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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

                    For the fiscal year ended October 1, 1999
                                       OR

[ ]     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      Commission File Number: 33-96858

            COMMUNICATIONS &                        COMMUNICATIONS &
            POWER INDUSTRIES                     POWER INDUSTRIES, INC.
          HOLDING CORPORATION
     (Exact name of registrant as            (Exact name of registrant as
       specified in its charter)               specified in its charter)

                DELAWARE                               DELAWARE
        (State of Incorporation)               (State of Incorporation)
               77-0407395                             77-0405693
             (IRS employer                           (IRS employer
         identification number)                 identification number)
             607 HANSEN WAY                         607 HANSEN WAY
    PALO ALTO, CALIFORNIA 94303-1110       PALO ALTO, CALIFORNIA 94303-1110
             (650) 846-2900                         (650) 846-2900
      (Address, including zip code,          (Address, including zip code,
          and telephone number,                  and telephone number,
  including area code, of registrant's    including area code, of registrant's
      principal executive offices)            principal executive offices)
     Securities registered pursuant          Securities registered pursuant
      to Section 12(b) of the Act:            to Section 12(b) of the Act:
                  NONE                                    NONE
     Securities registered pursuant          Securities registered pursuant
      to Section 12(g) of the Act:            to Section 12(g) of the Act:
                  NONE                                    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  [X]   No  [ ].

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

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

Indicate the number of shares outstanding for each of the Registrant's classes
of Common Stock, as of the latest practicable date: COMMUNICATIONS & POWER
INDUSTRIES HOLDING CORPORATION: 196,420 SHARES OF COMMON STOCK, $.01 PAR VALUE,
AT DECEMBER 1, 1999. COMMUNICATIONS & POWER INDUSTRIES, INC.: 1 SHARE OF COMMON
STOCK, $.01 PAR VALUE, AT DECEMBER 1, 1999.

                      DOCUMENTS INCORPORATED BY REFERENCE:
                                     (None)



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                                     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
and telecommunications, transmission of radar signals for navigation and
location, transmission of false signals for electronic countermeasures (e.g.,
decoys and signal "jammers") and various other uses in the industrial, medical
and scientific markets.

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

Communications & Power Industries, Inc. 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 division (the
"Predecessor") of Varian Associates, Inc. ("Varian") and, except as the context
may otherwise require, the term the "Company" as used in this Annual Report on
Form 10-K refers to both the Company and the Predecessor. The principal
executive offices of Holding and CPI are located at 607 Hansen Way, Palo Alto,
California 94303 and their telephone number is (650) 846-2900.

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 communication, radar, electronic
countermeasures, industrial, medical 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. These products are
consumable and have a finite life based upon hours of usage, operating
environment and application. Certain of the Company's products are sold in more
than one market depending on the specific power and frequency requirements of
the end-user and the physical operating conditions of the environment in which
the vacuum electronic device will be located.

MARKETS

The Company operates in six different markets:

-       Communications Market - The communications market is comprised of
        applications for satellite communications ("satcom"), wireless
        point-to-point and point-to-multipoint radio and broadcast



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        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 $105.4 million in Fiscal 1999 compared
        to $118.8 million in Fiscal 1998 and $122.5 million in Fiscal 1997.

-       Radar Market - The radar market includes microwave and power grid vacuum
        electronic devices, amplifiers 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 $85.4 million in Fiscal 1999 compared to $87.4
        million in Fiscal 1998 and $75.4 million in Fiscal 1997.

-       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 $19.4 million, $12.1 million and $11.8 million in Fiscal
        1999, Fiscal 1998 and Fiscal 1997, respectively.

-       Industrial Market - The industrial market includes applications for a
        wide range of systems used for materials processing, instrumentation and
        voltage generation. Sales in this market were $17.2 million, $19.4
        million and $21.9 million in Fiscal 1999, Fiscal 1998 and Fiscal 1997,
        respectively.

-       Medical Market - The Company participates in the diagnostic and
        treatment sectors of the medical market. In the diagnostic market, the
        Company provides x-ray generators, including state-of-the-art,
        high-efficiency, lightweight power supplies and modern digital-based
        consoles for diagnostic equipment. In the treatment market, the Company
        provides microwave generators (klystrons) for high-end cancer therapy
        machines. Sales in this market were $20.5 million, $18.8 million and
        $17.6 million in Fiscal 1999, Fiscal 1998 and Fiscal 1997, 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 $7.8 million, $4.2 million and $4.2 million in
        Fiscal 1999, Fiscal 1998 and Fiscal 1997, 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 either commercial customers, the U.S.
Government, or both. The commercial sector contributed approximately $199.7
million, or 78.1%, of the Company's total sales in Fiscal 1999 compared to
approximately $201.4 million, or 77.3%, in Fiscal 1998 and $190.1 million, or
75.0%, in Fiscal 1997. U.S. Government sales, both direct and through original
equipment manufacturers ("OEMs"), contributed approximately $56.0 million, or
21.9%, of the Company's total sales in Fiscal 1999 compared to approximately
$59.3 million, or 22.7%, in Fiscal 1998 and $63.3 million, or 25.0%, in Fiscal
1997. These percentages reflect the Company's development of products for the
commercial marketplace. Since the late 1980s, the United States defense budget
has been shrinking; however, based on a stable trend of order receipts for
spares and upgrades from Fiscal 1995 to Fiscal 1999, management expects that
U.S. Government and defense-related end-users will continue to provide a steady
source of revenue.

In Fiscal 1999, approximately 65.5% of sales were derived from U.S. customers,
while approximately 34.5% were derived from international customers compared to
Fiscal 1998 where approximately 61.1% of sales were derived from the U.S. and
approximately 38.9% 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



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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 1999,
Fiscal 1998 or Fiscal 1997.

SALES, MARKETING AND SERVICE

As of October 1, 1999, the Company has over 150 direct sales, marketing and
technical support professionals representing the largest direct sales, service
and technical support organization focused exclusively on high-power/
high-frequency signal generation, amplification and transmission. The Company's
sales and service organization is supplemented by outside representatives and a
distributor, which service certain lower volume accounts. Most of the Company's
sales professionals are responsible for marketing the Company's entire product
line. Company sales professionals receive extensive technical training in all of
the Company's products, which allows them to provide customers with appropriate
technical support, including information on product application and
implementation.

In addition to its direct sales force, the Company utilizes over 35 external
sales organizations and one stocking distributor, Richardson Electronics, Ltd.,
to service the needs of low volume customers. The majority of the third-party
organizations which 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 nine factory service centers for
the satcom replacement market. These service centers are located in the United
States (California and New Jersey), Amsterdam, China, India, Indonesia, Japan,
Singapore and Russia.

MANUFACTURING

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

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

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



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COMPETITION

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

The Company must also continually engage in effective research and development
efforts in order to introduce innovative new products for technologically
sophisticated customers and markets. There is an inherent risk that advances in
existing technology, including solid state technology, or the development of new
technology could adversely affect the Company's financial condition and results
of operations. However, with the Company's recent acquisition of a line of solid
state products, the Company is now more strategically set to address the
marketplace with both solid state technology as well as vacuum electronic device
technology. Solid state devices generally serve end-users' low-power
requirements more cost effectively and efficiently than microwave vacuum
electronic devices, however, only microwave vacuum electronic devices currently
serve high-power/high-frequency demands. The laws of physics limit the ability
of solid state technology to efficiently or cost effectively serve the
high-power/high-frequency applications of the Company's customers. These
applications' extreme operating parameters necessitate heat dissipation
capabilities that are 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 October 1, 1999, the Company had an order backlog of $146.4 million
compared to order backlog of $160.8 million as of October 2, 1998 and $169.0
million as of October 3, 1997. Backlog has declined over the last three years
due to softness in the Company's communications market along with a change in
customer procurement practices that demand shorter lead times and, therefore,
reduced backlog commitments. Although the backlog consists of firm orders for
which goods and services are yet to be provided, these orders can be and
sometimes are modified or terminated. However, the amount of modifications and
terminations has historically not been material compared to total contract
volume.

INTELLECTUAL PROPERTY

The Company owns a number of United States and foreign patents having various
expiration dates (collectively, the "Patents"). The Patents are directed to
various aspects of the technologies used by the Company in many of its
operations. In addition to the Patents, the Company has certain trade secrets,
know-how, trademarks and copyrights related to its technology and products. The
Company also has acquired certain intellectual property rights and incurred
certain obligations through license and research and development agreements with
third parties. These agreements may include royalty-bearing licenses, technology
cross licenses and manufacturing supply agreements. Management does not believe
that any single patent or license is material to the success of the Company as a
whole. As a result of contracts with the U.S. Government which contain patent
and/or data rights clauses, the U.S. Government also has acquired royalty-free
licenses or other rights in inventions and technology resulting from certain
work done by the Company on behalf of the U.S. Government. The Company also has
certain software license agreements with vendors and suppliers which affect the
Company's intellectual property rights. The Company generally enters into
confidentiality agreements with its employees, consultants and vendors, and
generally limits access to and distribution of its proprietary information. The
Company



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maintains an intellectual property protection program designed to preserve the
intellectual property assets for the Company's future products. This program
includes the filing of new domestic and foreign patent applications, copyright
and trademark applications and the pursuit of enforcement of its intellectual
property rights. Nevertheless, there can be no assurance that the steps taken by
the Company will prevent misappropriation or loss of its technology.

As part of the Acquisition (see "Business - The Acquisition"), 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. Upon the
consummation of the Acquisition, the Company and Varian entered into a
Cross-License Agreement to allocate the rights to the Key Component Technology
between the Company and Varian.

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

RESEARCH AND DEVELOPMENT

Company-sponsored research and development ("R&D") expense was approximately
$9.0 million, $7.5 million and $7.7 million during Fiscal 1999, Fiscal 1998 and
Fiscal 1997, respectively. The Company has increased its internal R&D efforts
primarily to focus on meeting the needs of the satellite communications market.
Customer-sponsored R&D was approximately $8.6 million, $6.0 million and $5.9
million during Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively. For
customer-sponsored R&D, the costs were charged to cost of sales to match revenue
received.

EMPLOYEES

As of October 1, 1999, the Company had approximately 1,683 employees compared to
1,690 employees as of October 2, 1998. None of the Company's employees is
subject to a collective bargaining agreement although a limited number of the
Company's sales force members located in Europe are members of work councils or
unions. The Company has not experienced any work stoppages and believes that it
has good relations with its employees.

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

U.S. GOVERNMENT CONTRACTS AND REGULATIONS

Management expects that a decreasing but significant portion of the Company's
sales will continue in the foreseeable future to result from contracts with the
U.S. Government, either directly or through prime contractors or subcontractors.
The Company's business with the U.S. Government is performed under fixed-price
and, to a lesser degree, cost-plus contracts. Fixed-price contracts accounted
for approximately 93.2% of the Company's U.S. Government sales in Fiscal 1999
and cost-plus contracts accounted for approximately 6.8%, which is consistent
with Fiscal 1998's mix of approximately 94% fixed-price and approximately 6.0%
cost-plus and Fiscal 1997's mix of approximately 92% fixed-price and
approximately 8% cost-plus.



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

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



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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 which could cause the incurrence of material cleanup costs or other
damages. The Company is involved from time to time in legal proceedings
involving compliance with environmental requirements applicable to its ongoing
operations, and may be involved in legal proceedings involving regulatory
compliance, exposure to chemicals or the remediation of environmental
contamination.

Varian has agreed to indemnify the Company for environmental claims arising from
the Predecessor's operations (including pre-existing contamination) prior to the
consummation of the Acquisition, subject to certain exceptions and limitations.
See "Business - Relationship with Varian - Acquisition Agreement." Environmental
investigation and remedial work is being undertaken by Varian, pursuant to the
Acquisition Agreement, 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 Environmental Protection
Agency for remediation of soil and groundwater contamination. The Palo Alto site
also abuts a federal Superfund site and a state Superfund site. Varian also has
been sued or threatened with suit with respect to some of the Company's
facilities. Since the consummation of the acquisition, Varian has at its expense
conducted all required investigation and remediation work at the Company's
facilities arising from the Predecessor's operations.

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

With certain limited exceptions, the Company is not indemnified by Varian for
environmental claims arising from the Company's operations after the
consummation of the Acquisition. 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.

THE ACQUISITION

Prior to August 11, 1995, the Company's operations were part of the Electron
Devices Business division of Varian. On August 11, 1995, CPII Acquisition Corp.
("CPII Acquisition") acquired (in the matter described below) substantially all
of the assets that were used primarily in developing, manufacturing and
distributing microwave and power grid vacuum electronic devices, microwave
amplifiers, modulators and various other power supply equipment and devices
through the Predecessor. Pursuant to the terms of a Stock Sale Agreement dated
June 9, 1995, as amended, among Holding, CPII Acquisition and Varian (the
"Acquisition Agreement"), prior to the consummation of the Acquisition, Varian
and its affiliates contributed the assets of the Predecessor that were located
in the United States to CPI, which was a newly-formed, wholly-owned Varian
subsidiary. Subsequently, upon the consummation of the Acquisition, Varian
transferred all of the outstanding capital stock of CPI to CPII Acquisition. The
assets of the Predecessor that were located in foreign jurisdictions were
transferred from Varian or its affiliates to newly formed direct or indirect
subsidiaries of CPI. In consideration of the transfer of such capital stock and
assets, CPII Acquisition (including its affiliates) paid Varian (including its
affiliates) an aggregate purchase price of $196.2 million, subject to a
post-closing adjustment (the "Purchase Price").



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Holding, CPII Acquisition and CPI's subsidiaries also assumed certain specified
liabilities of the Predecessor. The liabilities assumed by Holding included
certain balance sheet liabilities of the Predecessor, which aggregated to
approximately $24.1 million as of August 11, 1995, and certain contingent
liabilities (such as for certain product warranty claims) (the "Assumed
Liabilities"). Upon the merger of CPII Acquisition with and into CPI immediately
following the consummation of the Acquisition, CPI became a wholly owned
subsidiary of Holding.

In connection with the consummation of the Acquisition, the Company entered into
two senior term loans in the aggregate amount of $42.0 million and a revolving
credit facility in a principal amount of up to $35.0 million (subsequently
increased to $45.0 million in October 1998), including a $5.0 million
sub-facility for letters of credit (subsequently increased to $7.5 million in
June 1997) pursuant to a Senior Credit Agreement. The Company also issued the
following:

      (1) 12% Series A Senior Subordinated Notes due 2005 (the "Series A Senior
          Subordinated Notes") of CPI in the aggregate principal amount of
          $100.0 million (guaranteed by Holding and all of the Company's direct
          and indirect subsidiaries),

      (2) Units consisting of 150,000 shares of Series A 14% Senior Redeemable
          Exchangeable Cumulative Preferred Stock due 2007 (the "Series A Senior
          Preferred Stock") of CPI and 10,500 shares of common stock of Holding
          ("Holding Common Stock") for $15.0 million,

      (3) 100,000 shares of 14% Junior Cumulative Preferred Stock (the "Junior
          Preferred Stock") of CPI for $10.0 million, and

      (4) Shares of Holding Common Stock to Green Equity Investors II, L.P., a
          Delaware limited partnership ("GEI II") and certain members of the
          senior management of CPI for $20.0 million (including $0.8 million
          paid by notes from members of senior management).

CPI subsequently exchanged the Series A Senior Subordinated Notes and Series A
Senior Preferred Stock, in exchange offers (the "Exchange Offers") registered
under the Securities Act of 1933, for otherwise identical 12% Series B Senior
Subordinated Notes due 2005 (the "Notes") and Series B 14% Senior Redeemable
Exchangeable Cumulative Preferred Stock due 2007 (the "Senior Preferred Stock"),
respectively. GEI II initiated the Acquisition and currently owns approximately
73.1% of the outstanding shares of Holding Common Stock. Holding, in turn, owns
all of the outstanding common stock of CPI. Accordingly, GEI II is able to elect
all of the members of the board of directors of Holding and thus to exercise
control over Holding's and CPI's business and affairs. Leonard Green & Partners,
L.P., a Delaware limited partnership, is an investment advisor to, and an
affiliate of the general partner of, GEI II. See "Security Ownership of Certain
Beneficial Owners and Management" and "Certain Relationships and Related
Transactions."

RELATIONSHIP WITH VARIAN

The Company continues to maintain certain relationships with Varian arising from
the Predecessors' previous relationship with Varian and arising under the
Acquisition Agreement and the Ancillary Agreements (as defined below). The
descriptions of certain of such relationships set forth below are qualified in
their entirety by reference to the full texts of documents relating thereto,
copies of which are referenced as exhibits to this Annual Report on Form 10-K.

Acquisition Agreement. The Acquisition Agreement contains customary
representations, warranties and covenants. In addition, pursuant to the terms of
the Acquisition Agreement, Varian agreed to indemnify and reimburse the Company
for all losses arising from breaches of covenants and agreements of Varian in
the Acquisition Agreement and the Ancillary Agreements, all Retained Liabilities
(as



                                      -8-
<PAGE>   10

defined in the Acquisition Agreement), environmental claims arising from the
pre-closing operation of the Predecessor (as more fully described below),
certain matters pertaining to Varian's interest in its Palo Alto, California and
certain other matters as specified in the Acquisition Agreement. In turn, the
Company agreed to indemnify and reimburse Varian for all losses arising from
breaches of covenants and agreements of the Company in the Acquisition Agreement
and the Ancillary Agreements, all Assumed Liabilities, environmental claims
arising from the post-closing operation of the Predecessor (as more fully
described below), and certain other matters as specified in the Acquisition
Agreement. As to such indemnification obligations of Varian and the Company,
there are no time or dollar limitations. The indemnification provisions in the
Acquisition Agreement and the Ancillary Agreements are generally intended to be
the exclusive remedies of the parties with respect to such agreements, subject
to certain exceptions.

The environmental indemnification provisions of the Acquisition Agreement
provide generally that environmental liabilities of the Predecessor are retained
by Varian to the extent they arise from the pre-closing operation of the
Predecessor and are the obligations of the Company to the extent they arise from
the post-closing operation of the Predecessor, subject to certain exceptions.
Specifically, pursuant to the Acquisition Agreement, Varian agreed to indemnify
the Company for liabilities related to environmental claims arising from the
following: (i) Varian's possession or use of the acquired properties before the
closing, (ii) violations (or purported violations) of environmental laws
resulting from pre-closing conditions or activities at the acquired properties,
(iii) hazardous materials present at the acquired properties as of the closing,
(iv) disposal (other than by the Company or its agents) of hazardous materials
generated by Varian before the closing, and (v) post-closing releases of
hazardous materials by Varian resulting from the ongoing operation of Varian's
business. The Acquisition Agreement provides that Varian will have exclusive
control of and sole discretion as to the investigation and remediation of
matters for which it is required to indemnify the Company. Varian is required to
undertake such actions in compliance with all applicable laws, and without
unreasonably interfering with the conduct of the Company.

In turn, the Company agreed to indemnify Varian for liabilities related to
environmental claims arising from the following: (i) the Company's possession or
use of the acquired properties after the closing, (ii) violations (or purported
violations) of environmental laws resulting from post-closing conditions or
activities at the acquired properties, (iii) any incremental costs incurred by
Varian as a result of the Company's introduction of hazardous materials at the
acquired properties after the closing, (iv) disposal of hazardous materials by
the Company or its agents after the closing, and (v) the post-closing migration
of hazardous materials that were present before the closing or the post-closing
exacerbation of environmental conditions existing before the closing, but in
each case only to the extent resulting from the Company's active negligent
conduct. In the event of post-closing releases, the Company is required to
respond to and remediate certain types of such releases at its expense. However,
in the event of post-closing releases which contribute to existing groundwater
contamination which is otherwise being remediated by Varian, Varian agreed to
treat such contaminated groundwater, to the extent required and if it is
feasible to do so, using its own treatment systems. The Company will be required
to reimburse Varian for Varian's incremental costs related thereto.

Pursuant to the Acquisition Agreement, Varian's environmental indemnification
obligations do not extend to the following: (i) liabilities for certain building
materials, such as asbestos, and hazardous materials that are lawfully present,
used or stored at the acquired properties as of the closing (other than
liabilities for personal injuries related thereto), (ii) claims asserted by the
Company or its successors for diminution in property value or consequential
damages caused by the presence of hazardous materials at the acquired
properties, or (iii) environmental response actions other than those required by
the Acquisition Agreement, governmental order or self-executing environmental
laws.



