ) |  |  | 797 | 
|Fiscal year 2001: |                                            |                |   |            |  |            |  |            |  |  |  |      |   |  |  |    
|                  | Allowance for doubtful accounts receivable |                | $ | 797        |  |            |  | 355        |  |  |  | (717 | ) |  |  | 435 | 
|Fiscal year 2002: |                                            |                |   |            |  |            |  |            |  |  |  |      |   |  |  |    
|                  | Allowance for doubtful accounts receivable |                | $ | 435        |  |            |  | 331        |  |  |  | (189 | ) |  |  | 577 | 

F-49



---



##### 



SCHEDULE II

COMMUNICATIONS & POWER INDUSTRIES, INC.
AND SUBSIDIARIES

(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)


VALUATION AND QUALIFYING ACCOUNTS

|                  |                                            |                |   |            |  |            |  |            |  |  |  |      |   |  |  |     | 
|----------------- | ------------------------------------------ | -------------- | - | ---------- |  | ---------- |  | ---------- |  |  |  | ---- | - |  |  | --- | 
|                  |                                            | Balance at     |   | Charged to |  |            |  | Balance at
|                  |                                            | Beginning of   |   | Costs and  |  |            |  | End of    
|Description       |                                            | Period         |   | Expenses   |  | Deductions |  | Period    
|                  |                                            |                |   |            |  |            |  |           
|                  |                                            |               
|                  |                                            | (In thousands)
|Fiscal year 2000: |                                            |                |   |            |  |            |  |            |  |  |  |      |   |  |  |    
|                  | Allowance for doubtful accounts receivable |                | $ | 1,143      |  |            |  | 523        |  |  |  | (869 | ) |  |  | 797 | 
|Fiscal year 2001: |                                            |                |   |            |  |            |  |            |  |  |  |      |   |  |  |    
|                  | Allowance for doubtful accounts receivable |                | $ | 797        |  |            |  | 355        |  |  |  | (717 | ) |  |  | 435 | 
|Fiscal year 2002: |                                            |                |   |            |  |            |  |            |  |  |  |      |   |  |  |    
|                  | Allowance for doubtful accounts receivable |                | $ | 435        |  |            |  | 331        |  |  |  | (189 | ) |  |  | 577 | 

F-50



---



##### 



EXHIBIT INDEX

|        |         |             |  |                                                                                                                                                                                                                                                                                                                    
|------- | ------- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |            
|No.     |         | Description
|        |         |            
|        | 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(7)  |             |  | Amended and Restated Bylaws of CPI dated
    March 19, 2002.                                                                                                                                                                                                                                                       
|        | 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.                                                                                                                                                          
|        | 10.1(6) |             |  | Loan and Security Agreement by and among CPI as
    borrower, the other obligors named therein, the lenders that are
    signatories hereto as the senders, and Foothill Capital
    Corporation as the arranger and administrative agent, dated as
    of December 15, 2000.                                      
|        | 10.2(6) |             |  | Intellectual Property Security Agreement between
    CPI and Foothill Capital Corporation as Agent for the Lenders
    dated December 15, 2000.                                                                                                                                                                    
|        | 10.3(6) |             |  | Stock Pledge and Security Agreement by CPI to and
    in favor of Foothill Capital Corporation, as agent for itself
    and the other lenders dated December 15, 2000.                                                                                                                                             
|        | 10.4(6) |             |  | Stock Pledge and Security Agreement by Holding
    and various CPI subsidiaries to and in favor of Foothill Capital
    Corporation, as agent for itself and the other lenders, dated
    December 15, 2000.                                                                                                       
|        | 10.5(6) |             |  | Environmental Indemnity Agreement for the benefit
    of Foothill Capital Corporation, as agent for itself and the
    other lenders and the lenders, dated December 15, 2000.                                                                                                                                     
|        | 10.6(6) |             |  | Deed of Trust with Absolute Assignment of Leases
    and Rents, Security Agreement and Fixture Filing by and among
    CPI, First American Title Company and Foothill Capital
    Corporation, as agent for itself and the other lenders, dated
    December 15, 2000.                                             
|        | 10.7(6) |             |  | Guaranty and Security Agreement in favor of
    Foothill Capital Corporation as Agent for itself and the lenders
    and the other lenders pursuant to that certain Loan and Security
    Agreement by and among CPI, the other obligors, Foothill and the
    other lenders named herein, dated December 15, 2000.