                                      -9-
<PAGE>   11

If a dispute arises as to whether and the extent to which a release of hazardous
materials occurred before or after the closing, Varian has agreed to bear the
burden of proof as to such matter by a preponderance of the evidence. In the
event that both Varian and the Company are partly responsible for a particular
environmental liability, such liability will be allocated between the parties in
accordance with their respective contributions to such liability.

If there is a dispute concerning the indemnification of only a portion of a
claim, the indemnitor is required to immediately assume full responsibility for
the undisputed portion of the claim. Any dispute between Varian and the Company
will be settled by arbitration. The arbitrator is authorized to allocate fees
and costs based upon the respective merits of the parties' respective positions
in the dispute.

Key Component Agreement. Pursuant to the Key Components Supply Agreement (the
"Key Component Agreement") between the Company and Varian, during the term
thereof, the Company is required to meet Varian's requirements for certain key
electron beam guns and key medical klystrons and any improvements thereto (the
"Key Components"), provided that the Company may discontinue production of any
Key Component as to which Varian fails to maintain certain specified purchase
levels. In addition, the Company is prohibited from selling any Key Component
that Varian continues to purchase from the Company to any third person for use
within the Varian Field of Use (as defined below). In turn, during the term of
the Key Component Agreement, Varian is required to purchase all of its
requirements for Key Components from the Company, except for certain specified
Key Components as to which Varian will be permitted to purchase a portion of its
requirements from other sources. The preceding provisions are effective as to
all Key Components for a period of five years following the closing of the
Acquisition and, at Varian's election with respect to any one or more of the Key
Components, for a period of five years thereafter.

Varian has the right to elect to purchase Key Components from sources other than
the Company and to enforce certain rights under the Cross License Agreement (as
defined below) in the event of failures in the quality, quantity or timely
delivery of Key Components produced by the Company or the obsolescence of the
Company's Key Components.

Cross License Agreement. Pursuant to the Cross License Agreement (the "Cross
License Agreement"), for a period of ten years from the closing of the
Acquisition, Varian has exclusive rights relating to the Key Component
Technology as it relates to medical and industrial linear accelerators (the
"Varian Field of Use"). In all other areas, the Company retains the exclusive
right to utilize the Key Component Technology. At the end of the term of the
Cross License Agreement, Varian is obligated to transfer its entire interest in
the Key Component Technology to the Company, with Varian retaining only a
non-exclusive license to make, use or sell Key Component Technology for use in
the Varian Field of Use. The Company has the unrestricted and exclusive right to
utilize the Key Component Technology in fields other than the Varian Field of
Use and the right to utilize Key Component Technology in order to supply Key
Components to Varian for use within the Varian Field of Use pursuant to the Key
Component Agreement. The Cross License Agreement also grants mutual
non-exclusive licenses under Varian's and the Company's intellectual property
rights to the extent necessary to permit both the Company and Varian to continue
to conduct their respective businesses as they did as of the closing date.

Trademark License Agreement. Generally, under the terms of the Trademark License
Agreement, the Company is licensed to identify its products as "formerly made by
Varian" for a period of ten years from the closing of the Acquisition. At the
expiration of the ten year period, the Company will not be permitted to utilize
any Varian trademarks.



                                      -10-
<PAGE>   12

ITEM 2: PROPERTIES

The Company owns, leases or subleases manufacturing, assembly, warehouse,
service and office properties having an aggregate floor space of approximately
1,131,627 square feet, of which approximately 98,000 square feet are leased or
subleased to third parties. The table below provides summary information
regarding principal properties owned or leased by the Company:


<TABLE>
<CAPTION>
                                            (square footage)
            Property                   Owned           Leased/Subleased
            --------              ----------------     ----------------
<S>                                   <C>              <C>
San Carlos, California.........       320,000(a)
Beverly, Massachusetts.........       213,000(b)
Georgetown, Ontario, Canada....       126,000
Palo Alto, California..........             -              429,000(c)
San Jose, California...........             -               27,727(d)
Various locations..............             -               15,900(e)
</TABLE>

    (a) The San Carlos, California square footage includes approximately 42,000
        square feet leased to two tenants who provide services to the Company
        and others.
    (b) The Beverly, Massachusetts square footage includes approximately 42,000
        square feet leased to four tenants.
    (c) This facility is primarily leased by way of assignment of Varian's
        lessee interest with the remainder subleased from Varian. The Palo Alto,
        California square footage includes approximately 14,000 square feet
        leased to three tenants.
    (d) This facility is leased from Watch Holdings, LLC c/o GE Capital Realty
        Group. Lease will expire 6/30/02 with a five year extension available
        upon request prior to expiration.
    (e) Includes both leased facilities occupied entirely by the Company's field
        sales and service organizations and three foreign shared use facilities
        which the Company is sharing for varying periods of time under rental
        agreements with Varian.

Based on lease and sublease arrangements mentioned above, the Company has
eliminated most of its excess space. Overall, the Company believes its
properties are adequate for the needs of the Company for the foreseeable future
and, in any event, for at least the next twelve months. The Company's lenders
under the Senior Credit Agreement have the right to a security interest in all
of the Company's interest in the real property that it owns and leases, and have
taken a security interest in the Company's real property located in Beverly,
Massachusetts and Georgetown, Ontario, Canada.

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



                                      -11-
<PAGE>   13

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 Acquisition Agreement, Varian has agreed to indemnify the
Company against liabilities arising from litigation and governmental claims
pertaining to the operation of the Predecessor prior to the consummation of the
Acquisition. Accordingly, management believes that litigation and governmental
claims pending against Varian and relating to the operation of the Predecessor
prior to the Acquisition 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 Fiscal
1999.

                                     PART II

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

CPI is a wholly owned subsidiary of Holding. Neither CPI's nor Holding's common
stock is publicly traded. No cash dividends have been declared on the common
stock of the Company during the 52-week period ended October 1, 1999.
Restrictive covenants in the Senior Credit Agreement generally restrict the
declaration or payment of dividends on the Company's common stock. The Notes
also restrict the declaration and payment of dividends unless the Company
satisfies certain financial covenants, among other things.

ITEM 6: SELECTED FINANCIAL DATA

The historical financial data set forth below for Fiscal 1995 through Fiscal
1999, has been derived from the historical audited financial statements audited
by KPMG LLP, independent public accountants. The information contained in this
table should be read in conjunction with the information set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" as well as the historical audited financial statements of Holding
and CPI included elsewhere in this Annual Report on Form 10-K. As a consequence
of the Acquisition, effective August 11, 1995, each of Holding and CPI is deemed
for financial reporting purposes to have become a new reporting entity
("Successor") on the following date and periods subsequent to the August 11,
1995 date reflect the allocation of the costs of the Acquisition to assets and
liabilities based on estimates of fair values in accordance with the purchase
method of accounting. Accordingly, the results of operations of Successor
subsequent to August 11, 1995 are not fully comparable to the results of the
operations of the Company as constituted prior to such date. In particular,
operating results subsequent to August 11, 1995 reflect decreases in operating
expenses relating to corporate allocations, incremental depreciation and
amortization relating to the purchase method adjustments referred to above and
other interest charges relating to new indebtedness related to the Acquisition.



                                      -12-
<PAGE>   14

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                                   Successor                             Predecessor
                                                        ---------------------------------------------------------------  -----------
                (Dollars in Thousands)                   52 Weeks    52 Weeks      53 Weeks    52 Weeks       7 Weeks      45 Weeks
                                                           Ended       Ended         Ended       Ended         Ended         Ended
                                                         October 1,  October 2,   October 3, September 27,  September 29, August 12,
                                                           1999         1998         1997        1996           1995         1995
                                                        -----------  ----------   ---------- -------------  -----------   ----------
<S>                                                     <C>          <C>          <C>        <C>            <C>           <C>
CPI AND HOLDING STATEMENT OF OPERATIONS DATA:
 Sales                                                  $ 255,680      260,688      253,439     257,449         36,398      214,677
 Cost of sales                                            199,638      194,410      183,678     184,482         27,634      160,156
                                                        ---------      -------      -------     -------         ------      -------
 Gross profit                                              56,042       66,278       69,761      72,967          8,764       54,521
 Research and development                                   8,983        7,455        7,681       8,308          1,198        7,429
 Selling and Marketing                                     19,590       19,168       19,701      19,886          2,763       17,506
 General and administrative                                18,717       12,935       12,568      15,468          3,250        8,565
 Corporate allocations                                         --           --           --          --             --       11,160
 Write-off of acquired in-process
      research and development                                 --           --           --          --         31,363           --
                                                        ---------      -------      -------     -------         ------      -------
 Operating income (loss)                                    8,752       26,720       29,811      29,305        (29,810)       9,861
 Interest expense                                          17,805       17,793       19,039      18,894          2,497           --
 Income tax expense (benefit)                                 605        3,750       (3,000)      2,068         (2,709)       3,649
                                                        ---------      -------      -------     -------         ------      -------
 Net earnings (loss) before preferred dividends$           (9,658)       5,177       13,772       8,343        (29,598)       6,212
                                                        =========      =======      =======     =======         ======      =======

 EBITDA(a)                                                 22,527       38,017       39,441      38,736          4,894       21,026
 Certain One-Time Charges(b)                                7,432           --           --          --             --           --
                                                        ---------      -------      -------     -------         ------      -------
 Adjusted EBITDA                                           29,959       38,017       39,441      38,736          4,894       21,026
 Certain Non-Cash Charges:
     Depreciation and amortization                         13,635       11,297        9,630       7,731            941       11,165
     Inventory write-up related to purchase accounting        140           --           --       1,700          2,400           --
     In-process research & development write-off               --           --           --          --         31,363           --

     Amortization of deferred debt issue costs              1,209        1,372        1,952       1,962            199           --
 Capital expenditures(c)                                    8,588        8,204       10,767      12,501            880        6,063

                                                                                  Successor
                                                        -----------------------------------------------------------------
                                                         October 1,   October 2,  October 3   September 27, September 29,
CPI BALANCE SHEET DATA:                                     1999        1998          1997        1996           1995
                                                        -----------   ----------  ---------   ------------- -------------
 Working capital                                        $  26,907       45,957       40,467      34,576         35,204
 Total assets                                             233,584      229,212      237,396     228,142        214,902
 Total equity (deficit)                                     3,660       16,912       15,306       4,400         (1,538)
 Long-term debt and redeemable preferred stock            142,039      146,981      149,100     150,472        151,260
HOLDING BALANCE SHEET DATA:
 Working capital                                        $  26,907       45,957       40,467      34,576         35,204
 Total assets                                             233,584      229,212      237,396     228,142        214,902
 Total equity (deficit)                                   (12,962)       2,512        2,841      (6,379)       (10,884)
 Long-term debt and redeemable preferred stock            142,039      146,981      149,100     150,472        151,260
</TABLE>
-----------------------

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

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

(c)     Capital expenditures as reported here include equipment acquired under a
        capital lease. Capital leases, primarily related to the purchase of new
        business system hardware and software were $309,000 in Fiscal 1999,
        $1,545,000 in Fiscal 1998 and $1,584,000 in Fiscal 1997.



                                      -13-
<PAGE>   15

EFFECT OF ACQUISITION ON RESULTS OF OPERATIONS

The consummation of the Acquisition has affected the Company's results of
operations in certain significant respects. As a result of the Acquisition, the
Company adjusted upwards the historical book value of certain assets in
accordance with GAAP relating to purchase accounting rules, which has impacted
the Company's results of operations subsequent to the Acquisition and their
comparability to operations of the Predecessor:

   - The write-up of the inventory by $4.1 million was expensed to cost of
     goods sold during the periods following the Acquisition, which affected
     gross margins. During the seven week period ended September 29, 1995, $2.4
     million was expensed to cost of sales, which also impacted working capital,
     and $1.7 million was expensed in the first quarter of Fiscal 1996.

   - The purchase accounting allocation of certain assets, such as property,
     plant and equipment, has and will continue to significantly affect
     depreciation and amortization. The portion of the purchase price allocated
     to in-process research and development was charged to operations
     immediately after consummation of the Acquisition. The in-process research
     and development activity of the Company involves the development of various
     classes of microwave vacuum electronic devices and microwave vacuum
     electronic device systems for communications and power applications,
     including significant extensions and improvements to existing products
     through fundamental physical and electrical research necessary to design
     new microwave vacuum electronic devices, control and power elements, and
     related systems. Projects are classified as in-process research and
     development if they have not demonstrated technological feasibility and
     have not resulted in commercial products and have no alternative future
     use. As of the date of the consummation of the Acquisition, the outcomes of
     these research and development projects were uncertain and involved
     technological risk.

   - Certain corporate overhead and corporate services, including an
     allocation for occupied facilities, historically charged to the Predecessor
     by Varian, have been reduced due to outsourcing of certain services,
     elimination of services no longer required on a stand-alone basis, or
     eliminated due to the Company's ownership of certain of its facilities and
     the application of purchase accounting following the Acquisition. In
     addition, management compensation plans have been modified at a reduced
     cost. The structure of the transaction has also created certain tax
     benefits because of the Company's ability to write-up inventory, property,
     plant and equipment and intangible assets for tax purposes.



                                          -14-































<PAGE>   16

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

OVERVIEW

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

Orders for Fiscal 1999 were $242.2 million compared to orders of $258.9 million
in Fiscal 1998. This $16.7 million, or 6.4%, order decline was predominantly due
to continued softness from the Company's communications market and, in
particular the satcom portion of this market, resulting from Far East economic
conditions as well as competitive pressures . The Company also discontinued a
product line of radio frequency tranceiver products but this was offset by the
acquisition of a line of solid state products . Increased orders for products
sold in the electronic countermeasures and scientific markets of $5.4 million,
and $2.7 million, respectively, more than offset small declines in orders for
products sold to the medical and industrial markets of $4.6 million and $0.7
million, respectively. Order receipts for sole-source medical products have been
delayed due to a customer driven change from an annual procurement process to a
quarterly procurement process but this did not impact shipments. Order receipts
for radar related products were consistent with prior year, in spite of the
negative impact of U.S. sanctions against India, reflecting a stable volume of
replacement business. 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 1999 were $255.7 million compared to sales of $260.7 million in
Fiscal 1998. Despite a decrease in orders of 6.4% for the fiscal year, sales
declined by only 1.9% due to the Company's focus on reducing internal cycle
times and improving on-time delivery, thereby giving it the ability to operate
on reduced levels of backlog. Global economic pressures minimizing the amount of
satcom business, changes in customer-defined delivery schedules delaying
shipments to semiconductor equipment manufacturers and U.S. sanctions against
India putting a hold on certain defense related products all had a negative
impact. Strong demands for decoy products and increased production of the
Company's new transmitter product, both of which are included in the Company's
electronic countermeasure market, have helped to mitigate declines in other
markets.

Looking forward, the Company believes that its communications business will
improve over the next twelve months and anticipates growth from new terrestrial
radio and satellite uplink programs. The Company's newly released GEN IV
amplifier product line, with proprietary MSDC (multi-staged depressed collector)
VED technology, has received market acceptance and the Company expects it will
become the industry standard for years to come. The Company also anticipates
growth in the electronic countermeasures market for expendable decoys as well as
high power transmitter applications. The Company's radar market remains strong
with a high degree of repeat business through spare and repair VED requirements.
The industrial, medical and scientific markets are expected to remain flat to
slow growth through the next twelve months.



                                      -15-
<PAGE>   17

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                        52 Weeks            52 Weeks         53 Weeks
                                          Ended              Ended            Ended
                                     October 1, 1999   October 2, 1998    October 3, 1997
                                     ---------------   ---------------    ---------------
<S>                                  <C>               <C>                <C>
Sales                                     100.0 %           100.0 %          100.0 %
Cost of sales                             78.1              74.6             72.5
                                          ----              ----             ----
    Gross profit                          21.9              25.4             27.5
Research and development                   3.5               2.9              3.0
Selling and Marketing                      7.7               7.3              7.8
General and administrative(a)              7.3               5.0              5.0
                                          ----              ----             ----
Operating income                           3.4              10.2             11.7
Interest expense                           7.0               6.8              7.5
                                          ----              ----             ----
    Earnings (loss) before taxes          (3.6)              3.4              4.2
Provision for income taxes                 0.2               1.4             (1.2)
                                          ====              ====             ====
    Net earnings (loss)                   (3.8)%            2.0 %            5.4 %
                                          ====              ====             ====
Other Data:
    EBITDA(b)                             8.8 %             14.6 %           15.6 %
    Preferred Dividends                   2.2 %              1.9 %            1.7 %
</TABLE>

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

(b) EBITDA represents earnings before provision for income taxes, interest
    expense, depreciation and amortization.


Fiscal 1999 Compared to Fiscal 1998

SALES. Sales for Fiscal 1999 of $255.7 million were $5.0 million, or 1.9%, below
the prior year level of $260.7 million as declines in products sold to the
Company's communications, industrial and radar markets were partially offset by
increases in sales of products to electronic countermeasures, scientific and
medical markets. Communications sales were $105.4 million in Fiscal 1999 which
represents a decline of $13.4 million, or 11.3%, from Fiscal 1998. Fortunately,
the Company was able to minimize some of the impact from satcom market declines
with its acquisition of a line of solid state products (completed early in the
fiscal year) that added $6.4 million of new business in Fiscal 1999. Sales of
products to the industrial market were $17.2 million, down approximately $2.3
million, or 11.7%, from Fiscal 1998 due to delayed demand from the Company's
semiconductor equipment manufacturers. Radar sales of $85.4 million in Fiscal
1999 reflects a slight decline of $2.0 million, or 2.3%, from prior year
primarily due to U.S. sanctions against India, however the Company continues to
work closely with the State Department and several licenses were cleared in the
fourth quarter. On the upside, sales of products to the Company's electronic
countermeasures market of $19.4 million in Fiscal 1999 reflects an increase of
$7.4 million, or 61.0%, from Fiscal 1998 as expendable decoy products have
gained increasing attention from military customers as a cost effective means of
protecting personnel and hardware. Increased production of the Company's new low
band transmitter device also contributed. Scientific sales benefited from
customer-sponsored research and development efforts with sales of $7.8 million
in Fiscal 1999, an increase of $3.6 million, or 84.1%, from Fiscal 1998. Medical
sales of $20.5 million were $1.7 million, or 9.1%, above sales in Fiscal 1998.
Stable shipments of microwave generators for cancer therapy equipment sold to
Varian Medical Systems as well as growth in x-ray generators for diagnostic
equipment sold in Europe were the primary drivers of the increase.

COST OF SALES. Cost of sales in Fiscal 1999 were $199.6 million, or 78.1% of
sales, compared to $194.4 million, or 74.6% of sales in Fiscal 1998. This
increase in cost of $5.2 million, or 2.7%, was primarily



                                      -16-
<PAGE>   18

due to one-time charges of approximately $6.2 million (see "EBITDA"). Excluding
these one-time charges, the Company's cost of sales would have been 75.6% of
sales which reflects the fact that new products have become increasingly
important to the sales mix and their inherently higher costs have resulted in
some margin erosion that is expected to continue somewhat into Fiscal 2000.

RESEARCH AND DEVELOPMENT. R&D expenses in Fiscal 1999 increased $1.5 million to
$9.0 million, or 3.5% of sales, compared to Fiscal 1998's level of $7.5 million,
or 2.9% of sales. The Company increased its internal R&D efforts primarily to
focus on meeting the needs of its satcom market. This trend is expected to
continue into Fiscal 2000 as the Company plans to release its next generation
satcom amplifier sometime mid-year.

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

EBITDA. EBITDA was $22.5 million, or 8.8% of sales, in Fiscal 1999 compared to
EBITDA of $38.0 million, or 14.6% of sales, in Fiscal 1998. Results for Fiscal
1999 reflect an aggregate $7.4 million in one-time charges principally related
to the Company's Traveling Wave Technology (TWT) Division and changes in
estimated costs-to-complete for certain customer contracts due to technical
complexity and the write-off of certain excess inventory which the Company
believes is not realizable. In addition, certain charges for the discontinuation
of a satcom product line were also reflected. The TWT business, historically
conducted as a separate Palo Alto division, was integrated into the Company's
Microwave Power Products (MPP) Division, also located in Palo Alto. The charges
also include a provision for severance expenses in connection with the
integration of the TWT Division and settlement costs with a customer in
connection with a product performance dispute. Excluding the one-time charges of
$7.5 million, EBITDA for Fiscal 1999 was $30.0 million, or 11.7% of sales. This
decrease of EBITDA of approximately $8.0 million compared to Fiscal 1998 was due
primarily to lower volume and shifts in product mix towards lower margin new
products, combined with higher operating costs associated with R&D efforts,
implementation of new business systems and the acquisition of a new operating
division.

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


Fiscal 1998 Compared to Fiscal 1997

SALES. Sales for Fiscal 1998 were approximately $260.7 million, an increase of
approximately $7.2 million, or 2.9%, as compared to sales of $253.4 million in
Fiscal 1997. The Company's sales increased due to strong demand for products
used in radar applications offset partially by declines in both communications
and industrial markets that were primarily driven by softness in the Asian
economy. Sales to the radar market increased to $87.4 million in Fiscal 1998
from $75.4 million in Fiscal 1997, an increase of $12.0 million, or 15.9%. Sales
to the communications market decreased to $118.8 million in Fiscal 1998 from
$122.5 million in Fiscal 1997, a decline of $3.7 million, or 3.1%. Industrial
sales declined to $19.4 million in Fiscal 1998 from $21.9 million in Fiscal
1997, a decrease of $2.5 million, or



                                      -17-
<PAGE>   19

11.4%. Sales to the Company's other three markets (medical, electronic
countermeasures and scientific) combined increased to $35.1 million in Fiscal
1998 from $33.5 million in Fiscal 1997, an increase of approximately $1.5
million, or 4.5% primarily due to increased demand for the Company's medical
products.

COST OF SALES. Cost of sales in Fiscal 1998 were $194.4 million or 74.6% of
sales compared to $183.7 million, or 72.5% of sales in Fiscal 1997. This
increase in costs of $10.7 million, or 5.8%, was due to higher sales volume
($5.2 million), unfavorable product mix ($4.4 million) and higher depreciation
costs ($1.1 million). Unfavorable product mix was directly related to the
Company's focus on releasing new products to the communications, electronic
countermeasures and scientific markets. Although this has enhanced the Company's
technological capability and its ability to service customers, new products have
historically generated higher costs and, therefore, lower margins as a result of
start-up issues including small lot production volumes, lower yields and higher
engineering labor content. These costs were minimized somewhat in Fiscal 1998 by
a change in accounting estimate for disposal costs that lowered management's
calculation of cost-to-complete reserves by approximately $1 million. Also
unfavorably impacting product mix was the completion of a high margin U.S.
military satcom program that ran the full year in Fiscal 1997 and was
substantially completed early in Fiscal 1998. Depreciation costs were higher in
Fiscal 1998 as compared to Fiscal 1997 due to new capital equipment purchases
that have been added to a fixed depreciation base that resulted from the
revaluation of all property, plant and equipment as of the Acquisition date.

RESEARCH AND DEVELOPMENT. Research and development expenses decreased slightly
in Fiscal 1998 to approximately $7.5 million, or 2.9% of total sales, as
compared to approximately $7.7 million, or 3.0% of total sales, during Fiscal
1997. The Company continues to focus on new product development both through
Company-sponsored funds as well as Customer-sponsored funds that are reported as
revenue. Customer-sponsored R&D was approximately $6.0 million in Fiscal 1998
compared to approximately $5.9 million in Fiscal 1997.

SELLING, MARKETING, GENERAL AND ADMINISTRATIVE. Selling, marketing, general and
administrative expenses were $32.1 million in Fiscal 1998, or 12.3% of sales, as
compared to $32.3 million, or 12.8% of sales, in Fiscal 1997. Overall, marketing
costs were lower in Fiscal 1998 by approximately $0.6 million due to favorable
currency valuation rates impacting Europe but this was partially offset by
general and administrative costs that were higher by $0.4 million due to
additional goodwill amortization that resulted from two product line
acquisitions completed in the first quarter of Fiscal 1998.

EBITDA. EBITDA was $38.0 million, or 14.6% of sales, for Fiscal 1998 compared to
EBITDA of $39.4 million, or 15.6% of sales, for Fiscal 1997. As mentioned above,
product mix with a focus on new products was the main reason for the EBITDA
decline in spite of higher sales volume and significant progress in improving
yields on product lines that were moved from Salt Lake City, Utah during the
Company's Fiscal 1997 consolidation effort.

NET EARNINGS. Net earnings before preferred dividends were $5.2 million for
Fiscal 1998, a decrease of $8.6 million from Fiscal 1997 primarily due to an
increase in the Company's effective tax rate. This tax rate change resulted in
lower earnings of $6.8 million and was due to the fact that, in Fiscal 1997, the
Company fully recognized its deferred tax assets and eliminated the valuation
allowance established in connection with the acquisition, thereby incurring a
tax benefit that was not repeated in Fiscal 1998. The balance of the earnings
decline was due to lower gross margins of $3.5 million that resulted from
changes in product mix, partially offset by lower interest expense of $1.2
million that resulted primarily from a decrease in debt of $15.2 million.



                                      -18-
<PAGE>   20

FINANCIAL CONDITION

The Company's continuing operating activities have provided adequate capital and
liquidity for the Company for the periods presented. However, the Company's
current fiscal year performance resulted in its failure to meet certain
financial covenants contained in the Company's Senior Credit Agreement. The
Company did obtain a limited waiver of defaults from 100% of its bank lenders
and has subsequently completed a more comprehensive restructuring amendment to
the credit facility. This was accomplished on December 27, 1999 with Amendment
No. 7 which is filed as an Exhibit to this Form 10-K. Amendment No. 7 extends
the Commitment Termination Date with respect to the Revolving Credit Loan to
January 1, 2001, increases the interest rate margins applicable to all loans by
25 basis points, modifies the financial covenants to reflect the Company's
reduced expectations for financial results in the upcoming quarters and further
restricts certain "Permitted Affiliate Transactions", certain "Permitted
Indebtedness" and certain "Permitted Investments" as set forth in Annex A to the
Agreement.

Cash flow from operating activities was $6.3 million in Fiscal 1999 as compared
to $23.3 million in Fiscal 1998. This reduction of $17.0 million was primarily
related to losses from operations that resulted from lower volume, shifts in
product mix and higher operating costs.

Investing activities were comprised principally of investment in property, plant
and equipment totaling $8.3 million in Fiscal 1999, $6.6 million in Fiscal 1998
and $9.2 million in Fiscal 1997. Also, during the last two fiscal years, the
Company has continued to enhance its product line offering by investing in
several small acquisitions. In Fiscal 1999, the Company purchased a line of
solid state products for approximately $8.9 million and continues to operate
this on a stand-alone basis in San Jose, California. In Fiscal 1998, the Company
invested $2.7 million in two small product line acquisitions to add to products
currently being manufactured in the Company's Beverly, Massachusetts and Palo
Alto, California facilities.

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
2000 to be relatively consistent with Fiscal 1999.

Financing activities during the three-year period were related almost entirely
to repayments of, or proceeds from, the Company's Senior Credit Agreement.
Non-cash financing activities during Fiscal 1999, Fiscal 1998 and Fiscal 1997
included $0.3 million, $1.5 million and $1.6 million, respectively, of purchases
under capital leases. These purchases were related to the implementation of a
new business enterprise system that is part of the Company's overall plan to
address "Year 2000" issues, to improve efficiency and to reduce dependency on
aging Varian legacy systems.

The Company's primary source of liquidity, other than funds generated from
operations or other sources of liquidity, is the revolving credit facility
provided by the Senior Credit Agreement that was increased from $35.0 million to
$45.0 million as of October 6, 1998 related to the Company's acquisition of a
line of solid state products. Of this amount, $5.2 million was available for CPI
to draw upon as of October 1, 1999. The Senior Credit Agreement does not require
CPI, at any time, to exchange any of its floating-rate obligations under the
Senior Credit Agreement into fixed-rate obligations.

Management believes that the Company will have adequate capital resources and
liquidity to meet its obligations, fund all required capital expenditures and
pursue its business strategy for the foreseeable future (and in any event for at
least the next twelve months). Such capital resources and liquidity are expected
to be available from the Company's cash flow provided by operations and
borrowings under CPI's Senior Credit Agreement.



                                      -19-
<PAGE>   21

Market Risk

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

The Company has outstanding debt associated with the Acquisition, the majority
of which relates to the Senior Subordinated Notes, which mature in 2005 and bear
a fixed interest rate of 12 percent per annum. The remaining debt, with a
carrying value of approximately $58.7 million at October 1, 1999, is subject to
changes in the Prime or LIBOR Rates. To reduce the Company's exposure to
interest rate risk, the Company consistently monitors available money rates
accessible under its Senior Credit Agreement and will lock in rates for specific
periods of time.

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

The Company performed a sensitivity analysis in which it assessed the potential
loss in future earnings from the impact of a 10 percent adverse movement in
interest and foreign currency exchange rates on outstanding debt and non-U.S.
dollar denominated assets and liabilities. The impact was determined based on
the hypothetical change from shifts in the market rates over a period of one
year. Other market sensitive financial instruments were not included in the
analysis as they were not material. In terms of interest rate risk, a 10 percent
adverse movement in the Base Rate or Effective Rate on the Company's variable
rate debt would result in a decrease in future earnings of less than $0.4
million. In terms of foreign currency exchange rate risk, a 10 percent adverse
movement in the levels of foreign currency exchange rates against the U.S.
dollar with all other variables held constant would result in a decrease in
future earnings of less than $0.1 million. Actual results, however, could differ
materially.


Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. It
requires that derivatives be recognized in the statement of financial position
at fair value. If certain conditions are met, a derivative may be specifically
designated and accounted for as (a) a hedge of the exposure to changes in the
fair value of a recognized asset or liability or an unrecognized firm
commitment, (b) a hedge of the exposure to variable cash flows of a forecasted
transaction, or (c) a hedge of the foreign currency exposure of a net investment
in a foreign operation, an unrecognized firm commitment, an available-for-sale
security, or a foreign-currency-denominated forecasted transaction. For a
derivative not designated as a hedging instrument, changes in the fair value of
the derivative are recognized in earnings in the period of change. The effective
date for this statement has been delayed by the FASB for a period of one year.
The Company will adopt SFAS No. 133 beginning the first quarter of Fiscal 2001.
Management does not believe the adoption of SFAS No. 133 will have a material
effect on the Company's consolidated financial position, results of operations
or cash flow.



                                      -20-
<PAGE>   22

Year 2000

The Company has conducted a comprehensive review of its computer systems and
applications to identify systems that could be affected by the "Year 2000" issue
and has developed a remediation plan. All systems that are considered to be
mission critical have been identified and addressed in this plan. The Company
has also reviewed its products, process equipment and facilities systems as part
of its overall Year 2000 readiness.

Evaluation of the Company's products is substantially complete since very few
products contain microprocessors or microcode and, to date, no significant
problems have been found in existing CPI products. Also, based on both written
and verbal discussions, management has no information that indicates a
significant vendor or service provider may be unable to sell goods or provide
services to the Company or that any significant customer may be unable to
purchase from the Company because of Year 2000 issues. Further, the Company has
not received any notifications from regulatory agencies to which it is subject
indicating that the Company must achieve compliance by a specific date or
significant regulatory action will be taken.

The Company has completed its migration to modified or replaced Enterprise
Resource Planning ("ERP") systems at five of its six operating Divisions. The
Company's most recently acquired Division is in the process of upgrading its
accounting software to the latest Y2K version and is expected to complete this
task by the end of December 1999. Manual processes, however, are in place and
will be utilized if warranted.

Timely completion of its Year 2000 project has been a priority of the Company
and the remediation plan, along with the timetable for its completion and
budgeted remediation costs, has been appropriately approved and reviewed by the
Company's Year 2000 project team, management, and the Board of Directors.
Management currently estimates that it has spent approximately $6.4 million to
replace non-compliant Varian legacy systems, of which $3.4 million was through a
capital lease program. Other remediation efforts completed in Fiscal 1999 and
Fiscal 1998 have included a mix of capital expenditures and operating expense
costs totaling $1.3 million and an estimated $0.4 million is planned for Fiscal
2000. The Company's estimated timetable and budgeted remediation costs are based
on assumptions which management believes are reasonable and appropriate.
Management is committing and will continue to commit necessary human and
financial resources to complete its remediation plans on a timely basis.

The Company presently believes that, with the modifications to existing software
and conversion to new software that have taken place, the Year 2000 problem will
not pose significant operational problems for the Company's systems as modified
and converted. Management has contingency plans in place that includes manual
process procedures to ensure that accurate processing of information and data
are available.


Forward-Looking Information

Except for historical information, this Management's Discussion and Analysis
contains forward-looking statements that involve risks and uncertainties that
could cause actual results to differ materially from those projected. Such risks
and uncertainties include: product demand and market acceptance risks; the
effect of general economic conditions; the impact of competitive products and
pricing; new product development and commercialization; technological
difficulties and the ability to increase margins; the timing of renewed growth
in the Far East; U.S. Government export policies; and other risks detailed from
time to time in the Company's filings with the Securities and Exchange
Commission.



                                      -21-
<PAGE>   23

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

<TABLE>
<CAPTION>
COMMUNICATIONS & POWER INDUSTRIES, INC.                                                   Page
<S>                                                                                       <C>
Index to Financial Statements.............................................................F-1

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

Consolidated Balance Sheets as of October 1, 1999 and October 2, 1998.....................F-3

Consolidated Statements of Operations for the 52-week period ended October 1,
    1999 the 52-week period ended October 2, 1998 and the 53-week period ended
    October 3, 1997 ......................................................................F-4

Consolidated Statements of Stockholders' Equity for the 52-week period ended
    October 1, 1999,  the 52-week  period  ended  October 2, 1998 and the 53-week  period
    ended October 3, 1997.................................................................F-5

Consolidated Statements of Cash Flows for the 52-week period ended October 1,
    1999, the 52-week period ended October 2, 1998 and the 53-week period ended
    October 3, 1997 ......................................................................F-6

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

Financial Statement Schedule.............................................................F-48
</TABLE>


<TABLE>
<CAPTION>
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION                                    Page
<S>                                                                                      <C>

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

Consolidated Balance Sheets as of October 1, 1999 and October 2, 1998....................F-27

Consolidated Statements of Operations for the 52-week period ended October 1,
    1999, the 52-week period ended October 2, 1998 and the 53-week period ended
    October 3, 1997 .....................................................................F-28

Consolidated  Statements of  Stockholders'  Equity (Deficit) for the 52-week period ended
    October 1, 1999,  the 52-week  period  ended  October 2, 1998 and the 53-week  period
    ended September 27, 1996.............................................................F-29

Consolidated Statements of Cash Flows for the 52-week period ended October 1,
    1999, the 52-week period ended October 2, 1998 and the 53-week period ended
    October 3, 1997 .....................................................................F-30

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

Financial Statement Schedule.............................................................F-49
</TABLE>



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

In connection with the audit of the financial statements for the 52-weeks ended
October 1, 1999, the 52-weeks ended October 2, 1998 and the 53-weeks ended
October 3, 1997, there were no disagreements with KPMG LLP on accounting or
financial disclosure.



                                      -22-
<PAGE>   24

                                    PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS

DIRECTORS AND EXECUTIVE OFFICERS OF HOLDING

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

<TABLE>
<CAPTION>
            Name              Age          Position
            ----              ---          --------
<S>                           <C> <C>
William P. Rutledge........   57  Chairman of the Board and
                                  Director
Bart F. Petrini............   60  Chief Executive Officer
                                  and President
Lynn E. Harvey.............   44  Chief Financial Officer,
                                  Treasurer and Secretary
John R. Beighley...........   47  Vice President and
                                  Assistant Secretary
Leonard I. Green...........   66  Director
John G. Danhakl............   43  Director
Gregory J. Annick..........   35  Director
</TABLE>

DIRECTORS AND EXECUTIVE OFFICERS OF CPI

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

<TABLE>
<CAPTION>
            Name              Age          Position
            ----              ---          --------
<S>                           <C> <C>
William P. Rutledge........   57  Chairman of the Board and
                                  Director
Bart F. Petrini............   60  Chief Executive Officer
                                  and President
Lynn E. Harvey.............   44  Chief Financial Officer,
                                  Treasurer and Secretary
John R. Beighley...........   47  Vice President and
                                  Assistant  Secretary
O. Joseph Caldarelli.......   49  Vice President
Don C. Coleman.............   45  Vice President
Robert A. Fickett..........   39  Vice President
Kwang Kim..................   66  Vice President
H. Frederick Koehler.......   64  Vice President
Richard A. Schaffzin.......   55  Vice President
Leonard I. Green...........   66  Director
John G. Danhakl............   43  Director
Gregory J. Annick..........   35  Director
</TABLE>



                                      -23-
<PAGE>   25

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

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

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

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

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

Don C. Coleman became a Vice President of CPI and Division President of the
Beverly Microwave Division ("BMD") in February 1999. Mr. Coleman was Vice
President of Manufacturing for BMD from February of 1996 until accepting his
current position. From 1990 until 1996 Mr. Coleman held the position of
Engineering Manager for Receiver Protector Products at BMD. Mr. Coleman held a
variety of manufacturing and development engineering positions at CPI (then
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.

Robert A. Fickett became a Vice President of CPI in April 1998 and currently
heads the Company's Microwave Power Products ("MPP") Division. From January 1996
to April 1998, Mr. Fickett was Vice



                                      -24-
<PAGE>   26

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
CPI's predecessor, 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.

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

H. Frederick Koehler became Vice President of CPI and Division President of the
Eimac Division in August 1995. Mr. Koehler was Vice President and General
Manager of this same operating unit under the Predecessor from 1992 to August
1995. From 1989 until 1991, Mr. Koehler was President and Chief Executive
Officer of Trio-Tech International, an electronic test equipment manufacturer.
From 1985 until 1989, he served as President of Leach Relay Group of Leach
Corporation and from 1979 until 1985, he was a Vice President at Memorex
Corporation. Mr. Koehler received a B.S. from the U.S. Military Academy, West
Point and an M.S.E.E. from Syracuse University.

Richard A. Schaffzin became a Vice President of CPI in April 1998 and currently
heads the Company's Satcom Division. Dr. Schaffzin was President and CEO of
Paradise Electronics Corporation, a start-up company developing a single chip
interface between CPUs and flat panel displays, beginning in 1997. From 1990 to
1996, Dr. Schaffzin served as Chairman, President and CEO of IC Sensors, Inc., a
silicon micromachining sensor company serving the medical, automotive, military
and commercial markets. He orchestrated the sale of IC Sensors to a Fortune 500
company in 1994. Prior to that, Dr. Schaffzin has held various operations,
business development and engineering positions at EG&G Reticon, National
Semiconductor and Fairchild Semiconductor. Dr. Schaffzin holds a B.S.E.E. and an
M.E.E degree from Cornell University, an M.S.E.E. degree from MIT and a Ph.D.
degree in Finance and Business Management from Santa Clara University.

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

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

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



                                      -25-
<PAGE>   27

ITEM 11: EXECUTIVE COMPENSATION

The information set forth in the following table relates to the Chief Executive
Officer and President of both Holding and CPI and the next four most highly
compensated executive officers of Holding and CPI (collectively, the "Named
Executive Officers") for Fiscal 1999, Fiscal 1998 and Fiscal 1997.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                          ANNUAL                            LONG TERM
                                                       COMPENSATION                        COMPENSATION
                                    ----------------------------------------------------   ------------
        NAME AND                                                            OTHER ANNUAL       LTIP           ALL OTHER
   PRINCIPAL POSITION               FISCAL                      BONUS($)    COMPENSATION     PAYOUTS($)    COMPENSATION($)
    WITH THE COMPANY                 YEAR       SALARY($)         (a)            (b)            (c)             (d)
------------------------------      ------      ---------      ---------    ------------   -------------   ---------------
<S>                                 <C>         <C>            <C>          <C>            <C>             <C>
William P. Rutledge                  1999       $138,462       $     --       $     --       $     --       $    249
  Interim Chief
  Executive Officer

Al D. Wilunowski  (e)                1999        302,744             --         30,367             --         46,536
  Chief Executive Officer            1998        302,744             --         35,482             --         48,866
  and President                      1997        302,744        186,821         38,041        409,568         71,467


O. Joseph Caldarelli  (f)            1999         92,613        173,912          7,740             --          5,040
  Vice President                     1998         98,225             --          7,630             --          5,291
                                     1997        102,435         67,243          7,592         53,212          7,907

Robert A. Fickett                    1999        134,828         75,930          9,679             --          6,404
  Vice President                     1998        113,938             --             --             --          5,412
                                     1997        107,072         33,116             --             --          5,086

Lynn E. Harvey                       1999        127,220         48,627         12,808             --          8,479
  Chief Financial Officer            1998        119,678             --         11,153             --          8,106
                                     1997        113,540         36,417          7,827             --          2,996

Richard A. Schaffzin                 1999        150,000         33,173         12,720             --          3,014
  Vice President                     1998         64,039             --             --             --            280
                                     1997             --             --             --             --             --
</TABLE>

----------
(a) Fiscal 1999 bonus amount includes a special bonus awarded to certain
    management in April 1999 as well as awards calculated under CPI's Management
    Incentive Plan for Fiscal 1999 to be paid in Fiscal 2000. There were no
    awards in Fiscal 1998 under the Management Incentive Plan for that year.
    Fiscal 1997 bonus consist of amounts awarded under CPI's Management
    Incentive Plan for Fiscal 1997 but paid in Fiscal 1998.