---



##### 



|        |           |             |  |                                                                                                                                                                                                                                                                                                                       
|------- | --------- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |           |            
|No.     |           | Description
|        |           |            
|        | 10.8(6)   |             |  | Continuing Guaranty in favor of Foothill Capital
    Corporation, as agent for itself and the lenders and the other
    lenders pursuant to that certain Loan and Security Agreement by
    and among CPI, the other obligors named therein, Foothill and
    the other lenders named herein, dated December 15, 2000.
|        | 10.9(6)   |             |  | Intercreditor Agreement among the CPI Parties and
    Foothill Capital Corporation, as agent for itself and other
    lenders, dated December 15, 2000.                                                                                                                                                               
|        | 10.10(6)  |             |  | Fourth Amendment of Lease by and between The
    Board of Trustees of the Leland Stanford Junior University and
    CPI, dated December 15, 2000.                                                                                                                                                                     
|        | 10.11(6)  |             |  | Loan Agreement between Holding and Wells Fargo
    Bank, National Association, executed as of December 15,
    2000.                                                                                                                                                                                                  
|        | 10.11.1(8 | )           |  | Modification Agreement of Secured Loan between
    Holding and Wells Fargo Bank, National Association, dated
    June 1, 2002.                                                                                                                                                                                        
|        | 10.12(6)  |             |  | Promissory Note Secured by Deed of Trust by
    Holding in favor of Wells Fargo Bank, National Association,
    dated December 15, 2000.                                                                                                                                                                              
|        | 10.12.1(8 | )           |  | Amended and Restated Promissory Note Secured by
    Deed of Trust by Holding in favor of Wells Fargo Bank, National
    Association, dated June 1, 2002.                                                                                                                                                              
|        | 10.13(6)  |             |  | Deed of Trust with Absolute Assignment of Leases
    and Rents, Security Agreement and Fixture Filing by and among
    Holding, American Securities Company and Wells Fargo Bank,
    National Association, dated December 15, 2000.                                                                                  
|        | 10.13.1(8 | )           |  | Memorandum of Modification Agreement Amending
    Deed of Trust by Holding in favor of Wells Fargo Bank, National
    Association, dated June 1, 2002.                                                                                                                                                                
|        | 10.14(6)  |             |  | Subordination Agreement by CPI and Holding in
    favor of Wells Fargo Bank, National Association, dated
    December 15, 2000.                                                                                                                                                                                       
|        | 10.14.1(8 | )           |  | Junior Lienors Consent and Subordination
    Agreement by CPI in favor of Wells Fargo Bank, National
    Association, dated June 1, 2002.                                                                                                                                                                            
|        | 10.15(6)  |             |  | Hazardous Materials Indemnity Agreement by
    Holding in favor of Wells Fargo Bank, National Association,
    dated December 15, 2000.                                                                                                                                                                               
|        | 10.16(6)  |             |  | Unsecured Promissory Note by Holding in favor of
    CPI, dated December 15, 2000.                                                                                                                                                                                                                                    
|        | 10.17(6)  |             |  | Lease dated as of December 1, 2000 by and
    between Holding, as lessor, and CPI, as lessee.                                                                                                                                                                                                                         
|        | 10.18(1)  |             |  | Cross License Agreement between CPI and Varian
    dated as of August 10, 1995.                                                                                                                                                                                                                                       
|        | 10.19(1)  |             |  | Trademark License Agreement between CPI and
    Varian dated as of August 10, 1995.                                                                                                                                                                                                                                   
|        | 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.                                                                                                                        



---



##### 



|        |          |             |  |                                                                                                                                                                                                                                                                                  
|------- | -------- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |          |            
|No.     |          | Description
|        |          |            
|        | 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.                                                                                                                                                               
|        | 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).                                                                                                                                                                  
|        | 10.32(5) |             |  | Communications & Power Industries 2000 Stock
    Option Plan.                                                                                                                                                                                                                    
|        | 10.33(5) |             |  | Form of Stock Option Agreement.                                                                                                                                                                                                                                                  
|        | 10.34(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.
|        | 10.35(1) |             |  | Sublease (Unit 8, Palo Alto) dated as of
    August 10, 1995 between Varian Realty Inc. and CPI.                                                                                                                                                                                 
|        | 10.36(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.                                                                               
|        | 10.37    |             |  | Employment Agreement for O. Joe Caldarelli dated
    March 19, 2002.                                                                                                                                                                                                             
|        | 10.38    |             |  | Employment Agreement for Robert A. Fickett dated
    September 30, 2002.                                                                                                                                                                                                         
|        | 10.39    |             |  | Employment Agreement for Joel A. Littman dated
    September 30, 2002.                                                                                                                                                                                                           
|        | 21(1)    |             |  | Subsidiaries of CPI and Holding.                                                                                                                                                                                                                                                 
|        | 99.1     |             |  | Certification of the Chief Executive Officer of
    Holding pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                        
|        | 99.2     |             |  | Certification of the Chief Financial Officer of
    Holding pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                        
|        | 99.3     |             |  | Certification of the Chief Executive Officer of
    CPI pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                            
|        | 99.4     |             |  | Certification of the Chief Financial Officer of
    CPI pursuant to 18 U.S.C. Section 1350, as adopted pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                            



---



|    |                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.                                                                        
|   
|(5) | Incorporated by reference to CPIs Annual
    Report on Form 10-K, filed on December 28, 2000.                                                                        
|   
|(6) | Incorporated by reference to CPIs Quarterly
    Report on Form 10-Q, filed on February 12, 2001.                                                                     
|   
|(7) | Incorporated by reference to CPIs Quarterly
    Report on Form 10-Q, filed on May 13, 2002.                                                                          
|   
|(8) | Incorporated by reference to CPIs Quarterly
    Report on Form 10-Q, filed on August 9, 2002.