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

(c) Consists of cash payouts awarded in Fiscal 1997 under the long-term
    incentive feature of CPI's Management Incentive Plan for the three year
    period ending Fiscal 1997 but paid in Fiscal 1998. CPI's Long Term Incentive
    Plan was discontinued in Fiscal 1998.

(d) Consists of (1) Company contributions to CPI's 401(k) plan and Non-Qualified
    Deferred Compensation Plan and (2) Company paid premiums for group life
    insurance.

(e) Mr. Wilunowski resigned effective June 11, 1999 and entered into a
    consulting agreement with the Company through December 8, 2000. Fees to be
    paid under this agreement correspond to his prior salary.

(f) Mr. Caldarelli was paid an annual base salary of $140,322 in Canadian
    dollars and therefore is impacted by changes in average exchange rates for
    the periods shown.


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.



                                      -26-
<PAGE>   28

Holding has reserved a total of 50,000 shares of Holding Common Stock for
issuance under the Holding Equity Plan, 45,870 of which were issued to the
Company's 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 1995.
As of October 1, 1999, based on retirements and changes in management, 3,580
shares have been repurchased and 42,290 shares continue to be held by Management
Investors.


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Neither Holding nor CPI has a Compensation Committee. 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, or had any relationships
which would require disclosure by the Company pursuant to Item 404 of Regulation
S-K ("Certain Relationships and Related Transactions"), except as described
below.

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


COMPENSATION OF DIRECTORS

Individuals who are officers of Holding and CPI, as well as Messrs. Green,
Danhakl and Annick, will not receive any compensation directly for their service
on Holding's and CPI's Boards of Directors. Holding and CPI have entered into a
management services agreement pursuant to which LGP will receive an annual fee
plus reasonable expenses for providing management, consulting and financial
planning services, including assistance in strategic planning, providing market
and financial analyses, negotiating and structuring financing and exploring
expansion opportunities, in the future. See "Certain Relationships and Related
Transactions." It is anticipated that other directors, if any, will receive
customary fees for service on Holding's and CPI's respective Boards of
Directors.



                                      -27-
<PAGE>   29

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

All of CPI's common stock is owned by Holding. The following table sets forth,
as of December 1, 1999 certain information with respect to the beneficial
ownership of Holding Common Stock by (i) each person known by Holding to own
beneficially 5% or more of the outstanding shares of Holding Common Stock, (ii)
each director of Holding and CPI, (iii) each person named in the summary
compensation table, and (iv) all executive officers and directors as a group.

<TABLE>
<CAPTION>
                                                                          Percent of
                                                   Amount and Nature of     Shares
Name and Address of Beneficial Owner (a)           Beneficial Ownership   Outstanding
-------------------------------------------------  --------------------   -----------
<S>                                                <C>                    <C>
Green Equity Investors II, L.P.(b) ..............          143,630          73.12%
11111 Santa Monica Boulevard, Suite 2000
Los Angeles, California 90025

Leonard I. Green (b) ............................          143,630          73.12%
11111 Santa Monica Boulevard, Suite 2000
Los Angeles, California 90025

John G. Danhakl (b) .............................          143,630          73.12%
11111 Santa Monica Boulevard, Suite 2000
Los Angeles, California 90025

Gregory J. Annick (b) ...........................          143,630          73.12%
11111 Santa Monica Boulevard, Suite 2000
Los Angeles, California 90025

Al D. Wilunowski (c) ............................           21,400          10.90%
607 Hansen Way
Palo Alto, California 94303

O. Joseph Caldarelli  (d) .......................            3,000           1.53%

Richard A. Schaffzin ............................            2,500           1.27%

Lynn E. Harvey ..................................            1,500            .76%

Robert A. Fickett ...............................              520            .26%

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

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

Directors and  Executive  Officers as a group (12
persons)(b) .....................................          154,600          78.71%
</TABLE>

--------

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

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

(c)     Includes 800 shares originally acquired by Mr. Wilunowski and
        subsequently transferred to his child.

(d)     Includes 750 shares originally acquired by Mr. Caldarelli and
        subsequently transferred to his children.



                                      -28-
<PAGE>   30

Terms of Subscription and Stockholder Agreements

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

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


ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


Management Agreements

LGP is investment adviser to, and an affiliate of the general partner of, GEI
II, which holds approximately 73.1% of the outstanding shares of Holding.
Holding, in turn, owns all of the outstanding shares of common stock of CPI.
Messrs. Green, Danhakl and Annick, who are directors of Holding and CPI, are
also stockholders of the general partner of LGP. In connection with the
Acquisition, Holding and CPI entered into a Management Services Agreement with
LGP pursuant to which LGP will receive an annual fee of approximately $362,000
plus reasonable expenses for providing management, consulting and financial
planning services, including assistance in strategic planning, providing market
and financial analysis, negotiating and structuring financing, and exploring,
negotiating and arranging expansion and capital market opportunities, in the
future. The Management Services Agreement has a term of up to twelve years.
Holding and CPI believe that the contacts and expertise provided by LGP in these
areas enhance the Company's opportunities and management's expertise in these
matters and that the fees to be paid to LGP fairly reflect the value of the
services provided by LGP. In Fiscal 1999, LGP earned $362,000 pursuant to the
terms of the Management Services Agreement, of which $262,000 has been paid and
$100,000 has been accrued but not paid, due to current restrictions placed on
affiliate transactions by recent amendments to the Company's Senior Credit
Agreement.



                                      -29-
<PAGE>   31

                                     PART IV

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

(a)     Financial Statement Schedule of CPI and Holding

        Schedule II - Valuation and Qualifying Accounts

(b)     Reports on Form 8-K

        Form 8-K filed July 30, 1999 with press release announcing the departure
        of Chief Executive Officer and appointment of Interim Executive

(c)     Schedule of Exhibits

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

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

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

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

3.2 (1)    Bylaws of CPI.

3.3 (1)    Certificate of Incorporation of Holding.

3.4 (1)    Bylaws of Holding.

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

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

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

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

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

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



                                      -30-
<PAGE>   32

<TABLE>
<CAPTION>
Exhibit No.                            Description
-----------                            -----------

<S>        <C>
10.1(1)    Credit Agreement among CPI, Holding, CPII Acquisition, the other
           obligors named therein, the lenders named therein and Bankers Trust
           Company, as Agent, dated as of August 11, 1995 (including Annex A
           (Definitions; Rules of Construction) and Annex F (Financial
           Covenants)).

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

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

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

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

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

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

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

10.2(1)    Term A Notes in the amounts of $8,333,333.32, $4,166,666.67,
           $4,166,666.67, $4,166,666.67 and $4,166,666.76 made by CPI in favor
           of Bankers Trust Company, Dresdner Bank AG, First Bank National
           Association, The Nippon Credit Bank, Ltd. and Union Bank,
           respectively, dated as of August 11, 1995.

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

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

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



                                      -31-
<PAGE>   33

<TABLE>
<CAPTION>
Exhibit No.                            Description
-----------                            -----------
<S>        <C>

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

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

10.8 (1)    Continuing  Guaranty  made by each of the  Guarantors in favor of the Lenders and Agent under the Senior Credit
            Agreement, dated as of August 11, 1995.

10.10(3)(+) Key Components Supply Agreement between CPI and Varian dated as of August 10, 1995.

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

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

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

10.14 (1)   Sublease  (Portion  of  Building 2 Located on Unit 5, Palo Alto) dated as of August 10,
            1995 between Varian Realty Inc. and CPI.

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

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

10.19 (1)   Shared Use Agreement dated as of August 11, 1995 between Varian (on behalf of itself and its subsidiaries) and CPI (as
            successor by merger to CPII Acquisition Corp.) (on behalf of itself and its subsidiaries).

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.
</TABLE>



                                      -32-
<PAGE>   34

<TABLE>
<CAPTION>
Exhibit No.                            Description
-----------                            -----------
<S>        <C>
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).

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

10.34 (1)  Letter from Holding to H.  Frederick  Koehler  dated June 9, 1995  relating to terms of
           employment.

21 (1)     Subsidiaries of CPI and Holding.

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

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

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


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

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

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

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

(+)        Certain portions of this Exhibit have been omitted and filed
           separately under an application for confidential treatment with the
           Securities and Exchange Commission.



                                      -33-
<PAGE>   35

                                   SIGNATURES

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

                                    COMMUNICATIONS & POWER INDUSTRIES, INC.

                                    By:      /s/ Bart F. Petrini
                                       -----------------------------------------
                                                 Bart F. Petrini
                                       Chief Executive Officer and President
                                            Date:  December 27, 1999

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

<TABLE>
<CAPTION>
      Signature                              Title                               Date
      ---------                              -----                               ----
<S>                            <C>                                       <C>
 /s/ Leonard I. Green                       Director                       December 27, 1999
-----------------------                                                  ----------------------


 /s/ John G. Danhakl                        Director                       December 27, 1999
-----------------------                                                  ----------------------


/s/ Gregory J. Annick                       Director                       December 27, 1999
-----------------------                                                  ----------------------

/s/ William P. Rutledge       Chairman of the Board and Director           December 27, 1999
-----------------------                                                  ----------------------

  /s/ Lynn E. Harvey        Chief Financial Officer, Treasurer and         December 27, 1999
-----------------------       Secretary (Principal Financial and         ----------------------
                                     Accounting Officer)

 /s/ Bart F. Petrini         Director, Chief Executive Officer and         December 27, 1999
-----------------------                    President                     ----------------------
                                 (Principal Executive Officer)

</TABLE>

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

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



                                      -34-
<PAGE>   36

                                   SIGNATURES

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

                           COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION

                                    By:         /s/ Bart F. Petrini
                                       -----------------------------------------
                                                    Bart F. Petrini
                                          Chief Executive Officer and President
                                                Date:  December 27, 1999

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

<TABLE>
<CAPTION>
      Signature                             Title                                Date
      ---------                             -----                                ----
<S>                          <C>                                         <C>
 /s/ Leonard I. Green                      Director                        December 27, 1999
-----------------------                                                  ----------------------


 /s/ John G. Danhakl                       Director                        December 27, 1999
-----------------------                                                  ----------------------


/s/ Gregory J. Annick                      Director                        December 27, 1999
-----------------------                                                  ----------------------


/s/ William P. Rutledge       Chairman of the Board and Director           December 27, 1999
-----------------------                                                  ----------------------

/s/ Lynn E. Harvey             Chief Financial Officer, Treasurer          December 27, 1999
-----------------------        and Secretary (Principal Financial        ----------------------
                                    and Accounting Officer)

   Bart F. Petrini             Director, Chief Executive Officer and       December 27, 1999
-----------------------                      President
                                    (Principal Executive Officer)
</TABLE>
------------
Supplemental Information to be Furnished with Reports Filed Pursuant to Section
15(d) of the Securities Exchange Act of 1934 by Registrants which have not
Registered Securities Pursuant to Section 12 of the Securities Exchange Act of
1934:

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

                                      -35-
<PAGE>   37
                    COMMUNICATIONS & POWER INDUSTRIES , INC.
                                and subsidiaries
         (A wholly owned subsidiary of Communications & Power Industries
                              Holding Corporation)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                       Page
                                                                                       ----
<S>                                                                                    <C>
                         COMMUNICATIONS & POWER INDUSTRIES, INC.

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

Consolidated Balance Sheets as of October 1, 1999 and October 2, 1998 .................F-3

Consolidated Statements of Operations for the 52-week period ended October 1,
    1999, the 52-week period ended October 2, 1998 and the 53-week period ended
    October 3, 1997 ...................................................................F-4

Consolidated Statements of Stockholders' Equity (Deficit) for the 52-week period
    ended October 1, 1999, the 52-week period ended October 2, 1998 and the
    53-week period ended October 3, 1997 ..............................................F-5

Consolidated Statements of Cash Flows for the 52-week period ended October 1,
    1999, the 52-week period ended October 2, 1998 and the 53-week period ended
    October 3, 1997 ...................................................................F-6

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


                     COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION

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

Consolidated Balance Sheets as of October 1, 1999 and October 2, 1998 ................F-27

Consolidated Statements of Operations for the 52-week period ended October 1,
    1999, the 52-week period ended October 2, 1998 and the 53-week period ended
    October 3, 1997 ..................................................................F-28

Consolidated Statements of Stockholders' Equity (Deficit) for the 52-week period
    ended October 1, 1999, the 52-week period ended October 2, 1998 and the 53-week
    period ended October 3, 1997......................................................F-29

Consolidated Statements of Cash Flows for the 52-week period ended October 1,
    1999, the 52-week period ended October 2, 1998 and the 53-week period ended
    October 3, 1997 ..................................................................F-30

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

                             FINANCIAL STATEMENT SCHEDULES

Communications & Power Industries, Inc................................................F-48

Communications & Power Industries Holding Corporation.................................F-49
</TABLE>


                                     -F-1-
<PAGE>   38
                    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 October 1, 1999
and October 2, 1998, and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for the 52-week period ended
October 1, 1999, the 52-week period ended October 2, 1998 and the 53-week period
ended October 3, 1997. In connection with our audits of the consolidated
financial statements for the periods indicated above, we have also audited the
financial statement schedule as listed in the accompanying index. 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 generally accepted auditing
standards. 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 October 1, 1999 and October 2,
1998, the results of their operations and their cash flows for the 52-week
period ended October 1, 1999, the 52-week period ended October 2, 1998 and the
53-week period ended October 3, 1997, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

                                                                      s/KPMG LLP

Mountain View, California
December 14, 1999, except as to note 4(b), which is as of December 27, 1999

                                     -F-2-
<PAGE>   39
                    COMMUNICATIONS & POWER INDUSTRIES, INC.
                                and subsidiaries
         (A wholly owned subsidiary of Communications & Power Industries
                              Holding Corporation)

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

<TABLE>
<CAPTION>
                                                                                        October 1,          October 2,
                                          ASSETS                                           1999                1998
                                                                                        ---------           ---------
<S>                                                                                     <C>                 <C>
CURRENT ASSETS
     Cash and cash equivalents                                                          $   4,247                 448
     Accounts receivable, net                                                              49,596              49,484
     Inventories                                                                           52,526              52,923
     Deferred taxes                                                                         6,899               6,981
     Other current assets                                                                   1,524               1,440
                                                                                        ---------           ---------
         Total current assets                                                             114,792             111,276
Property, plant, and equipment, net                                                        76,225              78,099
Goodwill and other intangibles, net                                                        28,723              25,147
Debt issue costs, net                                                                       5,594               6,522
Deferred taxes                                                                              8,250               8,168
                                                                                        ---------           ---------
         Total assets                                                                   $ 233,584             229,212
                                                                                        =========           =========
LIABILITIES, SENIOR REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
     Revolving credit facility                                                          $  35,000              13,300
     Current portion of term loans                                                          7,700               6,200
     Current portion of capital leases                                                        885                 541
     Accounts payable                                                                      13,522              13,140
     Accrued expenses                                                                      16,489              15,612
     Product warranty                                                                       3,575               3,734
     Income taxes payable                                                                   8,978              10,259
     Advance payments from customers                                                        1,736               2,533
                                                                                        ---------           ---------
         Total current liabilities                                                         87,885              65,319
Senior term loans                                                                          15,986              23,750
Senior subordinated notes                                                                 100,000             100,000
Obligations under capital leases                                                            1,825               2,548
                                                                                        ---------           ---------
         Total liabilities                                                                205,696             191,617
                                                                                        ---------           ---------
SENIOR REDEEMABLE PREFERRED STOCK ($.01 par value, 325,000 shares authorized;
     259,120 and 225,808 shares issued and outstanding as of
     1999 and 1998, respectively, liquidation preference $100 per share)                   24,228              20,683
                                                                                        ---------           ---------
Commitments and contingencies
STOCKHOLDERS' EQUITY
     Junior Preferred Stock ($.01 par value, 525,000 shares authorized; 172,748
         and 150,540 shares issued and outstanding as of 1999
         and 1998, respectively, liquidation preference $100 per share)                         1                   1
     Common stock ($.01 par value, 400,000 shares authorized; 1 share
         issued and outstanding as of 1999 and 1998)                                           --                  --
     Additional paid-in capital                                                            35,804              33,582
     Accumulated deficit                                                                  (31,039)            (15,614)
     Stockholder loans                                                                     (1,106)             (1,057)
                                                                                        ---------           ---------
         Net stockholders' equity                                                           3,660              16,912
                                                                                        ---------           ---------
         Total liabilities, senior redeemable preferred stock and stockholders'
           equity                                                                       $ 233,584             229,212
                                                                                        =========           =========
</TABLE>

See accompanying notes to the consolidated financial statements.


                                     -F-3-
<PAGE>   40
                    COMMUNICATIONS & POWER INDUSTRIES, INC.
                                and subsidiaries
         (A wholly owned subsidiary of Communications & Power Industries
                              Holding Corporation)

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (in thousands)

<TABLE>
<CAPTION>
                                                          52-Week             52-Week             53-Week
                                                        period ended        period ended        period ended
                                                          October 1,          October 2,         October 3,
                                                            1999                1998               1997
                                                        ------------        ------------        ------------
<S>                                                     <C>                 <C>                 <C>
Sales                                                     $ 255,680             260,688            253,439
Cost of sales                                               199,638             194,410            183,678
                                                          ---------           ---------          ---------
Gross profit                                                 56,042              66,278             69,761
                                                          ---------           ---------          ---------
Operating costs and expenses:
      Research and development                                8,983               7,455              7,681
      Selling and marketing                                  19,590              19,168             19,701
      General and administrative                             18,206              13,088             12,205

                                                          ---------           ---------          ---------
Total operating costs and expenses                           46,779              39,711             39,587
                                                          ---------           ---------          ---------
Operating income                                              9,263              26,567             30,174
Foreign currency (loss) gain                                   (511)                153               (363)
Interest expense                                             17,805              17,793             19,039
                                                          ---------           ---------          ---------
(Loss) earnings before taxes                                 (9,053)              8,927             10,772
Income tax expense (benefit)                                    605               3,750             (3,000)
                                                          ---------           ---------          ---------
Net (Loss) earnings                                          (9,658)              5,177             13,772

Preferred dividends:
     Senior Redeemable Preferred Stock                        3,331               2,904              2,530
     Junior Preferred Stock                                   2,222               1,935              1,686

                                                          ---------           ---------          ---------
Net (Loss) earnings attributable to Common Stock          $ (15,211)                338              9,556
                                                          =========           =========          =========
</TABLE>



See accompanying notes to the consolidated financial statements.


                                     -F-4-
<PAGE>   41

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

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

<TABLE>
<CAPTION>
                                                    Junior                Additional                                     Total
                                                  Preferred   Common       Paid-in      Accumulated    Stockholder    Stockholders'
                                                    Stock     Stock        Capital        Deficit         Loans          Equity
                                                 ----------   --------    ----------    -----------    -----------    -------------
<S>                                              <C>          <C>         <C>           <C>            <C>            <C>
Balances, September 27, 1996                      $      1          --       30,521      (25,080)       (1,042)           4,400
                                                  ========    ========      =======      =======        ======         ========
Amortization of discount and issue costs
    on Senior Redeemable Preferred Stock                                                                  (214)            (214)
Payment of dividends on Senior
    Redeemable Preferred Stock                                                                          (2,530)          (2,530)
Payment of dividends on Junior
    Preferred Stock                                                           1,686       (1,686)                            --
Net earnings                                                                              13,772                         13,772
Interest accrued on stockholder loans                                                                      (58)             (58)
Purchase of Treasury Stock                                                      (64)                                        (64)
                                                  --------    --------      -------      -------        ------         --------
Balances, October 3, 1997                         $      1          --       32,143      (15,738)       (1,100)          15,306
                                                  ========    ========      =======      =======        ======         ========

Amortization of discount and issue costs
    on Senior Redeemable Preferred Stock                                                    (214)                          (214)
Payment of dividends on Senior
    Redeemable Preferred Stock                                                            (2,904)                        (2,904)
Payment of dividends on Junior
    Preferred Stock                                                           1,935       (1,935)                            --
Net earnings                                                                               5,177                          5,177
Repayment of stockholder loans                                                                              80               80
Interest accrued on stockholder loans                                                                      (37)             (37)
Issuance of Treasury Stock                                                      696                                         696
Purchase of Treasury Stock                                                   (1,192)                                     (1,192)
                                                  --------    --------      -------      -------        ------         --------
Balances, October 2, 1998                         $      1          --       33,582      (15,614)       (1,057)          16,912
                                                  ========    ========      =======      =======        ======         ========

Amortization of discount and issue costs
    on Senior Redeemable Preferred Stock                                                    (214)                          (214)
Payment of dividends on Senior
    Redeemable Preferred Stock                                                            (3,331)                        (3,331)
Payment of dividends on Junior
    Preferred Stock                                                           2,222       (2,222)                            --
Net loss                                                                                  (9,658)                        (9,658)
Repayment of stockholder loans                                                                              --               --
Interest accrued on stockholder loans                                                                      (49)             (49)
                                                  --------    --------      -------      -------        ------         --------
Balances, October 1, 1999                         $      1          --       35,804      (31,039)       (1,106)           3,660
                                                  ========    ========      =======      =======        ======         ========
</TABLE>


See accompanying notes to the consolidated financial statements.

                                     -F-5-
<PAGE>   42

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

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                               52-Week           52-Week            53-Week
                                                                            period ended       period ended       period ended
                                                                              October 1,         October 2,         October 3,
                                                                                1999               1998               1997
                                                                           ---------------   ----------------   ----------------
<S>                                                                    <C>                   <C>                <C>
OPERATING ACTIVITIES
       Net cash provided by operating activities                       $            6,282             23,309              5,320
                                                                           ---------------   ----------------   ----------------
INVESTING ACTIVITIES
       Proceeds from sale of
            property, plant and equipment                                              54                 61              2,545
       Purchase of property, plant, and equipment                                  (8,260)            (6,565)            (9,183)
       Product line acquisitions                                                        -             (2,730)                 -
       Purchase of net current assets in connection
            with acquisitions                                                      (1,861)                 -                  -
       Purchase of property and equipment in connection
            with acquisitions                                                        (523)                 -                  -
       Purchase of intangible assets in connection
            with acquisitions                                                      (6,526)                 -                  -
                                                                           ---------------   ----------------   ----------------
       Net cash used in investing activities                                      (17,116)            (9,234)            (6,638)
                                                                           ---------------   ----------------   ----------------
FINANCING ACTIVITIES
       Repayments on capital leases                                                  (688)               (38)                 -
       Net Proceeds/(Repayments) from revolving credit
            facility                                                               21,700             (9,500)             5,800
       Repayments on Senior term loans                                             (6,379)            (5,700)            (3,950)
       Repayment of debt issuance costs                                                 -                  -               (194)
       Issuance of treasury stock                                                       -                696                  -
       Purchases of treasury stock                                                      -             (1,192)               (64)
       Repayments of stockholder loans                                                  -                 80                  -
                                                                           ---------------   ----------------   ----------------
       Net cash provided by (used in) financing activities                         14,633            (15,654)             1,592
                                                                           ---------------   ----------------   ----------------
NET INCREASE (DECREASE) IN
   CASH AND CASH EQUIVALENTS                                                        3,799             (1,579)               274
       Cash and cash equivalents at beginning of period                               448              2,027              1,753

                                                                           ---------------   ----------------   ----------------
       Cash and cash equivalents at end of period                      $            4,247                448              2,027
                                                                           ===============   ================   ================
</TABLE>



See accompanying notes to the consolidated financial statements.


                                     -F-6-
<PAGE>   43

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

                CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                      52-Week           52-Week          53-Week
                                                                    period ended       period ended    period ended
                                                                     October 1,          October 2,     October 3,
                                                                        1999              1998             1997
                                                                  ----------------   --------------   --------------
<S>                                                               <C>                <C>              <C>
DETAIL OF NET CASH PROVIDED
    BY OPERATING ACTIVITIES
Net (loss) earnings                                               $        (9,658)           5,177           13,772
Adjustments to reconcile net (loss) earnings to
    net cash provided by operating activities:
       Depreciation                                                        10,851            9,981            8,572
       Amortization of deferred debt issue costs                            1,209            1,372            1,952
       Amortization of goodwill and intangibles                             2,784            1,316            1,058
       Deferred taxes                                                           -            3,892           (6,363)
       Interest accrued on stockholder loans                                  (49)             (37)             (58)
       Loss (Gain) on the disposition of assets                                61               32             (471)
       Changes in operating assets and liabilities:
            Accounts receivable                                               889            2,842           (1,946)
            Inventories                                                     1,752           (1,863)          (4,279)
            Other current assets                                               17             (219)             913
            Accounts payable - trade                                           72            2,721             (108)
            Accrued expenses                                                  601              552           (7,283)
            Product warranty                                                 (169)            (477)            (116)
            Income tax payable                                             (1,281)          (1,716)           1,415
            Advance payments from customers                                  (797)            (264)          (1,738)
                                                                  ----------------   --------------   --------------
Net cash provided by operating activities                         $         6,282           23,309            5,320
                                                                  ================   ==============   ==============
</TABLE>


See accompanying notes to the consolidated financial statements.

                                     -F-7-
<PAGE>   44

                    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") develops, manufactures and
distributes microwave and power grid vacuum electronic devices, microwave
amplifiers, modulators and various other power supply equipment and devices. The
Company operates six manufacturing locations 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's) Electron Device business ("the Acquisition") and
then was merged with a wholly owned subsidiary of Communications & Power
Industries Holding Corporation ("Holding"), a corporation newly formed by a
group of investors, including management of Holding and CPI. The Acquisition was
accounted for as a purchase and, accordingly, the purchase price was allocated
based upon the fair values of assets acquired and liabilities assumed as of
August 11, 1995. Financing for the Acquisition was obtained through the issuance
of 12% Senior Subordinated Notes due 2005 (the "Senior Subordinated Notes") of
CPI in the aggregate principal amount of $100.0 million, the issuance of Series
A 14% Senior Redeemable Exchangeable Cumulative Preferred Stock due 2007 (the
"Senior Redeemable Preferred Stock") of CPI and the issuance of Series A 14%
Junior Cumulative Preferred Stock (the "Junior Preferred Stock") of CPI and
common stock of Holding.


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

               Basis of Presentation

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

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

               Use of Estimates

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



                                     -F-8-
<PAGE>   45
                    COMMUNICATIONS & POWER INDUSTRIES, INC.,
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                        Industries Holding Corporation)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

               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.

               Revenue Recognition

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

The estimated sales values of performance under certain contracts to commercial
customers and U.S. Government fixed-price and fixed-price incentive contracts in
process are recognized under the percentage of completion method of accounting
where the sales value is determined on the basis of costs incurred. Provisions
for anticipated losses are made in the period in which they first become
determinable. Sales under cost-reimbursement contracts, primarily research and
development contracts, are recorded as costs are incurred and include estimated
earned fees in the proportion that costs incurred to date bear to total
estimated costs. The fees under certain U.S. Government contracts may be
increased or decreased in accordance with cost or performance incentive

provisions which measure actual performance against established targets or other
criteria. Such incentive fee awards or penalties are included in revenue at the
time the amounts can be reasonably determined.

               Property, Plant, and Equipment

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

               Accounting for Long-Lived Assets

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

Goodwill represents the excess of the purchase price over the fair value of the
net assets acquired. The Company assesses the recoverability of the carrying
amount of goodwill by determining whether the carrying amount of goodwill can be
recovered through undiscounted net cash flows of the acquired operation over the
remaining amortization period. If determined to be impaired, the



                                     -F-9-
<PAGE>   46
                    COMMUNICATIONS & POWER INDUSTRIES, INC.,
                                and subsidiaries
              (A wholly owned subsidiary of Communications & Power
                        Industries Holding Corporation)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

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 $6.4 million and $3.6 million as of October 1, 1999
and October 2, 1998, respectively.

On October 6, 1998, CPI acquired the Microwave Components Division ("MCD") of
Aydin Corporation for approximately $8.9 million with net assets of
approximately $2.4 million. Of the $6.5 million difference between the purchase
price and the fair value of the net assets acquired, $3.4 million was allocated
to goodwill and $3.1 million was allocated to other identifiable intangibles
including customer list, trade name, covenant not to compete, software rights
and debt issuance cost, whose useful lives range from 1 to 3 years. This
acquisition was accounted for as a purchase.

               Warranty

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

               Environmental Liabilities

Liabilities for environmental expenditures are recorded when it is probable that
obligations have been incurred and the amounts can be reasonably estimated.
There were no environmental liabilities established by CPI during Fiscal 1999,
Fiscal 1998 or Fiscal 1997. Varian retained the environmental liabilities
existing at the time of the Acquisition.

               Deferred Debt Issue Costs

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

               Senior Redeemable Preferred Stock

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



                                     -F-10-
<PAGE>   47

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

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

               Income Taxes

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

               Business Risks and Credit Concentrations

Defense-related applications such as certain radar, electronic countermeasures
and military communications constitute a significant portion of CPI's sales. The
U.S. defense budget has been declining since the mid-1980s. Although management
believes that CPI has successfully responded to shrinking defense budgets by
refocusing its operations on commercial and other non-defense applications, a
significant further decline in U.S. or global military spending could have a
material adverse effect on CPI's sales and earnings. Additionally, companies
engaged in supplying defense-related equipment and services to government
agencies are subject to certain business risks, including the ability of the
U.S. government to suspend them from receiving new contracts or to terminate
existing contracts for the U.S. government's convenience or for the default of
the contractor. In addition, the U.S. government could terminate contracts due
to insufficient or terminated congressional appropriations. CPI's contracts with
foreign governmental defense agencies are subject to similar limitations and
risks as those encountered with U.S. government contracts.

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

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

               Foreign Currency Translation

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



                                     -F-11-
<PAGE>   48

                    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 and long-term debt. The carrying value of CPI's cash and cash
equivalents, accounts receivable, and accounts payable 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 83.00
(100.00 is face value) as of October 19, 1999.

               Change in Accounting Estimate

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

               Comprehensive Income

The Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive
Income", during fiscal 1999. SFAS No. 130 establishes standards for reporting
and display of comprehensive income and its components in a full set of
general-purpose financial statements. SFAS No. 130 requires all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed in
prominence with the other financial statements. The adoption of SFAS No. 130 did
not have any effect on the reporting and display of the financial position,
results of operations or cash flows of the Company, as there is no difference
between net income and comprehensive income for the years ended October 1, 1999,
October 2, 1998, and October 3, 1997.

               Segment Reporting

The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information", which establishes annual and interim reporting
standards for an enterprise's operating segments and related disclosures about
its products, services, geographic areas and major customers, during fiscal
1999. An operating segment is defined as a component of an enterprise that
engages in business activities from which it may earn revenues and incur
expenses, and about which separate financial information is regularly evaluated
by the chief operating decision maker in deciding how to allocate resources.


3.  BALANCE SHEET COMPONENTS

               Accounts Receivable

Accounts receivable are stated net of allowances for doubtful accounts of
$1,143,000 and $636,000 as of October 1, 1999 and October 2, 1998, respectively.



                                     -F-12-
<PAGE>   49

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

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

               Inventories

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

<TABLE>
<CAPTION>
                                                    Fiscal Year
               (Dollars in thousands)             1999          1998
                                                -------       -------
<S>                                             <C>           <C>
         Raw materials and parts                $39,953       $38,327
         Work in process                          9,878        13,572
         Finished goods                           2,695         1,024
                                                -------       -------
         Total inventories                      $52,526       $52,923
                                                =======       =======
</TABLE>

               Property, Plant, and Equipment

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


<TABLE>
<CAPTION>
                                                   Fiscal Year
               (Dollars in thousands)            1999         1998
                                              --------      -------
<S>                                           <C>           <C>
         Land and land leaseholds             $ 36,567     $ 36,408
         Buildings                              19,750       18,732
         Machinery and equipment                49,042       42,556
         Leased equipment                        4,031        3,129
         Construction in progress                2,984        2,808
                                              --------     --------
         Subtotal                              112,374      103,633
         Less accumulated depreciation
                 and amortization              (36,149)     (25,534)
                                              --------     --------
         Net property, plant and equipment    $ 76,225     $ 78,099
                                              ========     ========
</TABLE>

Accumulated amortization of equipment under capital lease arrangements was
$1,254,000 and $547,000 as of October 1, 1999 and October 2, 1998, respectively,
and is included in depreciation expense on the statement of cash flows.

               Accrued Expenses

Accrued expenses are comprised of the following:

<TABLE>
<CAPTION>
                                                   Fiscal Year
               (Dollars in thousands)            1999         1998
                                               -------      -------
<S>                                            <C>          <C>
         Taxes                                 $ 1,187      $   818
         Payroll and employee benefits           9,994        9,417
         Accrued interest                        2,528        2,520
         Other                                   2,780        2,857
                                               -------      -------
         Total accrued expenses                $16,489      $15,612
                                               =======      =======
</TABLE>



                                     -F-13-
<PAGE>   50

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

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

4.   SENIOR CREDIT AGREEMENT

(a) The Senior Credit Agreement provides for two term loans in the aggregate
amount of $42.0 million, comprised of a $25.0 million "Term Loan A" tranche and
a $17.0 million "Term Loan B" tranche, and a $45.0 million revolving credit
facility which includes a sub-facility of $7.5 million for letters of credit.
This revolving credit facility was increased from $35.0 million to $45.0 million
as of October 6, 1998 related to the Company's acquisition of the Microwave
Components Division of Aydin Corporation that was also completed on October 6,
1998.

Availability of advances under the Revolving Credit Facility is subject to a
borrowing base test. CPI's obligations under the Senior Credit Agreement are
secured by substantially all of its assets (including the issued and outstanding
capital stock of its direct and indirect subsidiaries) and are guaranteed by
Holding and all of CPI's subsidiaries. As of October 1, 1999, CPI had $5.2
million available under the Revolving Credit Facility.

Borrowings under the Revolving Credit Facility and Term Loan A bear interest at
a rate equal to the Eurodollar Rate (approximately 5.35% as of October 1, 1999)
plus 2.75% per annum or the Base Rate (8.25% as of October 1, 1999) plus 1.25%
per annum and borrowings under Term Loan B bear interest at a rate equal to the
Eurodollar Rate plus 3.25% per annum or Base Rate plus 1.75% per annum, in each
case as selected by CPI. Applicable interest rate margins on Term Loan A, Term
Loan B and the Revolving Credit Facility were increased by 0.25% per annum as of
July 26, 1999 tied to an amendment of the Company's Credit Agreement. In
addition to customary fronting and other fees, CPI will pay a fee equal to 1.5%
per annum on outstanding but undrawn amounts of letters of credit and a
commitment fee of 0.5% per annum on unused facilities under the Revolving Credit
Facility.

The Term Loans are subject to quarterly payments in the aggregate annual amounts
as follows (in thousands):

<TABLE>
<CAPTION>
                                          Term           Term
                       Fiscal Year       Loan A         Loan B
                     ---------------- -------------- --------------
                     <S>              <C>            <C>
                          2000              $7,500        $   200

                          2001                   -          6,050

                          2002                   -         10,000
                     ---------------- -------------- --------------
                                            $7,500        $16,250
                                      ============== ==============
</TABLE>

As of October 1, 1999, CPI had made payments of $17.5 million against Term Loan
A and $0.75 million against Term Loan B, of which, $6.0 million and $0.2 million
were paid in Fiscal 1999 against Term Loan A and Term Loan B, respectively. The
Term Loan Termination Date with respect to Term Loan A is August 11, 2000 and,
with respect to Term Loan B, August 11, 2002.

(b) The Company's current fiscal year performance resulted in its failure to
meet certain financial covenants contained in the Company's Senior Credit
Agreement. The Company did obtain a limited waiver of defaults from 100% of its
lenders and has subsequently completed a more comprehensive restructuring
amendment to the credit facility. This was accomplished on December 27, 1999
with



                                     -F-14-
<PAGE>   51

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

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

Amendment No. 7 which is filed as an Exhibit to this Form 10-K. Amendment No. 7
extends the Commitment Termination Date with respect to the Revolving Credit
Loan to January 1, 2001, increases the interest rates applicable to all loans by
25 basis points, modifies the financial covenants to reflect the Company's
reduced expectations for financial results in the upcoming quarters and further
restricts certain "Permitted Affiliate Transactions", certain "Permitted
Indebtedness" and certain "Permitted Investments" as set forth in Annex A to the
Agreement.


5.  SENIOR SUBORDINATED NOTES

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

The Notes are not redeemable at CPI's option prior to August 1, 2000.
Thereafter, 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 below:

<TABLE>
<CAPTION>
           Year            Percentage
           ----            ----------
<S>                        <C>
           2000              106.0%
           2001              104.5%
           2002              103.0%
           2003              101.5%
    2004 and thereafter      100.0%
</TABLE>

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

6.  SENIOR REDEEMABLE PREFERRED STOCK

CPI is authorized to issue up to 325,000 shares of nonvoting Series B 14% Senior
Redeemable Exchangeable Cumulative Preferred Stock due 2007 (the "Senior
Preferred Stock"), including



                                     -F-15-
<PAGE>   52

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

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

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. 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. After August 1, 2000, dividends may be paid only in
cash.

During the year ended October 1, 1999, CPI paid preferred dividends through the
issuance of 33,312 shares of its Senior Redeemable Preferred Stock at a value of
$100 per share.

The Senior Preferred Stock is not redeemable prior to August 1, 2000.
Thereafter, the Senior Preferred Stock will be redeemable at the option of CPI,
in whole or in part from time to time, initially at 107% of the liquidation
preference thereof and at decreasing prices thereafter to and including August
1, 2004 and thereafter at 100% of the liquidation preference thereof, together
in each case with accumulated and unpaid dividends thereon. The Senior Preferred
Stock is subject to mandatory redemption in whole on August 1, 2007 at a price
equal to the liquidation preference thereof, plus accumulated and unpaid
dividends.

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

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

CPI may, at its option, on any dividend payment date, exchange all, but not less
than all, of the outstanding shares of Senior Preferred Stock into 14% Junior
Subordinated Notes due 2007 (the "Exchange Notes"), so long as such exchange is
permitted by the Senior Credit Agreement and the Indenture, in an aggregate
principal amount not to exceed the aggregate liquidation preference, plus
accumulated and unpaid dividends on the date of exchange. The Exchange Notes
will be general unsecured obligations of CPI and will be subordinated to all
existing and future senior indebtedness of CPI, including indebtedness under the
Senior Credit Agreement and the Indenture. Except for terms relating to these
subordination provisions, payment of interest on a quarterly basis, the option
to issue additional Exchange Notes on or prior to August 1, 2000 in lieu of
paying cash interest, 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.



                                     -F-16-
<PAGE>   53

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

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

7.  JUNIOR PREFERRED STOCK

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

During the year ended October 1, 1999, CPI paid preferred dividends through the
issuance of 22,208 shares of its Junior Preferred Stock at a value of $100 per
share .

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


8.  SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest was $16.6 million, $16.4 million and $17.1 million in
Fiscal 1999, Fiscal 1998, and Fiscal 1997, respectively. Cash paid for taxes was
$1.8 million, $1.1 million and $1.7 million in Fiscal 1999, Fiscal 1998 and
Fiscal 1997, respectively.

Non-cash financing activities included the payment of preferred dividends by CPI
on its Senior Redeemable Preferred Stock and its Junior Preferred Stock through
the issuance of 33,312, 29,029 and 25,297 additional shares of its Senior
Redeemable Preferred Stock and 22,208, 19,354 and 16,865 additional shares of
its Junior Preferred Stock during Fiscal 1999, Fiscal 1998 and Fiscal 1997,
respectively. Amortization of discount and issue costs on the Senior Redeemable
Preferred Stock was $214,000 for each of the three years Fiscal 1999, Fiscal
1998 and Fiscal 1997. Equipment of $0.3 million, $1.5 million and $1.6 million
was acquired under capital leases for Fiscal 1999, Fiscal 1998 and Fiscal 1997,
respectively.



                                     -F-17-
<PAGE>   54

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

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

9.  LEASE COMMITMENTS

At October 1, 1999, CPI was committed to minimum rentals under non-cancelable
operating lease agreements primarily for land and facility space. CPI also
leases certain computer equipment under capital leases that expire in 2003. As
collateral for these capital leases, CPI has issued letters of credit totaling
$1.5 million. A summary of future minimum lease payments (in thousands) follows:

<TABLE>
<CAPTION>
                                                   Capital   Operating      Sublease
 Fiscal Year                                       Leases      Leases        Income
 -----------                                     ----------  ----------  ------------
<S>                                              <C>         <C>         <C>
    2000                                             $1,087      $1,326          $621
    2001                                              1,087         899            41
    2002                                                925         560            41
    2003                                                 22          97            41
    2004                                                  -          63            41
    Thereafter                                            -           4            41
                                                 ----------  ----------  ------------
    Total future minimum lease payments               3,121      $2,949          $826
                                                             ==========  ============
    Less amount representing interest, sales
tax            and additional obligations               411
                                                 ----------
    Present value of future minimum lease             2,710
payments
    Less current portion of obligations under
capital leases                                          885
                                                 ----------
    Obligations under capital leases, less
current portion                                      $1,825
                                                 ==========
</TABLE>

Real estate taxes, insurance, and maintenance are also obligations of CPI.
Rental expense under non-cancelable operating leases amounted to $943,000,
$721,000 and $734,000 for Fiscal 1999, Fiscal 1998, and Fiscal 1997,
respectively.

10.  CONTINGENCIES

The amount of outstanding letters of credit provided for under CPI's Senior
Credit Agreement was approximately $4.8 million as of October 1, 1999. These
outstanding obligations are comprised of the following: $1.6 million to one
foreign customer related to an advance payment guarantee, $1.5 million to two
lenders related to capital lease arrangements and $1.7 million to various other
beneficiaries related primarily to insurance needs and performance bond
guarantees.

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

Varian has also been named by the Environmental Protection Agency or third
parties as a potentially responsible party under the Comprehensive Environmental
Response Compensation and



                                     -F-18-
<PAGE>   55

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

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

Liability Act of 1980, as amended, at sites to which Varian (including in some
cases the Predecessor) 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 agreement for the sale of the Predecessor provides for Varian's retention of
liability arising out of investigative and remedial action and environmental
claims for conditions existing as of the closing date at the above-referenced
facilities. Accordingly, based on information currently available, management
believes that the costs of these matters are not likely to have a material
adverse effect on the financial condition, results of operations and cash flows
of CPI.

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

11.  SEGMENTS AND RELATED INFORMATION

The Company has two reportable segments: vacuum electronic devices ("VEDs") and
satcom equipment. Reportable segments are differentiated based on product. The
VED segment is made up of four operating units, which have been aggregated in
accordance with the criteria of SFAS 131. Each operating unit has a President
that reports directly to the Chief Executive Officer ("CEO"). The CEO has been
identified as the Chief Operating Decision Maker as defined by SFAS 131. The CEO
evaluates performance and allocates resources to each of these operating units
based on the Company's principle performance measure, earnings before income
taxes, interest, depreciation and amortization ("EBITDA"). These four operating
units have similar economic characteristics as measured by EBITDA. The Company's
analysis of the similarity of economic characteristics was based on both a
historical and anticipated future analysis of performance. In addition, the
aggregated units are similar in (i) the nature of their products, (ii) their
manufacturing processes, (iii) their customers and, (iv) their distribution and
sales methods.

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



                                     -F-19-
<PAGE>   56

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

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

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

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

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

Summarized financial information concerning the Company's reportable segments is
shown in the following table. Included in the "Other" column is financial
information for the Company's Solid State Products Division, which did not meet
the quantitative thresholds of SFAS 131, and certain unallocated corporate-level
operating expenses.


<TABLE>
<CAPTION>
                                                           Satcom
               (Dollars in thousands)           VEDs      Equipment       Other      Total
                                              --------    ---------      -------    --------
<S>                                          <C>          <C>            <C>        <C>
         Fiscal Year 1999:
         Revenues from external customers     $186,852      $61,901      $  6,927    $255,680
         Intersegment product transfers         14,514            0         1,740      16,254
         EBITDA                                 23,862        2,939        (4,274)     22,527
         Total Assets                          118,701       32,648        82,235     233,584
         Capital Expenditures                    5,447          920         1,893       8,260

         Fiscal Year 1998:
         Revenues from external customers      181,479       77,069         2,140     260,688
         Intersegment product transfers         16,747            0             0      16,747
         EBITDA                                 30,859        8,950        (1,792)     38,017
         Total Assets                          124,802       32,643        71,767     229,212
         Capital Expenditures                    4,805        1,156           604       6,565

         Fiscal Year 1997:
         Revenues from external customers      178,511       74,028           900     253,439
         Intersegment product transfers         20,228            0             0      20,228
         EBITDA                                 32,069        9,226        (1,854)     39,441
         Total Assets                          121,062       37,708        78,626     237,396
         Capital Expenditures                    6,237        1,223         1,723       9,183
</TABLE>



                                     -F-20-
<PAGE>   57

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

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

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

<TABLE>
<CAPTION>
               (Dollars in thousands)          Fiscal     Fiscal      Fiscal
                                                1999       1998        1997
                                             ---------- ----------- -----------
<S>                                          <C>        <C>         <C>
         Segment EBITDA                        $22,527     $38,017     $39,441
         Less:
         Depreciation and amortization          13,635      11,297       9,630
         Other                                     140
         Interest expense                       17,805      17,793      19,039
                                             ---------- ----------- -----------
         (Loss) earnings before taxes          $(9,053)    $ 8,927     $10,772
                                             ========== =========== ===========
</TABLE>

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


<TABLE>
<CAPTION>
                                                         Net Sales
                                             ----------------------------------
               (Dollars in thousands)          Fiscal     Fiscal      Fiscal
                                                1999       1998        1997
                                             ---------- ----------- -----------
<S>                                          <C>        <C>         <C>
         United States                        $167,508    $159,322    $167,957
         All foreign countries                  88,172     101,366      85,482
                                             ---------- ----------- -----------
         Total Sales                          $255,680    $260,688    $253,439
                                             ========== =========== ===========
</TABLE>

CPI has a single customer that accounts for 10% or more of consolidated sales.
Sales to this customer were $40.8 million, $35.5 million and $34.0 million of
the Company's consolidated revenues for Fiscal 1999, Fiscal 1998 and Fiscal
1997, respectively. A substantial majority of these sales were in the VED
segment products, but this customer also purchased satcom equipment products.


12.  RESEARCH AND DEVELOPMENT

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

<TABLE>
<CAPTION>
                                                     CPI       Customer     Total
              (Dollars in thousands)              Sponsored   Sponsored   Incurred
                                                  ---------   ---------   --------
<S>                                               <C>         <C>         <C>
     52-week period ended October 1, 1999           $8,983      $8,586    $17,569
     52-week period ended October 2, 1998            7,455       5,973     13,428
     53-week period ended October 3, 1997            7,681       5,897     13,578
</TABLE>



                                     -F-21-
<PAGE>   58

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

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

13.  PROVISION FOR INCOME TAXES

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


<TABLE>
<CAPTION>
                          52-week         52-week       53-week
                        period ended   period ended   period ended
                         October 1,      October 2,     October 3,
(Dollars in thousands)     1999            1998           1997
                        ------------   ------------   ------------
<S>                     <C>            <C>            <C>
          Domestic       $(12,017)       $  3,360       $  7,381
          Non-U.S           2,964           5,567          3,391
                         --------        --------       --------
          Total          $ (9,053)       $  8,927       $ 10,772
                         ========        ========       ========
</TABLE>


The provision (benefit) for income taxes is comprised of the following:

<TABLE>
<CAPTION>
                                           52-week       52-week        53-week
                                         period ended  period ended   period ended
                                          October 1,     October 2,     October 3,
              (Dollars in thousands)         1999          1998           1997
                                         ------------  ------------   ------------
CURRENT
<S>                                      <C>           <C>            <C>
    U.S. federal                           $    --       $    80        $ 1,677
    State                                       --          (571)           573
    Non-U.S                                    605           632          1,113
                                           -------       -------        -------
      Total Current                            605           141          3,363
                                           -------       -------        -------
DEFERRED
    U.S. federal                                --         3,677         (5,699)
    State                                       --          (545)        (1,098)
    Non-U.S                                     --           477            434
                                           -------       -------        -------
      Total Deferred                            --         3,609         (6,363)
                                           -------       -------        -------

Provision (benefit) for income taxes       $   605       $ 3,750        $(3,000)
                                           =======       =======        =======
</TABLE>



                                     -F-22-
<PAGE>   59

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

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

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

<TABLE>
<CAPTION>
                                                             Fiscal Year
                                                     -------------------------
                    (Dollars in thousands)               1999            1998
                                                     --------        --------
<S>                                                  <C>             <C>
DEFERRED TAX ASSETS:
    Inventory                                        $  4,751        $  4,682
    Product warranty                                    2,234           2,548
    Accrued vacation                                    2,009           2,062
    Deferred compensation                                 607             517
    Excess purchase price                               8,326          10,524
    Foreign tax credits                                 3,043           2,242
    Net operating loss carryover, tax effected          2,148              --
                                                     --------        --------
      Total deferred tax assets                        23,118          22,575
DEFERRED TAX LIABILITIES:
    Accelerated depreciation                           (3,285)         (5,063)
    Foreign jurisdictions, net                           (191)         (1,158)
    Other                                                 234          (1,205)
                                                     --------        --------
      Total deferred tax liabilities                   (3,242)         (7,426)
                                                     --------        --------
Total deferred tax assets                              19,876          15,149
(Less) valuation allowance                             (4,727)             --
                                                     --------        --------
Net deferred tax asset                               $ 15,149        $ 15,149
                                                     ========        ========
</TABLE>


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

The Company has unutilized U.S. Federal net operating loss carryforward of $6.1
million at the end of fiscal 1999, and unutilized U.S. Federal foreign tax
credit carryforwards of $3.0 million and $2.2 million at the end of Fiscal 1999
and 1998, respectively. The net operating loss carryforward expires in the year
2020. The foreign tax credit carryovers expire in the years 2002 through 2004.

A valuation allowance of $4.7 million was established at the end of Fiscal 1999
principally to account for the likely expiration of these foreign tax
carryovers. Management has established a valuation allowance to reduce the net
deferred tax asset to a level it believes is realizable based upon its business
forecast.



                                     -F-23-
<PAGE>   60

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

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

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

<TABLE>
<CAPTION>
                                                52-week        52-week       53-week
                                             period ended    period ended  period ended
                                               October 1,     October 2,    October 3,
                                                 1999           1998          1997
                                             ------------    ------------  ------------
<S>                                          <C>             <C>           <C>
Statutory federal income tax rate                 35.0%          35.0%         35.0%
State and local income tax, net of
    federal tax benefit                             --             --           6.4%
Rate differential on foreign income tax
    expense (benefit) and withholding tax          7.2%           2.0%          3.0%
Change to the beginning of year
    valuation allowance                          (52.2%)           --         (74.3%)
Other                                              3.3%           5.0%          2.0%
                                                ------         ------        ------
Effective tax rate                                (6.7%)         42.0%        (27.9%)
                                                ======         ======        ======
</TABLE>


14.  RETIREMENT AND PROFIT SHARING PLANS

CPI provides a qualified 401(k) investment plan covering substantially all of
its domestic and Canadian employees. The plan provides for CPI to contribute an
amount based on a percentage of each participant's base pay. CPI also has a
Non-Qualified Deferred Compensation Plan (the "Non-Qualified Plan") that allows
eligible executives and directors to defer a portion of their compensation.
Participant contributions and CPI matching contributions to the Non-Qualified
Plan are always 100% vested. The deferred compensation liability amounted to
approximately $312,000 and $434,000 as of October 1, 1999 and October 2, 1998,
respectively.

Total CPI contributions to these plans were $2.6 million for Fiscal 1999, $2.6
million for Fiscal 1998, and $2.5 million for Fiscal 1997.

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

15.  RELATED PARTY TRANSACTIONS

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

In connection with Holding's 1995 Management Equity Plan, certain executive
officers of CPI and Holding elected to pay a portion of the purchase price for
their Management Shares by delivery of a secured promissory note to Holding. The
aggregate principle amount of such Management Notes


                                     -F-24-
<PAGE>   61

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

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

was $895,376 as of October 1, 1999. Of this amount, $700,000 is
secured by a pledge of a portion (from 50% to 75%) of the Management Shares
issued to each executive officer and is guaranteed by Varian. The balance of
$195,376 is secured by a pledge of approximately 91% of the Management Shares
issued, but is not guaranteed by Varian. Outstanding principal under each type
of Management Note bears interest at an annually adjustable rate equal to the
"Applicable Federal Rate" in effect under Internal Revenue Code Section 1274(d)
for obligations of a term equal to the then-remaining term of such note.
Recourse by Holding under both types of Management Notes is limited to the
Management Shares pledged to secure the applicable note.

16.  PARENT COMPANY DATA

Holding has guaranteed CPI's senior debt obligations. Holding has no operations
other than its ownership of CPI. The consolidated balance sheets of Holding as
of October 1, 1999 and October 2, 1998 are substantially identical to that of
CPI and its subsidiaries, other than the presentation of CPI's preferred stock
as minority interest and the components of stockholders' equity of Holding and
is summarized as follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                                October 1,       October 2,
                                    ASSETS                                        1999             1998
                                                                                ---------        ----------
<S>                                                                             <C>              <C>
Current Assets                                                                  $ 114,792        $ 111,276
Long-term Assets                                                                  118,792          117,936
                                                                                ---------        ---------
      Total assets                                                              $ 233,584        $ 229,212
                                                                                =========        =========
                     LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities                                                             $  87,885        $  65,319
Long-term  debt and deferred taxes                                                117,811          126,298
                                                                                ---------        ---------
      Total liabilities                                                           205,696          191,617
Senior Redeemable Preferred Stock of subsidiary                                    24,228           20,683
Junior Preferred Stock of subsidiary                                               16,622           14,400
Stockholders' Equity:
     Common stock ($.01 par value, 400,000 shares authorized, 196,420
         shares issued and outstanding as of 1999 and 1998.)                            2                2
      Additional paid-in capital                                                   19,181           19,181
      Accumulated deficit                                                         (31,039)         (15,614)
      Less stockholder loans                                                       (1,106)          (1,057)
                                                                                ---------        ---------
           Total Liabilities and stockholders' equity                           $ 233,584        $ 229,212
                                                                                =========        =========
</TABLE>



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

                                     -F-25-
<PAGE>   62
                        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 October
1, 1999 and October 2, 1998, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the 52-week
period ended October 1, 1999, the 52-week period ended October 2, 1998 and the
53-week period ended October 3, 1997. In connection with our audits of the
consolidated financial statements for the periods indicated above, we have also
audited the financial statement schedule as listed in the accompanying index.
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 generally accepted auditing
standards. 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 October 1, 1999 and
October 2, 1998, the results of their operations and their cash flows for the
52-week period ended October 1, 1999, the 52-week period ended October 2, 1998,
and the 53-week period ended October 3, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

                                                                      s/KPMG LLP
Mountain View, California
December 14, 1999, except as to note 4(b), which is as of December 27, 1999



                                     -F-26-
<PAGE>   63

                        COMMUNICATIONS & POWER INDUSTRIES
                               HOLDING CORPORATION
                                and subsidiaries


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


<TABLE>
<CAPTION>
                                                                                                October 1,          October 2,
                                          ASSETS                                                   1999                1998
                                                                                                ---------           ---------
<S>                                                                                             <C>                 <C>
CURRENT ASSETS
     Cash and cash equivalents                                                                  $   4,247                 448
     Accounts receivable, net                                                                      49,596              49,484
     Inventories                                                                                   52,526              52,923
     Deferred taxes                                                                                 6,899               6,981
     Other current assets                                                                           1,524               1,440
                                                                                                ---------           ---------
         Total current assets                                                                     114,792             111,276

Property, plant, and equipment, net                                                                76,225              78,099
Goodwill and other intangibles, net                                                                28,723              25,147
Debt issue costs, net                                                                               5,594               6,522
Deferred taxes                                                                                      8,250               8,168
                                                                                                ---------           ---------
         Total assets                                                                           $ 233,584             229,212
                                                                                                =========           =========

LIABILITIES, SENIOR REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
     Revolving credit facility                                                                  $  35,000              13,300
     Current portion of term loans                                                                  7,700               6,200
     Current portion of capital leases                                                                885                 541
     Accounts payable - trade                                                                      13,522              13,140
     Accrued expenses                                                                              16,489              15,612
     Product warranty                                                                               3,575               3,734
     Income taxes payable                                                                           8,978              10,259
     Advance payments from customers                                                                1,736               2,533
                                                                                                ---------           ---------
         Total current liabilities                                                                 87,885              65,319
Senior term loans                                                                                  15,986              23,750
Senior subordinated notes                                                                         100,000             100,000
Obligations under capital leases                                                                    1,825               2,548
                                                                                                ---------           ---------
         Total liabilities                                                                        205,696             191,617
                                                                                                ---------           ---------
SENIOR REDEEMABLE PREFERRED STOCK ($.01 par value,
     325,000 shares authorized; 259,120 and 225,808 shares issued and outstanding
     as of 1999 an 1998, respectively, liquidation preference $100 per share)                      24,228              20,683
                                                                                                ---------           ---------
JUNIOR PREFERRED STOCK OF SUBSIDIARY ($.01 par value, 525,000 shares authorized:
     172,748 and 150,540 shares issued and outstanding as of 1999 and 1998,
     respectively, liquidation preference $100 per share)
Commitments and contingencies                                                                      16,622              14,400
                                                                                                ---------           ---------
STOCKHOLDERS' EQUITY
     Common stock ($.01 par value, 400,000 shares authorized; 196,420 shares
         issued and outstanding as of 1999 and 1998.)                                                   2                   2
     Additional paid-in capital                                                                    19,181              19,181
     Accumulated deficit                                                                          (31,039)            (15,614)
     Stockholder loans                                                                             (1,106)             (1,057)
                                                                                                ---------           ---------
         Net stockholders' equity (deficit)                                                       (12,962)              2,512

         Total liabilities, senior redeemable preferred stock and stockholders' equity          $ 233,584             229,212
                                                                                                =========           =========
</TABLE>

See accompanying notes to the consolidated financial statements.



                                     -F-27-
<PAGE>   64

                        COMMUNICATIONS & POWER INDUSTRIES
                               HOLDING CORPORATION
                                and subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (in thousands)


<TABLE>
<CAPTION>
                                                          52-Week             52-Week             53-Week
                                                        period ended        period ended        period ended
                                                          October 1,          October 2,         October 3,
                                                             1999                1998               1997
                                                        ------------        ------------        ------------
<S>                                                     <C>                 <C>                 <C>
Sales                                                     $ 255,680             260,688            253,439
Cost of sales                                               199,638             194,410            183,678
                                                          ---------           ---------          ---------
Gross profit                                                 56,042              66,278             69,761
                                                          ---------           ---------          ---------
Operating costs and expenses:
      Research and development                                8,983               7,455              7,681
      Selling and marketing                                  19,590              19,168             19,701
      General and administrative                             18,206              13,088             12,205

                                                          ---------           ---------          ---------
Total operating costs and expenses                           46,779              39,711             39,587
                                                          ---------           ---------          ---------
Operating income                                              9,263              26,567             30,174
Foreign currency (loss) gain                                   (511)                153               (363)
Interest expense                                             17,805              17,793             19,039
                                                          ---------           ---------          ---------
(Loss) earnings before taxes                                 (9,053)              8,927             10,772
Income tax expense (benefit)                                    605               3,750             (3,000)
                                                          ---------           ---------          ---------
Net (Loss) earnings                                          (9,658)              5,177             13,772

Preferred dividends:
     Senior Redeemable Preferred Stock                        3,331               2,904              2,530
     Junior Preferred Stock                                   2,222               1,935              1,686

                                                          ---------           ---------          ---------
Net (Loss) earnings attributable to Common Stock          $ (15,211)                338              9,556
                                                          =========           =========          =========
</TABLE>



See accompanying notes to the consolidated financial statements.



                                     -F-28-
<PAGE>   65

                        COMMUNICATIONS & POWER INDUSTRIES
                               HOLDING CORPORATION
                                and subsidiaries

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

<TABLE>
<CAPTION>
                                                                                                                    Total
                                                                      Additional                                 Stockholders'
                                                             Common    Paid-in     Accumulated   Stockholder        Equity
                                                             Stock     Capital      Deficit         Loans         (Deficit)
                                                           --------- ------------  -----------   --------------  -------------
<S>                                                        <C>       <C>           <C>           <C>             <C>
   Balances, September 27, 1996                            $       2      19,741      (25,080)       (1,042)            (6,379)
                                                           ========= ============  ===========   ==============  =============

   Amortization of discount and issue costs
       on Senior Redeemable Preferred Stock                                             (214)                            (214)
   Payment of dividends on Senior
       Redeemable Preferred Stock                                                     (2,530)                          (2,530)
   Payment of dividends on Junior
       Preferred Stock                                                                (1,686)                          (1,686)
   Net earnings                                                                       13,772                           13,772
   Interest accrued on stockholder loans                                                               (58)               (58)
   Purchase of Treasury Stock                                               (64)                                          (64)
                                                           --------- ------------  -----------   --------------  -------------
   Balances, October 3, 1997                               $       2      19,677      (15,738)       (1,100)             2,841
                                                           ========= ============  ===========   ==============  =============

   Amortization of discount and issue costs
       on Senior Redeemable Preferred Stock                                              (214)                            (214)
   Payment of dividends on Senior
       Redeemable Preferred Stock                                                      (2,904)                          (2,904)
   Payment of dividends on Junior
       Preferred Stock                                                                 (1,935)                          (1,935)
   Net earnings                                                                         5,177                            5,177
   Repayment of stockholder loans                                                                        80                 80
   Interest accrued on stockholder loans                                                                (37)               (37)
   Issuance of Treasury Stock                                                696                                           696
   Purchase of Treasury Stock                                             (1,192)                                       (1,192)
                                                           --------- ------------  -----------   --------------  --------------
   Balances, October 2, 1998                               $       2      19,181      (15,614)       (1,057)             2,512
                                                           ========= ============  ===========   ==============  ==============

   Amortization of discount and issue costs
       on Senior Redeemable Preferred Stock                                              (214)                            (214)
   Payment of dividends on Senior
       Redeemable Preferred Stock                                                      (3,331)                          (3,331)
   Payment of dividends on Junior
       Preferred Stock                                                                 (2,222)                          (2,222)
   Net loss                                                                            (9,658)                          (9,658)
   Repayment of stockholder loans                                                                         -                  -
   Interest accrued on stockholder loans                                                                (49)               (49)
                                                           --------- ------------  -----------   --------------  --------------
   Balances, October 1, 1999                               $       2      19,181      (31,039)       (1,106)           (12,962)
                                                           ========= ============  ===========   ==============  ==============
</TABLE>

See accompanying notes to the consolidated financial statements.



                                     -F-29-
<PAGE>   66

                        COMMUNICATIONS & POWER INDUSTRIES
                               HOLDING CORPORATION
                                and subsidiaries


                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)


<TABLE>
<CAPTION>
                                                                    52-Week           52-Week            53-Week
                                                                 period ended       period ended      period ended
                                                                   October 1,        October 2,         October 3,
                                                                     1999               1998               1997
                                                                 ------------       ------------      ------------
<S>                                                              <C>                <C>               <C>
OPERATING ACTIVITIES
     Net cash provided by operating activities                    $  6,282             23,309              5,320
                                                                  --------            -------             ------
INVESTING ACTIVITIES
     Proceeds from sale of
          property, plant and equipment                                 54                 61              2,545
     Purchase of property, plant, and equipment                     (8,260)            (6,565)            (9,183)
     Product line acquisitions                                                         (2,730)                --
     Purchase of net current assets in connection
          with acquisitions                                         (1,861)                --                 --
     Purchase of property and equipment in connection
          with acquisitions                                           (523)                --                 --
     Purchase of intangible assets in connection
          with acquisitions                                         (6,526)                --                 --
                                                                  --------            -------             ------
     Net cash used in investing activities                         (17,116)            (9,234)            (6,638)
                                                                  --------            -------             ------

FINANCING ACTIVITIES
     Repayments on capital leases                                     (688)               (38)                --
     Net Proceeds/(Repayments) from revolving credit
          facility                                                  21,700             (9,500)             5,800
     Repayments on Senior term loans                                (6,379)            (5,700)            (3,950)
     Repayments on debt issuance costs                                  --                 --               (194)
     Issuance of treasury stock                                         --                696                 --
     Purchases on treasury stock                                        --             (1,192)               (64)
     Repayments of stockholder loans                                    --                 80                 --
                                                                  --------            -------             ------
     Net cash provided by (used in) financing activities            14,633            (15,654)             1,592
                                                                  --------            -------             ------

NET INCREASE (DECREASE) IN
  CASH AND CASH EQUIVALENTS                                          3,799             (1,579)               274
Cash and cash equivalents at beginning of period                       448              2,027              1,753
                                                                  --------            -------             ------
Cash and cash equivalents at end of period                        $  4,247                448              2,027
                                                                  ========            =======             ======
</TABLE>


See accompanying notes to the consolidated financial statements.



                                     -F-30-
<PAGE>   67

                        COMMUNICATIONS & POWER INDUSTRIES
                               HOLDING CORPORATION
                                and subsidiaries


                CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
                                 (in thousands)

<TABLE>
<CAPTION>
                                                          52-Week             52-Week           53-Week
                                                        period ended       period ended       period ended
                                                          October 1,         October 2,         October 3,
                                                            1999               1998               1997
                                                        ------------       ------------       ------------
<S>                                                     <C>                <C>                <C>
DETAIL OF NET CASH PROVIDED
  BY OPERATING ACTIVITIES
Net (loss) earnings                                       $ (9,658)             5,177             13,772
Adjustments to reconcile net (loss) earnings to
  net cash provided by operating activities:
    Depreciation                                            10,851              9,981              8,572
    Amortization of deferred debt issue costs                1,209              1,372              1,952
    Amortization of goodwill and intangibles                 2,784              1,316              1,058
    Deferred taxes                                              --              3,892             (6,363)
    Interest accrued on stockholder loans                      (49)               (37)               (58)
    Loss (Gain) on the disposition of assets                    61                 32               (471)
    Changes in operating assets and liabilities:
         Accounts receivable                                   889              2,842             (1,946)
         Inventories                                         1,752             (1,863)            (4,279)
         Other current assets                                   17               (219)               913
         Accounts payable - trade                               72              2,721               (108)
         Accrued expenses                                      601                552             (7,283)
         Product warranty                                     (169)              (477)              (116)
         Income tax payable                                 (1,281)            (1,716)             1,415
         Advance payments from customers                      (797)              (264)            (1,738)
                                                          --------            -------            -------
Net cash provided by operating activities                 $  6,282             23,309              5,320
                                                          ========            =======            =======
</TABLE>


See accompanying notes to the consolidated financial statements.



                                     -F-31-
<PAGE>   68

                        COMMUNICATIONS & POWER INDUSTRIES
                               HOLDING CORPORATION
                                and subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

1.  NATURE OF OPERATIONS

Communications & Power Industries Holding Corporation ("Holding"), through its
wholly owned subsidiary, Communications & Power Industries, Inc. ("CPI", both
companies together referred to as "the Company") develops, manufactures and
distributes microwave and power grid vacuum electronic devices, microwave
amplifiers, modulators and various other power supply equipment and devices. The
Company operates six manufacturing locations 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's") Electron Device business ("the Acquisition") and
then was merged with a wholly owned subsidiary of Communications & Power
Industries Holding Corporation, a corporation newly formed by a group of
investors, including management of Holding and CPI. The Acquisition was
accounted for as a purchase and, accordingly, the purchase price was allocated
based upon the fair values of assets acquired and liabilities assumed as of
August 11, 1995. Financing for the Acquisition was obtained through the issuance
of 12% Senior Subordinated Notes due 2005 (the "Senior Subordinated Notes") of
CPI in the aggregate principal amount of $100.0 million, the issuance of Series
A 14% Senior Redeemable Exchangeable Cumulative Preferred Stock due 2007 (the
"Senior Redeemable Preferred Stock") of CPI and the issuance of Series A 14%
Junior Cumulative Preferred Stock (the "Junior Preferred Stock") of CPI and
common stock of Holding.


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                     Basis of Presentation

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

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

                     Use of Estimates

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

                     Cash and Cash Equivalents

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



                                     -F-32-
<PAGE>   69

                        COMMUNICATIONS & POWER INDUSTRIES
                               HOLDING CORPORATION
                                and subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

                     Revenue Recognition

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

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

                     Property, Plant, and Equipment

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

                     Accounting for Long-Lived Assets

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

Goodwill represents the excess of the purchase price over the fair value of the
net assets acquired. The Company assesses the recoverability of the carrying
amount of goodwill by determining whether the carrying amount of goodwill can be
recovered through undiscounted net cash flows of the acquired operation over the
remaining amortization period. If determined to be impaired, the carrying amount
is reduced to its estimated fair value which is based on an estimate of
discounted future net cash flows. Goodwill is being amortized on a straight-line
basis over estimated useful lives ranging from 15 to 25 years. Accumulated
amortization was $6.4 million and $3.6 million as of October 1, 1999 and October
2, 1998, respectively.

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



                                     -F-33-
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                        COMMUNICATIONS & POWER INDUSTRIES
                               HOLDING CORPORATION
                                and subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

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

                     Warranty

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

                     Environmental Liabilities

Liabilities for environmental expenditures are recorded when it is probable that
obligations have been incurred and the amounts can be reasonably estimated.
There were no environmental liabilities established by the Company during Fiscal
1999, Fiscal 1998 or Fiscal 1997. Varian retained the environmental liabilities
existing at the time of the Acquisition

                     Deferred Debt Issue Costs

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

                     Senior Redeemable Preferred Stock

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

                     Income Taxes

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



                                     -F-34-
<PAGE>   71

                        COMMUNICATIONS & POWER INDUSTRIES
                               HOLDING CORPORATION
                                and subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

                     Business Risks and Credit Concentrations

Defense-related applications such as certain radar, electronic countermeasures
and military communications constitute a significant portion of the Company's
sales. The U.S. defense budget has been declining since the mid-1980s. Although
management believes that the Company has successfully responded to shrinking
defense budgets by refocusing its operations on commercial and other non-defense
applications, a significant further decline in U.S. or global military spending
could have a material adverse effect on the Company's sales and earnings.
Additionally, companies engaged in supplying defense-related equipment and
services to government agencies are subject to certain business risks, including
the ability of the U.S. Government to suspend them from receiving new contracts
or to terminate existing contracts for the U.S. Government's convenience or for
the default of the contractor. In addition, the U.S. Government could terminate
contracts due to insufficient or terminated congressional appropriations. The
Company's contracts with foreign governmental defense agencies are subject to
similar limitations and risks as those encountered with U.S. Government
contracts.

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

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

                     Foreign Currency Translation

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

                     Fair Value of Financial Instruments

Financial instruments consist of cash and cash equivalents, accounts receivable,
accounts payable and long-term debt. The carrying value of the Company's cash
and cash equivalents, accounts receivable and accounts payable 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
83.00 (100.00 is face value) as of October 19, 1999.

                     Change in Accounting Estimate

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



                                     -F-35-
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                        COMMUNICATIONS & POWER INDUSTRIES
                               HOLDING CORPORATION
                                and subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

                     Comprehensive Income

The Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive
Income", during Fiscal 1999. SFAS No. 130 establishes standards for reporting
and display of comprehensive income and its components in a full set of
general-purpose financial statements. SFAS No. 130 requires all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed in
prominence with the other financial statements. The adoption of SFAS No. 130 did
not have any effect on the reporting and display of the financial position,
results of operations or cash flows of the Company, as there is no difference
between net income and comprehensive income for the years ended October 1, 1999,
October 2, 1998, and October 3, 1997.

                     Segment Reporting

The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information", which establishes annual and interim reporting
standards for an enterprise's operating segments and related disclosures about
its products, services, geographic areas and major customers, during Fiscal
1999. An operating segment is defined as a component of an enterprise that
engages in business activities from which it may earn revenues and incur
expenses, and about which separate financial information is regularly evaluated
by the chief operating decision maker in deciding how to allocate resources.


3.  BALANCE SHEET COMPONENTS

                     Accounts Receivable

Accounts receivable are stated net of allowances for doubtful accounts of
$1,143,000 and $636,000 as of October 1, 1999 and October 2, 1998, respectively.

                     Inventories

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

<TABLE>
<CAPTION>
                                                   Fiscal Year
             (Dollars in thousands)            1999             1998
                                             -------          -------
<S>                                          <C>              <C>
Raw materials and parts                      $39,953          $38,327
Work in process                                9,878           13,572
Finished goods                                 2,695            1,024
                                             -------          -------
Total inventories                            $52,526          $52,923
                                             =======          =======
</TABLE>



                                     -F-36-
<PAGE>   73

                        COMMUNICATIONS & POWER INDUSTRIES
                               HOLDING CORPORATION
                                and subsidiaries

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED



                     Property, Plant, and Equipment

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


<TABLE>
<CAPTION>
                                                      Fiscal Year
             (Dollars in thousands)             1999                1998
                                             ---------           ---------
<S>                                          <C>                 <C>
Land and land leaseholds                     $  36,567              36,408
Buildings                                       19,750              18,732
Machinery and equipment                         49,042              42,556
Leased equipment                                 4,031               3,129
Construction in progress                         2,984               2,808
                                             ---------           ---------
Subtotal                                       112,374             103,633
Less accumulated depreciation
        and amortization                       (36,149)            (25,534)
                                             ---------           ---------
Net property, plant and equipment            $  76,225              78,099
                                             =========           =========
</TABLE>

Accumulated amortization of equipment under capital lease arrangements was
$1,254,000 and $547,000 as of October 1, 1999 and October 2, 1998, respectively,
and is included in depreciation expense on the statement of cash flows.

                     Accrued Expenses

Accrued expenses are comprised of the following:

<TABLE>
<CAPTION>
                                                   Fiscal Year
             (Dollars in thousands)            1999             1998
                                             -------          -------
<S>                                          <C>              <C>
Taxes                                        $ 1,187          $   818
Payroll and employee benefits                  9,994            9,417
Accrued interest                               2,528            2,520
Other                                          2,780            2,857
                                             -------          -------
Total accrued expenses                       $16,489          $15,612
                                             =======          =======
</TABLE>


4.  SENIOR CREDIT AGREEMENT

(a) The Senior Credit Agreement provides for two term loans in the aggregate
amount of $42.0 million, comprised of a $25.0 million "Term Loan A" tranche and
a $17.0 million "Term Loan B" tranche, and a $45.0 million revolving credit
facility which includes a sub-facility of $7.5 million for letters of credit.
This revolving credit facility was increased from $35.0 million to $45.0 million
as of October 6, 1998 related to the Company's acquisition of the Microwave
Components Division of Aydin Corporation that was also completed on October 6,
1998.

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



                                     -F-37-
<PAGE>   74

                        COMMUNICATIONS & POWER INDUSTRIES
                               HOLDING CORPORATION
                                and subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


guaranteed by Holding and all of CPI's subsidiaries. As of October 1, 1999, CPI
had $5.2 million available under the Revolving Credit Facility.

Borrowings under the Revolving Credit Facility and Term Loan A bear interest at
a rate equal to the Eurodollar Rate (approximately 5.35% as of October 1, 1999)
plus 2.75% per annum or the Base Rate (8.25% as of October 1, 1999) plus 1.25%
per annum and borrowings under Term Loan B bear interest at a rate equal to the
Eurodollar Rate plus 3.25% per annum or Base Rate plus 1.75% per annum, in each
case as selected by CPI. Applicable interest rates on Term Loan A and the
Revolving Credit Facility were increased by 0.25% per annum as of July 26, 1999
tied to an amendment of the Company's Credit Agreement. In addition to customary
fronting and other fees, CPI will pay a fee equal to 1.5% per annum on
outstanding but undrawn amounts of letters of credit and a commitment fee of
0.5% per annum on unused facilities under the Revolving Credit Facility.

The Term Loans are subject to quarterly payments in the aggregate annual amounts
as follows (in thousands):

<TABLE>
<CAPTION>
                                  Term              Term
                Fiscal Year      Loan A            Loan B
                -----------      -------          -------
<S>                              <C>              <C>
                   2000          $ 7,500          $   200
                   2001               --            6,050
                   2002               --           10,000
                                 -------          -------
                                 $ 7,500          $16,250
                                 =======          =======
</TABLE>

As of October 1, 1999, CPI had made payments of $17.5 million against Term Loan
A and $0.75 million against Term Loan B, of which, $6.0 million and $0.2 million
were paid in Fiscal 1999 against Term Loan A and Term Loan B, respectively. The
Term Loan Termination Date with respect to Term Loan A is August 11, 2000 and,
with respect to Term Loan B, August 11, 2002.

(b) The Company's current fiscal year performance resulted in its failure to
meet certain financial covenants contained in the Company's Senior Credit
Agreement. The Company did obtain a limited waiver of defaults from 100% of its
lenders and has subsequently completed a more comprehensive restructuring
amendment to the credit facility. This was accomplished on December 27, 1999
with Amendment No. 7 which is filed as an Exhibit to this Form 10-K. Amendment
No. 7 extends the Commitment Termination Date with respect to the Revolving
Credit Loan to January 1, 2001, increases the interest rates applicable to all
loans by 25 basis points, modifies the financial covenants to reflect the
Company's reduced expectations for financial results in the upcoming quarters
and further restricts certain "Permitted Affiliate Transactions", certain
"Permitted Indebtedness" and certain "Permitted Investments" as set forth in
Annex A to the Agreement.

5.  SENIOR SUBORDINATED NOTES

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



                                     -F-38-
<PAGE>   75

                        COMMUNICATIONS & POWER INDUSTRIES
                               HOLDING CORPORATION
                                and subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


The Notes are not redeemable at CPI's option prior to August 1, 2000.
Thereafter, 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 below:

<TABLE>
<CAPTION>
                 Year                    Percentage
                 ----                    ----------
<S>                                      <C>
                 2000                      106.0%
                 2001                      104.5%
                 2002                      103.0%
                 2003                      101.5%
         2004 and thereafter               100.0%
</TABLE>

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


6.  SENIOR REDEEMABLE PREFERRED STOCK

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

During the year ended October 1, 1999, CPI paid preferred dividends through the
issuance of 33,312 shares of its Senior Redeemable Preferred Stock at a value of
$100 per share.

The Senior Preferred Stock is not redeemable prior to August 1, 2000.
Thereafter, the Senior Preferred Stock will be 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.



                                     -F-39-
<PAGE>   76

                        COMMUNICATIONS & POWER INDUSTRIES
                               HOLDING CORPORATION
                                and subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


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

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

CPI may, at its option, on any dividend payment date, exchange all, but not less
than all, of the outstanding shares of Senior Preferred Stock into 14% Junior
Subordinated Notes due 2007 (the "Exchange Notes"), so long as such exchange is
permitted by the Senior Credit Agreement and the Indenture, in an aggregate
principal amount not to exceed the aggregate liquidation preference, plus
accumulated and unpaid dividends on the date of exchange. The Exchange Notes
will be general unsecured obligations of CPI and will be subordinated to all
existing and future senior indebtedness of CPI, including indebtedness under the
Senior Credit Agreement and the Indenture. Except for terms relating to these
subordination provisions, payment of interest on a quarterly basis, the option
to issue additional Exchange Notes on or prior to August 1, 2000 in lieu of
paying cash interest, optional redemption and the date on which repayment is
mandatory (all of which terms would be similar to the terms of Senior Preferred
Stock), the terms of the Exchange Notes will be generally identical to the
Notes.


7.  JUNIOR PREFERRED STOCK

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

During the year ended October 1, 1999, CPI paid preferred dividends through the
issuance of 22,208 shares of its Junior Preferred Stock at a value of $100 per
share.

The Junior Preferred Stock ranks junior in right of payment to all liabilities
of CPI and to any preferred stock, including Senior Preferred Stock, that is
senior in right of payment to the Junior Preferred Stock and ranks senior in
right of payment to any additional preferred stock which does not



                                     -F-40-
<PAGE>   77

                        COMMUNICATIONS & POWER INDUSTRIES
                               HOLDING CORPORATION
                                and subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


expressly provide that it ranks senior to or on a parity with the Junior
Preferred Stock and CPI's common stock.


8.  SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest was $16.6 million, $16.4 million and $17.1 million, in
Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively. Cash paid for taxes was
$1.8 million, $1.1 million and $1.7 million in Fiscal 1999, Fiscal 1998 and
Fiscal 1997, respectively.

Non-cash financing activities included the payment of preferred dividends by CPI
on its Senior Redeemable Preferred Stock and its Junior Preferred Stock through
the issuance of 33,312, 29,029 and 25,297 additional shares of its Senior
Redeemable Preferred Stock and 22,208, 19,354 and 16,865 additional shares of
its Junior Preferred Stock during Fiscal 1999, Fiscal 1998 and Fiscal 1997 ,
respectively. Amortization of discount and issue costs on the Senior Redeemable
Preferred Stock was $214,000 for each of the three years Fiscal 1999, Fiscal
1998 and Fiscal 1997. Equipment of $0.3 million, $1.5 million and $1.6 million
was acquired under capital leases for Fiscal 1999, Fiscal 1998 and Fiscal 1997,
respectively.


9.  LEASE COMMITMENTS

At October1, 1999, the Company was committed to minimum rentals under
non-cancelable operating lease agreements primarily for land and facility space.
The Company also leases certain computer equipment under capital leases that
expire in 2003. As collateral for these capital leases, the Company has issued
letters of credit totaling $1.5 million. A summary of future minimum lease
payments (in thousands) follows:

<TABLE>
<CAPTION>
                                                                  Capital    Operating    Sublease
Fiscal Year                                                        Leases      Leases      Income
-----------                                                      ----------  -----------  ----------
<S>                                                              <C>         <C>          <C>
2000                                                                 $1,087        1,326        $621
2001                                                                  1,087          899          41
2002                                                                    925          560          41
2003                                                                     22           97          41
2004                                                                      -           63          41
Thereafter                                                                -            4          41
                                                                 ----------  -----------  ----------
Total future minimum lease payments                                   3,121       $2,949        $826
                                                                             ===========  ==========
Less amount representing interest,
     sales tax and additional obligations                              411
                                                                 ----------
Present value of future minimum lease payments                        2,710
Less current portion of obligations
     under capital leases                                               885
                                                                 ----------
Obligations under capital leases, less current portion               $1,825
                                                                 ==========
</TABLE>

Real estate taxes, insurance, and maintenance are also obligations of the
Company. Rental expense under non-cancelable operating leases amounted to
$943,000, $721,000 and $734,000, for Fiscal 1999, Fiscal 1998 and Fiscal 1997,
respectively.



                                     -F-41-
<PAGE>   78

                        COMMUNICATIONS & POWER INDUSTRIES
                               HOLDING CORPORATION
                                and subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

10.  CONTINGENCIES

The amount of outstanding letters of credit provided for under CPI's Senior
Credit Agreement was approximately $4.8 million as of October 1, 1999. These
outstanding obligations are comprised of the following: $1.6 million to one
foreign customer related to an advance payment guarantee, $1.5 million to two
lenders related to capital lease arrangements and $1.7 million to various other
beneficiaries related primarily to insurance needs and performance bond
guarantees.

Varian is currently a defendant in certain legal actions relating to the
Predecessor and could incur an uninsured liability in one or more of them. The
agreement for the sale of the Predecessor 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 (including in some cases the Predecessor) is alleged to have shipped
manufacturing waste for disposal. Varian is also involved in various stages of
environmental investigation and/or remediation under the direction of, or in
consultation with, local and/or state agencies at certain facilities of the
Company. Uncertainty as to (a) the extent to which Varian caused, if at all, the
conditions being investigated; (b) the extent of environmental contamination and
risks; (c) the applicability of changing and complex environmental laws; (d) the
number and financial viability of other potentially responsible parties; (e) the
stage of the investigation and/or remediation; (f) the unpredictability of
investigation and/or remediation costs (including as to when they will be
incurred); (g) applicable clean-up standards; (h) the remediation (if any) which
will ultimately be required; and (i) available technology make it difficult to
assess the likelihood and scope of further investigation or remediation
activities or to estimate the future costs of such activities if undertaken.

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

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


11.  SEGMENTS AND RELATED INFORMATION


The Company has two reportable segments: vacuum electronic devices ("VEDs") and
satcom equipment. Reportable segments are differentiated based on product. The
VED segment is made up of four operating units, which have been aggregated in
accordance with the criteria of SFAS 131. Each operating unit has a President
that reports directly to the Chief Executive Officer ("CEO").



                                     -F-42-
<PAGE>   79

                        COMMUNICATIONS & POWER INDUSTRIES
                               HOLDING CORPORATION
                                and subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

The CEO has been identified as the Chief Operating Decision Maker as defined by
SFAS 131. The CEO evaluates performance and allocates resources to each of these
operating units based on the Company's principle performance measure, earnings
before income taxes, interest, depreciation and amortization ("EBITDA"). These
four operating units have similar economic characteristics as measured by
EBITDA. The Company's analysis of the similarity of economic characteristics was
based on both a historical and anticipated future analysis of performance. In
addition, the aggregated units are similar in (i) the nature of their products,
(ii) their manufacturing processes, (iii) their customers and, (iv) their
distribution and sales methods.

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

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

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

Summarized financial information concerning the Company's reportable segments is
shown in the following table. Included in the "Other" column is financial
information for the Company's Solid State Products Division, which did not meet
the quantitative thresholds of SFAS 131, and certain unallocated corporate-level
operating expenses.



                                     -F-43-
<PAGE>   80

                        COMMUNICATIONS & POWER INDUSTRIES
                               HOLDING CORPORATION
                                and subsidiaries

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED



<TABLE>
<CAPTION>
                                                                          Satcom
             (Dollars in thousands)                       VEDs           Equipment            Other              Total
                                                        --------         ---------          --------           --------
<S>                                                     <C>              <C>                <C>                <C>
Fiscal Year 1999:
Revenues from external customers                        $186,852          $ 61,901          $  6,927           $255,680
Intersegment product transfers                            14,514                 0             1,740             16,254
EBITDA                                                    23,862             2,939            (4,274)            22,527
Total Assets                                             118,701            32,648            82,235            233,584
Capital Expenditures                                       5,447               920             1,893              8,260

Fiscal Year 1998:
Revenues from external customers                         181,479            77,069             2,140            260,688
Intersegment product transfers                            16,747                 0                 0             16,747
EBITDA                                                    30,859             8,950            (1,792)            38,017
Total Assets                                             124,802            32,643            71,767            229,212
Capital Expenditures                                       4,805             1,156               604              6,565

Fiscal Year 1997:
Revenues from external customers                         178,511            74,028               900            253,439
Intersegment product transfers                            20,228                 0                 0             20,228
EBITDA                                                    32,069             9,226            (1,854)            39,441
Total Assets                                             121,062            37,708            78,626            237,396
Capital Expenditures                                       6,237             1,223             1,723              9,183
</TABLE>

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

<TABLE>
<CAPTION>
                                                                   Fiscal 1999       Fiscal 1998       Fiscal 1997
                                                                   -----------       -----------       -----------
<S>                                                                <C>               <C>               <C>
             Segment EBITDA                                         $ 22,527           $ 38,017          $ 39,441
             Less:
             Depreciation and amortization                            13,635             11,297             9,630
             Other                                                       140
             Interest expense                                         17,805             17,793            19,039
                                                                    --------           --------          --------
             (Loss) earnings before taxes                           $ (9,053)          $  8,927          $ 10,772
                                                                    ========           ========          ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                        Net Sales
                                     -----------------------------------------------
     (Dollars in thousands)          Fiscal 1999       Fiscal 1998       Fiscal 1997
                                     -----------       -----------       -----------
<S>                                  <C>               <C>               <C>
United States                          $167,508          $159,322          $167,957
All foreign countries                    88,172           101,366            85,482
                                       --------          --------          --------
Total Sales                            $255,680          $260,688          $253,439
                                       ========          ========          ========
</TABLE>



                                     -F-44-
<PAGE>   81

                        COMMUNICATIONS & POWER INDUSTRIES
                               HOLDING CORPORATION
                                and subsidiaries

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

CPI has a single customer that accounts for 10% or more of consolidated sales.
Sales to this customer were $40.8 million, $35.5 million and $34.0 million of
the Company's consolidated


revenues for Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively. A
substantial majority of these sales were in the VED segment products, but this
customer also purchased satcom equipment products.


12.  RESEARCH AND DEVELOPMENT

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

<TABLE>
<CAPTION>
                                                CPI            Customer          Total
(Dollars in thousands)                       Sponsored        Sponsored         Incurred
                                             ---------        ---------         --------
<S>                                          <C>              <C>               <C>
52-week period ended October 1, 1999          $ 8,983          $ 8,586          $17,570
52-week period ended October 2, 1998            7,455            5,973           13,428
53-week period ended October 3, 1997            7,681            5,897           13,578
</TABLE>


13.  PROVISION FOR INCOME TAXES

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

<TABLE>
<CAPTION>
                                         52-week            52-week           53-week
                                       period ended      period ended      period ended
(Dollars in thousands)                  October 1,         October 2,        October 3
                                          1999               1998              1997
                                       ------------      ------------      ------------
<S>                                    <C>               <C>               <C>
Domestic                                $(12,017)          $  3,360          $  7,381
Non-U.S                                    2,964              5,567             3,391
                                        --------           --------          --------
Total                                   $ (9,083)          $  8,927          $ 10,772
                                        ========           ========          ========
</TABLE>

The provision (benefit) for income taxes is comprised of the following:


<TABLE>
<CAPTION>
                                               52-week           52-week          53-week
                                             period ended      period ended     period ended
          (Dollars in thousands)              October 1,        October 2,       October 3,
                                                1999              1998              1997
                                             ------------      ------------     ------------
<S>                                          <C>               <C>              <C>
CURRENT
    U.S. federal                              $    --           $    80           $ 1,677
    State                                          --              (571)              573
    Non-U.S                                       605               632             1,113
                                              -------           -------           -------
        Total Current                             605               141             3,363
DEFERRED
    U.S. federal                                   --             3,677            (5,699)
    State                                          --              (545)           (1,098)
    Non-U.S                                        --               477               434
                                              -------           -------           -------
        Total Deferred                             --             3,609            (6,363)
                                              -------           -------           -------
Provision (benefit) for income taxes          $   605           $ 3,750           $(3,000)
                                              =======           =======           =======
</TABLE>



                                     -F-45-
<PAGE>   82

                        COMMUNICATIONS & POWER INDUSTRIES
                               HOLDING CORPORATION
                                and subsidiaries

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

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

<TABLE>
<CAPTION>
                                                                       Fiscal Year
                                                               ---------------------------
                 (Dollars in thousands)                          1999               1998
                                                               --------           --------
<S>                                                            <C>                <C>
DEFERRED TAX ASSETS:
    Inventory                                                  $  4,751           $  4,682
    Product warranty                                              2,234              2,548
    Accrued vacation                                              2,009              2,062
    Deferred compensation                                           607                517
    Excess purchase price                                         8,326             10,524
    Foreign tax credits                                           3,043              2,242
    Net operating loss carryover, tax effected                    2,148                 --
                                                               --------           --------
      Total deferred tax assets                                  23,118             22,575
DEFERRED TAX LIABILITIES:
    Accelerated depreciation                                     (3,285)            (5,063)
    Foreign jurisdictions, net                                     (191)            (1,158)
    Other                                                           234             (1,205)
                                                               --------           --------
      Total deferred tax liabilities                             (3,242)            (7,426)
                                                               --------           --------
Total deferred tax assets                                        19,876             15,149
(Less) valuation allowance                                       (4,727)                --
                                                               --------           --------
Net deferred tax asset                                         $ 15,149           $ 15,149
                                                               ========           ========
</TABLE>


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

The Company has unutilized U.S. Federal net operating loss carryforward of $6.1
million at the end of Fiscal 1999, and unutilized U.S. Federal foreign tax
credit carryforwards of $3.0 million and $2.2 million at the end of Fiscal 1999
and 1998, respectively. The net operating loss carryforward expires in the year
2020. The foreign tax credit carryovers expire in the years 2002 through 2004.

A valuation allowance of $4.7 million was established at the end of Fiscal 1999
principally to account for the likely expiration of these foreign carryovers.
Management has established a valuation allowance to reduce the net deferred tax
asset to a level it believes is realizable based upon its business forecast.

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

<TABLE>
<CAPTION>
                                                   52-week           52-week          53-week
                                                 period ended     period ended      period ended
                                                  October 1,        October 2,       October 3,
                                                    1999              1998             1997
                                                 ------------     ------------      ------------
<S>                                              <C>              <C>               <C>
Statutory federal income tax rate                    35.0%             35.0%            35.0%
State and local income tax, net of
      federal tax benefit                              --                --              6.4%
Rate differential on foreign income tax
  expense (benefit) and withholding tax               7.2%              2.0%             3.0%
Change to the beginning of year valuation
   allowance                                        (52.2%)              --            (74.3%)
Other                                                 3.3%              5.0%             2.0%
                                                   ------            ------           ------
Effective tax rate                                   (6.7%)            42.0%           (27.9%)
                                                   ======            ======           ======
</TABLE>



                                     -F-46-
<PAGE>   83

                        COMMUNICATIONS & POWER INDUSTRIES
                               HOLDING CORPORATION
                                and subsidiaries

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


14.  RETIREMENT AND PROFIT SHARING PLANS

CPI provides a qualified 401(k) investment plan covering substantially all of
its domestic and Canadian employees. The plan provides for CPI to contribute an
amount based on a percentage of each participant's base pay. CPI also has a
Non-Qualified Deferred Compensation Plan (the "Non-Qualified Plan") that allows
eligible executives and directors to defer a portion of their compensation.
Participant contributions and Company matching contributions are always 100%
vested. The deferred compensation liability amounted to approximately $312,000
and $434,000 as of October 1, 1999 and October 2, 1998, respectively.

Total CPI contributions to these plans were $2.6 million for Fiscal 1999, $2.6
million for Fiscal 1998, and $2.5 million for Fiscal 1997.

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


15.  RELATED PARTY TRANSACTIONS

Holding and the Company have entered into an agreement to pay $362,000, plus
out-of-pocket expenses, annually to an advisor group of Holding's majority
shareholder. Certain individuals of the investor's advisor group are members of
Holding's and the Company's respective Boards of Directors.

In connection with Holding's 1995 Management Equity Plan, certain executive
officers of the Company and Holding elected to pay a portion of the purchase
price for their Management Shares by Delivery of a secured promissory note to
Holding. The aggregate principle amount of such Management Notes was $895,376 as
of October 1, 1999. Of this amount, $700,000 is secured by a pledge of a portion
(from 50% to 75%) of the management Shares issued to each executive officer and
is guaranteed by Varian. The balance of $195,376 is secured by a pledge of
approximately 91% of the management Shares issued, but is not guaranteed by
Varian. Outstanding principal under each type of Management Note bears interest
at an annually adjustable rate equal to the "Applicable Federal Rate" in effect
under Internal Revenue Code Section 1274(d) for obligations of a term equal to
the then-remaining term of such note. Recourse by Holding under both type of
Management Notes is limited to the management Shares pledged to secure the
applicable note.

16.  GUARANTEES

Holding has guaranteed CPI's senior debt obligations. Holding has no operations
other than its ownership of CPI. The consolidated balance sheets of CPI as of
October 1, 1999 and October 2, 1998 are substantially identical to that of
Holding and its subsidiaries.



                                     -F-47-
<PAGE>   84

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

                        VALUATION AND QUALIFYING ACCOUNTS
                                 (in thousands)


<TABLE>
<CAPTION>
                                                      Balance at     Charged to                    Balance at
                                                     Beginning of     Costs and                      End of
                          Description                   Period        Expenses      Deductions       Period
                          -----------                ------------    ----------     ----------     ----------
<S>                                                  <C>             <C>            <C>            <C>
53-week period ended October 3, 1997:
    Allowance for doubtful accounts receivable            196            178            (92)            282

52-week period ended October 2, 1998:
    Allowance for doubtful accounts receivable            282            383            (29)            636

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




                                     -F-48-
<PAGE>   85

                                                                     SCHEDULE II
              COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
                                and subsidiaries

                        VALUATION AND QUALIFYING ACCOUNTS
                                 (in thousands)



<TABLE>
<CAPTION>
                                                     Balance at      Charged to                     Balance at
                                                    Beginning of     Costs and                        End of
                          Description                  Period         Expenses       Deductions       Period
                          -----------               ------------     ----------      ----------     ----------
<S>                                                 <C>              <C>             <C>            <C>
53-week period ended October 3, 1997:
    Allowance for doubtful accounts receivable            196            178            (92)            282

52-week period ended October 2, 1998:
    Allowance for doubtful accounts receivable            282            383            (29)            636

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


                                     -F-49-

<PAGE>   86


<TABLE>
<CAPTION>
                                        Exhibit Index
                                         -----------
<S>        <C>
2.1 (1)    Stock Sale  Agreement  between CPI (as successor by merger to CPII  Acquisition  Corp.,
           then known as Communications & Power Industries  Holding  Corporation) and Varian dated
           as of June 9 ,1995.

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

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

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

3.2 (1)    Bylaws of CPI.

3.3 (1)    Certificate of Incorporation of Holding.

3.4 (1)    Bylaws of Holding.

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

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

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

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

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

4.6 (2)    Form of Second  Supplemental  Indenture among CPI,  Holding,  the other  Guarantors and
           U.S. Trust Company of California, N.A., relating to the Notes.
</TABLE>
<PAGE>   87

<TABLE>
<CAPTION>
Exhibit No.                            Description
-----------                            -----------

<S>        <C>
10.1(1)    Credit Agreement among CPI, Holding, CPII Acquisition, the other
           obligors named therein, the lenders named therein and Bankers Trust
           Company, as Agent, dated as of August 11, 1995 (including Annex A
           (Definitions; Rules of Construction) and Annex F (Financial
           Covenants)).

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

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

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

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

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

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

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

10.2(1)    Term A Notes in the amounts of $8,333,333.32, $4,166,666.67,
           $4,166,666.67, $4,166,666.67 and $4,166,666.76 made by CPI in favor
           of Bankers Trust Company, Dresdner Bank AG, First Bank National
           Association, The Nippon Credit Bank, Ltd. and Union Bank,
           respectively, dated as of August 11, 1995.

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

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

10.5(1)    Swingline Note in the amount of $5,000,000 made by CPI in favor of
           Bankers Trust Company dated as of August 11, 1995.
</TABLE>
<PAGE>   88

<TABLE>
<CAPTION>
Exhibit No.                            Description
-----------                            -----------
<S>        <C>

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

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

10.8 (1)    Continuing  Guaranty  made by each of the  Guarantors in favor of the Lenders and Agent under the Senior Credit
            Agreement, dated as of August 11, 1995.

10.10(3)(+) Key Components Supply Agreement between CPI and Varian dated as of August 10, 1995.

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

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

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

10.14 (1)   Sublease  (Portion  of  Building 2 Located on Unit 5, Palo Alto) dated as of August 10,
            1995 between Varian Realty Inc. and CPI.

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

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

10.19 (1)   Shared Use Agreement dated as of August 11, 1995 between Varian (on behalf of itself and its subsidiaries) and CPI (as
            successor by merger to CPII Acquisition Corp.) (on behalf of itself and its subsidiaries).

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.
</TABLE>
<PAGE>   89

<TABLE>
<CAPTION>
Exhibit No.                            Description
-----------                            -----------
<S>        <C>
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).

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

10.34 (1)  Letter from Holding to H.  Frederick  Koehler  dated June 9, 1995  relating to terms of
           employment.

21 (1)     Subsidiaries of CPI and Holding.

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

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

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


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

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

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

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

(+)        Certain portions of this Exhibit have been omitted and filed
           separately under an application for confidential treatment with the
           Securities and Exchange Commission.